The State Trading Corporation of India
Ltd. & Ors Vs. The Commercial Tax Officer, Visakhapatnam & Ors [1963] INSC
157 (26 July 1963)
26/07/1963 SINHA, BHUVNESHWAR P.(CJ) SINHA,
BHUVNESHWAR P.(CJ) DAS, S.K.
GAJENDRAGADKAR, P.B.
SARKAR, A.K.
WANCHOO, K.N.
HIDAYATULLAH, M.
GUPTA, K.C. DAS SHAH, J.C.
AYYANGAR, N. RAJAGOPALA
CITATION: 1963 AIR 1811 1964 SCR (4) 89
CITATOR INFO:
R 1964 SC1451 (10) R 1965 SC 40 (4,6,23) F
1966 SC1436 (5) R 1967 SC 295 (17) OPN 1967 SC1318 (4) RF 1970 SC 82 (5) RF
1970 SC 564 (7) R 1971 SC 870 (7,13) RF 1973 SC 106 (11) MV 1975 SC1331
(127,177) R 1975 SC1737 (2) R 1981 SC1368 (7) RF 1983 SC 937 (12) F 1988 SC1708
(13) D 1989 SC1713 (10)
ACT:
Fundamental Right, Enforcement
of-Corporation, if a citizen entitled to claim fundamental rights-Constitution
of India, Arts. 19(1)(f) and (g), 32.
HEADNOTE:
The State Trading Corporation of India is a
private limited company registered under the Indian Companies Act, 1956, with
its head Office at Delhi and its entire capital is contributed by the
Government of India. The Sales-tax Authorities of the States of Andhra Pradesh
and Bihar sought to assess the Corporation to sales tax under their respective
Sales Tax Acts and issued notices of demand. The Corporation claiming to be an
Indian citizen filed petitions under Art. 32 of the Constitution for quashing
the said proceedings on the ground that they infringed its fundamental rights
under Art. 19(1) (f) and (g) of the Constitution. Preliminary objections having
been taken by the respondents to the maintainability of the said petitions, the
Constitution Bench hearing the matters referred the two following questions for
decision by the special bench.
"(1) Whether the State Trading
Corporation, a company registered under the Indian Companies Act, 1956, is a
citizen within the meaning of Art. 19 of the Constitution and can ask for the
enforcement of fundamental rights granted to citizens under the said article;
and (2) whether the State Trading Corporation is, notwithstanding the formality
of incorporation under the Indian Companies Act, 1956, in substance, a
department -,-id organ of the Government of India with the entirety of its
capital contributed by Government; and can it claim to enforce fundamental
rights under Part III of the Constitution against the State as defined in Art.
12 thereof.
Held, (DAS GUPTA and SHAH JJ., dissenting)
that the answer to the first question must be in the negative.
Per SINHA, C. J., S. K. DAS, GAJENDRAGADKAR,
SARKAR, WANCHoo and Ayyangar JJ. There can be no citizens of India not
mentioned in Part 11 of the Constitution or by the Citizenship Act, 1955. These
provisions are wholly exhaustive and contemplate only natural persons.
Part III of the Constitution makes a clear
distinction between fundamental rights available to "any person" and
those guaranteed 100 to "all citizens", indicating thereby that under
the Constitution all citizens are persons but all persons are not citizens Part
II of the Constitution relating to 'citizenship' is clearly inapplicable to
juristic persons and the provisions of the Citizenship Act, 1955, enacted by
Parliament under Art. 11 of the Constitution, show that such persons are
outside the purview of the Act.
It cannot therefore, be said that either Part
II of the Constitution or the Citizenship Act, 1955, confers the right of
citizenship or recognises as citizen any person other than a natural person.
They do not contemplate a corporation as a citizen.
In none of the relevant decisions this Court
gave its considered judgment on the present issues and the question now raised
are open questions.
Chiranjit Lal Chowdhuri v. Union of India
[1950] S.C.R. 869, Dwarkadas Srinivas of Bombay v. The Sholapur Spinning &
Weaving Co. Ltd. [1954] S.C.R. 674 and Bengal Immunity Co.
Ltd. v. State of Bihar, [1955] 2 S.C.R. 603,
considered.
'Nationality' and 'citizenship' are not
synonymous. A corporation can claim nationality which is ordinarily determined
by the place of its incorporation. But while nationality determines the civil
rights of a natural or artificial person, particularly with reference to
international law, citizenship is intimately connected with civic rights under
municipal law. All citizens are, therefore, nationals of a particular State and
enjoy full political rights but all nationals are not citizens and do not have
full political rights.
It was not correct to say that the word 'citizen'
in Art. 5 was not as wide as in Art. 19 of the Constitution or that Part II of
the Constitution supplemented by the provisions of the Citizenship Act, which
deals with citizens, deliberately left out of account citizenship in relation
to juristic persons. When the Constitution confers any particular right to be
enjoyed by a citizen it uses the words "any citizen" or "all
citizens" in clear contradistinction to those rights which are to be
enjoyed by all, whether citizens or aliens, natural or juristic persons.
There is no reason to think that the word
'citizen' in Art.
19 is used in a different sense from that in
which it is used in Part II of the Constitution.
Per HIDYATULLAH J.-Both the questions must be
answered in favour of the respondents.
Before independence there was no law of
citizenship in India. Under the British Nationality Act, 1948, Indians became
Commonwealth citizens or British subjects without citizenship and were regarded
as potential citizens of India. The Indian Constitution made provision for
citizenship under which certain natural persons alone could be citizens of
India and the Citizenship Act, 1955, excluded persons other than natural
persons from citizenship.
101 It is not correct to say that
corporations were citizens before the Constitution. They enjoyed only such
privileges under the municipal law which that law expressly conferred on them.
The nature and personality of an incorporated
company have their origin in a fiction of law. This personality arises from the
moment of incorporation and from that date the persons subscribing to the
memorandum of association or joining as members become a body corporate. But
they cannot be said to Pool their status and even if all of them are citizens
of India, the Company does not become a citizens of India.
G. E. Rly. v. Turner, (1872) L. R. 8 Ch. App.
152, Salomon V. Salomon & Co. (1897) A. C. 22 and Janson v. Driefontein
Consolidated Mines Ltd., (1902) A. C. 484, referred to.
The seven freedoms guaranteed by Art. 19(1)
arc for the citizens of India. The Constitution in using the word
"person", a word of larger import, in some other places makes its
intention to exclude corporations clear.
Chiranjit Lal Chowdhuri v. Union of India,
[1950] S.C.R.
869, explained.
The precedents of the Supreme Court of the
United States which hold that corporations are citizens of the State of
incorporation for purposes of federal jurisdiction cannot be followed in India.
The diversity of citizenship which has led to such rulings does not exist in
India. As a corporation is a separate entity from its members, it is not
possible to pierce the veil of incorporation to determine the citizenship of
its members in order to give the corporation the benefit of Art. 19.
The State Trading Corporation is not,
therefore, a citizen either by itself or as the aggregate of Indian citizens.
Its Indian nationality is not to be confused
with citizenship of natural persons and the word 'citizen' in Art' 19(1) (f)
and (g) can refer to no other than natural persons. The State Trading
Corporation is really a department of Government behind the corporate veil.
Per DAS GUPTA J.-The first question must be
answered in the affirmative.
It has been repeatedly laid down by this
Court that in interpreting the Constitution a broad and a liberal and not
merely the grammatical view should be taken. A syllogistic or mechanical
approach has always to be avoided, more so when interpreting the Constitution.
The attempt should be to reach the intention of the Constitution makers by
examining the substance and give effect to that intention, if possible.
So judged, it is clear that the Constitution
makers when they used the word 'citizen' in Art. 19 had the intention that at
least a corporation constituted wholly by citizens of India would get 102 the
benefit of the fundamental rights enshrined in that There is -nothing in the
Constitution that stands in the giving all citizens of India, whether forming a
corporation the benefit of Arts. 19(1) (f) and (g).
State of Bombay v. R. M. D. Chamarbaughwala,
I.L.R. Bom.
680, Chiranjit Lal Chowdhuri v. Union of
India, S.C.R. 869, Express Newspapers (P) Ltd. v. Union of India, S.C.R. 12,
Bengal Immunity Co. v. State of Bihar, [1955] 2 S.C.R. 603 and Bombay Dyeing
Manufacturing Co. Ltd. v. State of Bombay, [1958] S.C.R. 112 2, referred to.
The first part of the second question should
be answered in the negative and the second part in the affirmative.
Per SHAH J.-In ascertaining the meaning of
expressions used in a vital document like the Constitution of a
nation,mechanical approach is impermissible. The Constitution is the
declaration of the will of the people and should be interpreted liberally and
not in a narrow or doctrinaire spirit. Such interpretation should be in
accordance with the true purpose and intent as disclosed by the phraseology
understood in its natural signification in the light of its setting and its
dynamic character which is intended to fulfill the aspirations of the people.
Citizenship means the members of a jural
society investing the holder with all the rights and privileges enjoyed by its
nationals and subjecting him to corresponding duties.
Nationality links a person to a State and
ensures his rights in international affairs. While a citizen is a national,
every national is not always a citizen.
Virginia L. Minor v. Reese Happersett,
21Wall. 162: 88 U.S.
627, referred to.
Under the English Common Law which formed the
foundation of the Indian jurisprudence, a company or a corporation aggregate is
a national of the State in which it is incorporated and is clothed with a
personality given by the law of the land, capable of exercising rights arid
entitled to protection a broad.
Janson v. Driefontein Consolidated Mines Ltd.
L. R. (1902) A.C. 492, Attorney-General v. Jewish Colononization Association,
(1901) 1 K.B. 133, Generali v. Salim Cotran, L.R. (1932) A.C. 288, Gasque v.
Commissioner of Inland Revenue, L.R. (1940) 2 K.B. 36 and Kuenigl v.
Donnersmark, L.R. (1955) 1 Q.B. 515, referred to.
So also in India a juridical person is
capable of exercising to the fullest extent a large majority of civil rights
which natural persons may exercise as citizens, its incapacity to exercise
other rights arises from the nature of its personality and constitution and not
from any special restriction imposed upon it. The Constitution, as is apparent
from various other Articles, afforded the widest protection to corporation as
it did to natural persons.
Unless 103 therefore, the language or the
scheme of the Constitution is compulsive, it is impossible to put a limited
connotation on the expression 'citizen' occurring in Art. 19(1).
To say that Arts. 5, 6 and 8 and the law made
under Art. 11 are exhaustive and there can be no citizen except those expressly
covered thereby is to assume that there were no citizens in India before the
Constitution, an assumption which is not warranted either by the language of
the Constitution or the' history of our national evolution. The legislative
history shows that British subjects of Indian origin held the status of
citizens in British India and there was no statute before the Constitution
which indicated even indirectly that a corporation aggregate could not be a
citizen.
Although this Court did not make any definite
expression of opinion, it has consistently assumed that corporations aggregate
are entitled to claim protection under Art. 19(1) as citizens.
Chiranjit Lal Chowdhuri v. Union of India.
[1950] S.C.R. 869, Bengal Immunity Company Ltd. v. State of Bihar [1955] 2
S.C.R. 603, State of Bombay v. R. M. D. Chamar baughwala, [1957] S.C.R. 874 and
State of West Bengal v. Union of India, [1964] 1 S.C.R. 371, referred to.
In numerous cases in this Court it was
assumed, without contest, that a company is a citizen of India and competent to
enforce fundamental rights under Art. 19(1)(f) and (g) of the Constitution.
Case law referred to.
In view of the fact that a company is
invested with important fundamental rights under various other Articles of the
Constitution and it is recognised as a person capable of holding and disposing
of property and carrying on business, commerce and intercourse, it could not be
held that the expression 'citizen' in Art. 19 was intended to be restricted to
a natural person.
A corporation is, however, distinct from its
share-holders and even if all the shareholders are Indian Citizens, its claim
to citizenship cannot be founded on that ground for that would lead to
anomalous results.
Salomon v. Salomon and Co. Ltd. L.R. (1897)
A.C. 22, relied on.
State of Bombay, v. R.M.D. Chamarbaugwala,
I.L.R. [1955] Bom. 680, disapproved.
The question whether a corporation is an
agent or servant of the State must be decided on the facts of each case. In the
absence of any statutory provision, a commercial corporation acting on its
behalf, even if it is controlled wholly or partially by a Government
department, will be presumed not to be a servant or an agent of the State.
where, however, the corporation is performing in substance Governmental, and
not commercial, functions, an inference will readily be made that it is an
agent of the Government.
104 Tamlin v. Hannaford, L.R. (1950) 1 K. B.
18, referred to.
Bank Voor Handel En Scheepvaart N. V. v.
Administrator. of Hungarian Property, L.R. (1954) A.C. 584, held inapplicable.
There is no warrant for the proposition that
a department or an organ of the Union or the State, if it is a citizen, cannot
enforce fundamental rights against the State as defined by Art. 12 of the
Constitution.
ORIGINAL JURISDICTION : Writ Petitions Nos.
202-204 of 1961.
Writ Petition under Art. 32 of the
Constitution of India for enforcement of Fundamental Rights.
M. C. Setalvad, G. S. Pathak, B.
Parthasarthy, B. Dutta, B. Dadachanji O. C. Mathur and Ravinder Narain, for the
Petitioners (in all the petitions).
D. Narasarj Advocate-General for the State of
Andhra Pradesh and T. V. R. Tatachari, for the respondents (in Petitions Nos.
202 and 203 of 1961).
V. K. Krishna Menon, Anil Kumar Gupta, R. K.
Garg, D. P. Singh, M. K. Ramamurthi and S. C. Agarwala, for the respondents (in
Petition No. 204 of 1961).
A. Ranganadham Chetty and A. V. Rangam, for
Intervener No. 1. S. M. Sikri', Advocate-General for the State of Punjab and
Gopal Singh, for Intervener No. 2.
B. Sen, M. K. Banner" and P. K. Bose,
for Intervener No. 3.
J. M. Thakore, Advocate-General for the State
of Gujarat and K. L. Hathi, for Intervener No. 4.
G. C. Kasliwal, Advocate-General for the
State of Rajasthan, S. K. Kapur and K. K. lain, for Intervener No. 5.
July 26, 1963.-The judgment of Sinha C. J.,
S. K. Das, Gajendragadakar, Sarkar, Wanchoo and Ayyangar JJ. was delivered by
Sinha, C. J. Hidayatullah J., delivered a separate opinion. Das Gupta and Shah
JJ. delivered separate dissenting opinions.
SINHA C.J.-The following questions have been
referred to the Special Bench by the Constitution Bench before which these
cases came up for hearing :
(1) whether the State Trading Corporation, a
company registered under the Indian Companies Act, 105 1956, is a citizen
within the meaning of Art.
19 of the Constitution and can ask for the
enforcement of fundamental rights granted to citizens under the said article,
and (2) whether the State Trading Corporation is, notwithstanding the formality
of incorporation under the Indian Companies Act, 1956, in substance a
department and organ of the Government of India with the entirety of its
capital contributed by Government; and can it claim to enforce fundamental
rights under Part III of the Constitution against the State as defined in Art.
12 thereof.
The questions were raised by way of
preliminary objections to the maintainability of the Writ Petitions under Art.
32 of the Constitution.
As the whole case is not before us, it is
necessary to state only the following facts in order to appreciate how the
controversy arises. The State Trading Corporation of India Ltd., and K. B. Lal,
the then Additional Secretary, Ministry of Commerce and Industries' Government
of India, moved this Court under Art. 32 of the Constitution for quashing by a
writ of certiorari or any other appropriate writ, direction or order, certain
proceedings instituted by or under the authority of the respondents,-(1) The
Commercial Tax Officer, Visakhapatnam ; (2) the State of Andhra Pradesh;
and (3) the Deputy Commissioner of Commercial
Taxes, Kakinada. Those proceedings related to assessments of sales tax under
the provisions of the Andhra Pradesh Sales Tax Act. Writ Petitions 202 and 203
of 1961 are between the parties aforesaid. In Writ Petition 204 of 1961, the
parties are the petitioners aforesaid against (1) the Assistant Superintendent
of Commercial Taxes, I/c Chaibasa Sub-Circle, Bihar State; (2) the Deputy
Commissioner of Sales Tax, Bihar, Ranchi; and (3) the State of Bihar. Thus, the
petitioners are the same in all the three cases, but the respondents are the
State of Andhra Pradesh and its two officers in the first two cases and the
State of Bihar and its two officers in the third case.
The first petitioner is a private limited
company registered under the Indian Companies Act, 1956, with its head office
at New Delhi, in May, 1956. The second petitioner is a shareholder in the first
petitioner company. The 8-2 S. C. India/64 106 two petitioners claim to be
Indian citizens as all its shareholders are Indian citizens. Proceedings were
taken for assessment of sales tax, and in due course of those proceedings
demand notices were issued. It is not necessary for the purposes of deciding
the two points referred to us to set out the details of the assessments or the
grounds of attack raised by the petitioners. It is enough to say that the
petitioners claim to be Indian citizens and contend that their fundamental
rights under Art. 19 of the Constitution had been infringed as a result of the proceedings
taken and the demands for sales tax made by the appropriate authorities. When
the case was opened on behalf of the petitioners in this Court, before the
Constitution Bench, counsel for the respondents raised the preliminary
objections which have taken the form now indicated in the two questions,
already set out. The Bench rightly pointed out that those two questions were of
great constitutional importance and should, therefore, be placed before a
larger Bench for determination. Accordingly they referred the matter to the
Chief Justice and this larger Bench has been constituted to determine those
questions.
At the very outset of the arguments, we
indicated that we shall give our decision only on the preliminary questions and
that the decision of the controversies on their merits will be left to the
Constitution Bench.
Before dealing with the arguments at the Bar,
it is convenient to set out the relevant provisions of the Constitution. Part
III of the Constitution deals with Fundamental Rights. Some fundamental rights
are available to "any person", whereas other fundamental rights can
be available only to "all citizens". "Equality before the
law" or "equal protection of the laws" within the territory of
India is available to any person (Art. 14). The protection against the
enforcement of ex-post-facto laws or against double-jeopardy or against
compulsion of -self-incrimination is available to all persons (Art. 20); so is
the protection of life and personal liberty under Art. 21 and protection against
arrest and detention in certain cases, under Art.
22. Similarly, freedom of conscience and free
profession, practice and propagation of religion is guaranteed to all persons.
Under Art. 27, no person shall be compelled to pay; any taxes for the promotion
and maintenance of any 107 particular religious denomination. All persons have
been guaranteed the freedom to attend or not to attend religious instructions
or religious worship in certain educational institutions (Art. 28). And,
finally, no person shall be deprived of his property save by authority of law
and no property shall be compulsorily acquired or requisitioned except in
accordance with law, as contemplated by Art. 31.
These, in general terms, without going into
the details of the limitations and restrictions provided for by the
Constitution, are the fundamental rights which are available to any person
irrespective of whether he is a citizen of India or an alien or whether a
natural or an artificial person. On the other hand, certain other fundamental
rights have been guaranteed by the Constitution only to citizens and certain
disabilities imposed upon the State with respect to citizens only. Article 15
prohibits the State from discriminating against any citizen on grounds only of
religion, race, caste, etc., or from imposing any disability in respect of
certain matters referred to in the Article.
By Art. 16, equality of opportunity in
matters of public employment has been guaranteed to all citizens, subject to
reservations in favour of backward classes. There is an absolute prohibition
against all citizens of India from accepting any tide from any foreign State,
under Art. 18(2), and no person who is not a citizen of India shall accept any
such tide without the consent of the President, while he holds any office of
profit or trust under the State [Art. 18(3)]. And then we come to Art. 19 with
which we are directly concerned in the present controversy. Under this Article,
all citizens have been guaranteed the right :(a) to freedom of speech and
expression;
(b) to assemble peaceably and without arms;
(c) to form associations or unions;
(d) to move freely throughout the territory
of India;
(e) to reside and settle in any part of the
territory of India;
(f) to acquire, hold and dispose of property;
and (g) to practice any profession, or to carry on any occupation, trade or
business.
Each one of these guaranteed rights under
cls. (a) to (g) is subject to the limitations or restrictions indicated in cls
108 (2) to 6) of the Article. of the rights guaranteed to all citizens, those
under cls. (a) to (e) aforesaid are particularly apposite to natural persons
whereas the freedoms under cls. (f) and (g) aforesaid may be equally enjoyed by
natural persons or by juristic persons. Art. 29(2) provides that no citizen
shall be denied admission into any educational institution maintained by the
State or State said on grounds only of religion, race, caste, language or any
of them. This short resume of the fundamental rights dealt with by Part III of
the Constitution and guaranteed either to 'any person' or to 'all citizens'
leaves out of account other rights or prohibitions which concern groups,
classes or associations of persons, with which we are not immediately
concerned. But irrespective of whether a person is a citizen or a non-citizen
or whether he is a natural person or a juristic person, the right to move the
Supreme Court by appropriate proceedings for the enforcement of their
respective rights has been guaranteed by Art. 32.
It is clear on a consideration of the
provisions of Part III of the Constitution that the makers of the Constitution
deliberately and advisedly made a dear distinction between fundamental rights
available to 'any person' and those guaranteed to 'all citizens'. In other
words, all citizens are persons but all persons are not citizens, under the
Constitution.
The question next arises: What is the legal
significance of the term "citizen"? It has not been defined by the
Constitution. Part II of the Constitution deals with 'Citizenship', at the
commencement of the Constitution.
Part 11, in general terms, lays down that
citizenship shall be by birth, by descent, by migration and by registration.
Every person who has domicile in the
territory of India shall be a citizen of India, if he was born in the territory
of India or either of whose parents was so born or who has been ordinarily
resident in the territory of India for not less than five years immediately
preceding the commencement of the Constitution (Art 5). Secondly, any person
who has migrated to the territory of India from the territory included in
Pakistan shall be deemed to be a citizen of India, if he satisfied the
conditions laid down in Art. 6(a) and 6(b) (i). Any 109 person who. does; not
come within the purview of Art. 6(a), and 6(b))(i), but who has. migrated to
India and has been registered, as, laid down in Art. 6(b)(ii), shall also, be
deemed to be a citizen of India. Similarly, a person of Indian origin,.
residing outside India, shall be deemed to be a citizen of India if he has been
registered as such by an accredited diplomatic or consular, representative of
India in the country where he has been residing (Art. 8).
Persons coming within the purview of Arts. 5,
6 & 8, as aforesaid, may still not be citizens of India if they have
migrated from India to Pakistan, as laid down in Art. 7, or if they have
voluntarily acquired the citizenship of any foreign State (Art. 9). Those, in
short, are the provisions of the Constitution in Part II relating to
'Citizenship?, and they are clearly inapplicable to juristic persons. By Art.
11, the Constitution has vested Parliament with the power to regulate, by
legislation, the rights to citizenship. It was in exercise of the said: power
that Parliament has enacted the Citizenship Act (LVII of 1955).
It is absolutely clear on a reference to the
provisions of this statute that a juristic person is outside the purview of the
Act. This is an act providing for acqusition and termination of Indian
citizenship. The Constitution in Part 11, as already indicated, has determined
who are Indian citizens at the commencement of the Constitution. As the
Constitution does not lay down any provisions with respect to acquisition of
citizenship or its termination or other matters relating to citizenship, after
the commencement of the Constitution, this law had to be enacted by way of
legislation supplementary to the provisions of the Constitution as summarised
above. The definition of the word "person" in s. 2(1)(f) of this Act
says that the word "person" in the Act "does not include any
company or association or body of individuals, whether incorporated or
not". Hence, all the subsequent provisions of the Act relating to
citizenship by birth (s. 3), citizenship by descent (s. 4), citizenship by registration
(s. 5), citizenship by naturalisation (s. 6) and citizenship by incorporation:
of territory (s. 7) have nothing to do with a
juristic person. It is thus absolutely clear that neither the provisions of the
Constitution, Part II, nor of the Citizenship Act aforesaid, either confer the
right of citizenship on, or 110 recognise as citizen, any person other than a
natural person. That appears to be the legal position, on an examination of the
relevant provisions of the Constitution and the Citizenship Act. But it was
contended that this Court had expressed itself to the contrary in certain
decisions, and some of the High Courts have also taken a contrary view' which
we may now proceed to consider. In, what is now known as the first Sholapur
case, Chiranjit Lal Chowdhuri' v. The Union of India(1), Mukherjea, J.,
speaking for the majority of the Court, made the following observations at page
898, which seem to countenance the contention raised on behalf of the
petitioners that fundamental rights are available to juristic persons also, as
to citizens :
"The fundamental rights guaranteed by
the Constitution are available not merely to individual citizens but to
corporate bodies as well except where the language of the provision or the
nature of the right compels the inference that they are applicable only to
natural persons. An incorporated company, therefore, can come up to this Court
for enforcement of its fundamental rights......" Though the observations
quoted above would seem to lend countenance -to the contention raised on behalf
of the petitioners, they really do not determine the controversy one way or the
other. In that case, a shareholder of the Sholapur Spinning and Weaving Company
made an application under Art. 32 of the Constitution for a declaration that
the Act impugned in that case was void, as also for the enforcement of his
fundamental rights by a writ of mandamus against the Government, and the
directors of the company, restraining them from exercising any power under the
Act.
It is not necessary to refer to the details
of the controversy in that case because it is plain that it was not the company
which was seeking the enforcement of its fundamental rights, if any, but only a
shareholder. As a matter of fact, the company opposed the petition under Art.
32 of the Constitution. It is manifest that
the observations quoted above were purely obiter and did not directly arise for
decision of the Court.
Then we come to the second Sholapur case,
reported (1) [1950] S.C.R. 869.
111 as Dwarkadas Shriniwas of Bombay v. The
Sholapur Spinning & Weaving Co. Ltd.(1). In the first-Sholapur case, this
Court had been moved under Art. 32 of the Constitution by an individual
shareholder, as aforesaid, for enforcement of his alleged fundamental rights.
That petition, by majority judgment, stood dismissed. The second case arose out
of a suit instituted by a preference shareholder, in a representative capacity
on behalf of himself -and other preferential shareholders, for a declaration
that the law which had been impugned in the previous case was ultra Vires. This
Court held that the law impugned had authorised, in effect, the deprivation of
the property of the company within the meaning of Art. 31 of the Constitution,
without compensation, and had thus violated the fundamental rights of the
company under Art. 31(2) of the Constitution.
It will thus -appear that the decision of
this Court proceeded on an examination of the provisions of Art. 31, which is
not confined to citizens only and has reference also to the property of
"any person". But there are observations made in the course of the
judgment which would support the view propounded on behalf of the respondents.
At page 694, Mahajan J., while discussing the
scope and effect of the provisions of the Constitution in Part 111, with
particular reference to Arts. 19 and 31, made the following observations :"In
considering Article 31 it, is significant to note that it deals with private
property of persons residing in the Union of India, while Article 19 only deals
with citizens defined in Article 5 of the Constitution. It is thus obvious that
the scope of these two articles cannot be the same as they cover different
fields. It cannot be seriously argued that so far as citizens are concerned,
freedoms regarding enjoyment of property have been granted in two articles of
the Constitution, while the protection to property qua all other persons has
been dealt with in Article 31 alone. If both articles covered the same ground,
it was unnecessary to have two articles on the same subject." These
observations would appear to support, the view that Art. 31 has reference to
property of "persons" and (1) [1954] S.C.R. 674.
112 Art. 19 deals with fundamental rights of
"citizens" as described in Part II of the Constitution.
Bose J, in the course of his judgment, at
page 732 observed as follows:
"Article 19(1) (f) confers a certain
fundamental freedom on all citizens of India, namely, the freedom to acquire,
hold and dispose of property. Article 31(1) is a sort of corollary, namely,
that after the property has been acquired it cannot be taken away save by
authority of law. Article 31 is wider than Article 19 because it applies to
everyone and is not restricted to citizens. But what Article 19(1)(f) means is
that whereas a law can be passed to prevent persons who are not citizens of
India from acquiring and holding property in this country no such restriction
can be placed on citizens. But in the absence of such a law non-citizens can
also acquire property in India and if they do then they cannot be deprived of
it any more than citizens, save by authority of law." But it has got to be
said that those observations, though they may appear to support the contention
raised on behalf of the respondents, were not made directly with reference to
the question now before us, namely, whether a corporation could claim the
status of a citizen. That question did not arise in that case also because the
company, as such, was not seeking any relief. Even if the company were
interested in seeking relief under Art. 31 of the Constitution, it could do so
without having the status of a citizen.
In the case of The Bengal Immunity Company
Limited, v. The State of Bihar,(1) the appellant company had moved the High
Court under Art. 226 of the Constitution for certain reliefs against the
provisions of the Bihar Sales Tax Act, but this Court (per S.R. Das, Acting
C.J. at page 618 and per Venkatarama Ayyar J. at pages 765-766) left the
question open and granted relief to the company without deciding that question.
This case only serves the purpose of showing that the question now before us
was still an open one and that this Court had, not given its (1) [1955] 2
S.C.R. 603.
113 considered judgment on the issue now
before us.
It is, therefore, not necessary to refer to
certain decisions` of the Madras, Bombay and Calcutta High 'Courts as they
cannot be decisive one way or the other in the absence of a clear decision of
this Court. We have, therefore, to examine the legal position afresh on the
footing that it is still an open question.
On an examination of the relevant provisions
of the Constitution and the Citizenship Act aforesaid, we have as already
indicated, reached the conclusion that they do not contemplate a corporation as
a citizen. But Mr. Setalvad, appearing on behalf of the petitioners, contended
that Part II of the Constitution relating to citizenship is not relevant for
our purposes because it does not define "a citizen" nor does it deal
with the totality of "citizenship". It was further submitted that the
same is the position with reference to the provisions of the Citizenship Act.
It is common ground, therefore, that the constitutional and the statutory
provisions discussed above have no reference to juristic persons. But even so,
it was contended, we have to review the legal position in the light of the
preexisting law, i.e., the Common Law, which it was claimed, was preserved by
Art. 372 of the Constitution. In this connection, reference was made to
Halsbury's Laws of England, Vol. 6, 3rd Edition, pages 113-114, para 235, which
lays down that, on incorporation, a company is a legal entity the nationality
or domicile of which is determined by its place of registration. Reference was
also made to Vol.
9 of Halsbury's Laws of England, page 19,
paragraphs 29-30, which say that the concept of nationality is applicable to corporations
and it depends upon the country of its incorporation. A corporation
incorporated in England has a British nationality, irrespective of the
nationality of its members. So far as domicile is concerned, the place of
incorporation fixes its domicile, which clings to it throughout its existence.
In this connection, reference was made to the case of Janson v. Driefontain
Consolidated Mines(1) for the proposition that a company may be regarded as a
national of the country where it was incorporated, notwithstanding (1) [1902]
A.C.1,484, 497, 501, 505.
114 the nationality of its shareholders. It
is -not necessary to refer to other decisions, because the position is absolutely
clear that a corporation may claim a nationality which ordinarily is determined
by the place of its incorporation. But the question still remains whether
" nationality" and "citizenship" are interchangeable terms.
"Nationality" has. reference to the
rural relationship which may arise for consideration under international law.
On the other hand "citizenship" has reference to the jural
relationship " under municipal law. In other words, nationality determines
the civil rights of a person, natural or artificial, particularly with
reference to international law, whereas citizenship is intimately connected
with civic rights under municipal law. Hence, all citizens are nationals of a
particular State, but all nationals may not be citizens of the State. In other
words, citizens, are those persons who have full political rights as distinguished,
from nationals, who may not enjoy full political rights and are still domiciled
in that country (vide P. Weis-Nationality and Statelessness in International
Law pp. 4-6; and Oppenheim's International Law, Vol. 1, pp.
642, 644).
In our opinion, it is not correct to say, as
was contended on. behalf of the petitioners, that the expression
"citizen" in Art. 5 is not as -wide as the same expression used in
Art. 19 of the Constitution. One could understand the argument that both the
Constitution and the Citizenship Act have not dealt with juristic persons at
all, but it is more difficult to accept the argument that the expression
"citizen" in Part 11 of the Constitution is not conterminous with the
same expression in Part III of the Constitution.
Part II of the Constitution, supplemented by
the provisions of the Citizenship Act (LVII of 1955) deals with
"citizens" and it is not correct to say that citizenship in relation
to juristic persons was deliberately left out of account so far as the
Constitution and the Citizenship Act were concerned.
On the other hand, the more reasonable view
to take of the provisions of the Constitution is to say that whenever any
particular right was to be enjoyed by a citizen of India, the Constitution
takes care to use the expression "any citizen" or "all
citizens", in clear contradistinction to those rights 115 which were to be
enjoyed by all, irrespective of whether they were citizens or aliens, or
whether they were natural persons or juristic persons On the analogy of the
Constitution of the United States of America, the equality clause in Art. 14
was made available to "any person". On the other hand, the protection
against discrimination on denominational grounds (Art. 15) and the equality of
opportunity in matters of public employment (Art. 16) were deliberately made
available only to citizens. In this connection, reference may be made to the
Constitution of the United States of America(1) "Corporations Citizens of
the United States within the meaning of this article must be natural and not
artificial persons ; a corporate body is not a citizen of the United
States." (p. 965) "Persons" defined "Notwithstanding the
historical controversy that has been waged as to whether the framers of the
Fourteenth Amendment intended the word, "persons" to mean only
natural persons, or whether the word, "persons" was substituted for
the word "citizen" with a view to protecting corporations from
oppressive State legislation, the Supreme Court, as early as the Granger cases,
decided in 1877, upheld on the merits various State laws without raising any
question as to the status of railway corporation-plaintiffs to advance, due
process contentions. There is no doubt that a corporation may not be deprived
of its property without due process of law ; and although prior decisions have
held that the "liberty" guaranteed by the Fourteenth Amendment is the
liberty 'of natural, not artificial, persons, nevertheless a newspaper
corporation was sustained, in 1936, in its objection that a State law deprived
it of liberty of press. As to the natural persons protected by the due process
clause, these include all human beings regardless, of race, colour or
citizenship." (p. 981) We have already referred, in general terms, to
those Senate Document No. 170, 82d. Congress, Ed. Edward S.
Corwin, 116 provisions of the Constitution,
Part III, which guarantee certain rights to "all persons" and the
other provisions of the same part of the Constitution relating to fundamental
rights available to 'citizens' only, and, therefore, it is not necessary to
recount all those provisions. It is enough to say that the makers of the -Constitution
were fully alive to the distinction between the expressions "any
person" and "any citizen", and when the Constitution laid down
the freedoms contained in Art. 19(1)(a)-(g), as available to "all
citizens", it deliberately kept out all noncitizens.
In that context, non-citizens would include
aliens and artificial persons. In this connection, the following statement in
Private International Law by Martin Wolff is quite apposite :"It is usual
to speak of the nationality of legal persons, and thus to import something that
we predicate ,of natural persons into an area in which it can be applied by
analogy only. Most of the effects of being an 'alien' or a 'citizen' of the
State are inapplicable in the field of corporations ; duties of allegiance or
military service, the franchise and other political rights do not exist."
(p. 308) This apart, it is necessary to refer to another aspect ,of the
controversy. It was argued on behalf of the petitioners that the distinction
made by the Constitution between "persons" and "citizens"
is not the same thing as a distinction between natural and juristic persons,
and that as "persons" would include all citizens and non-citizens,
natural and artificial persons, the makers of the Constitution deliberately
left artificial persons out of consideration because it may be that the
pre-existing law -was left untouched. It is very difficult to accept the
contention that when the makers of the Constitution -were at pains to lay down
in exact terms the fundamental rights to be enjoyed by "citizens" and
those available to all "persons", they did not think it necessary or
advisable clearly to indicate the classes of persons who would be included
within the expression " citizens". On the other hand, there is clear
indication in the provisions of Part III of the Constitution itself that they
were fully cognizant of the provisions ,of the Constitution. of the United
States of America, 117 where the Fourteenth Amendment (s. 1) clearly brings out
the antithesis between the privileges or immunities of citizens of the United
States and life, liberty or property of any person, besides laying down who are
the citizens of the United States. Section I aforesaid is in these terms and
brings out the distinction very clearly :"All persons born or naturalised
in the United States, and subject to the jurisdiction thereof, are citizens of
the United States and of the State wherein they reside. No State shall make or
enforce any law which shall abridge the privileges or immunities of citizens of
the United States ; nor shall any State deprive any person of life, liberty, or
property, without due process of law ; nor deny to any person within its
jurisdiction the equal protection of the laws." The question may be looked
at from another point of view.
Art. 19 lays down that "all
citizens" shall have the right to freedoms enumerated in cls. (a) to (g).
Those freedoms, each and all of them, are available to "all
citizens". The Article does not say that those freedoms, or only such of them
as may be appropriate to particular classes of citizens, shall be available to
them. If the Court were to hold that a corporation is a citizen within the
meaning of Art. 19, then all the rights contained in cls. (a) to (g) should be
available to a corporation.. But clearly some of them, particularly those
contained in cls. (b), (d) and (e) cannot possibly have any application to a
corporation. It is thus clear that the Tights of citizenship envisaged in Art.
19 are not wholly appropriate to a corporate body. In other words,, the rights
of citizenship and the rights flowing from the nationality or domicile of a
corporation are not conterminous. It would thus appear that the makers of the
Constitution had altogether left out of consideration juristic persons when
they enacted Part II of the Constitution relating to "citizenship",
and made a clear distinction between "persons" and
"citizens" in Part III of the Constitution. Part III, which proclaims
fundamental rights, was very accurately drafted, delimiting those rights like
freedoms of speech and expression, the right to.
118 assemble peaceably, the right to practise
any profession, etc., as belonging to "citizens" only and those more
general rights like the right to equality before the law, as belonging to
"all persons".
In view of what has been said above, it is
not necessary to refer to the controversy as to whether there were any citizens
of India before the advent of the Constitution. It seems to us, in view of what
we have said already as to the distinction between citizenship and nationality,
that corporations may have nationality in accordance with the country of their
incorporation; but that does not necessarily confer citizenship on them. There
is also no doubt in our mind that Part 11 of the Constitution when it deals
with citizenship refers to natural persons only. This is further made
absolutely clear by the Citizenship Act which deals with citizenship after the
Constitution came into force and confines it only to natural persons. We cannot
accept the argument that there can be citizens of this country who are neither
to be found within the four corners of Part II of the Constitution or within
the four corners of the Citizenship Act. We are of opinion that these two
provisions must be exhaustive of the citizens of this country, Part II dealing
with citizens on the date the Constitution came into force and the Citizenship
Act dealing with citizens thereafter. We must, therefore, hold that these two
provisions are completely exhaustive of the citizens of this country and these
citizens can only be natural persons. The fact that corporations may be
nationals of the country for purposes of international law will not make them
citizens of this country for purposes of municipal law or the Constitution. Nor
do we think that the word "citizen" used in Art. 19 of the
Constitution was used in a different sense from that in which it was used in
Part II of the Constitution. The first question, therefore, must be answered in
the negative.
In view of this answer, we do not consider it
necessary to answer the second question as that would have arisen only if the
first question had been answered in the affirmative.
Let the cases go back to the Bench for
hearing on merits with this opinion. Costs of the hearing before the special
Bench will be dealt with by the Bench which ultimately hears and determines the
controversy.
.lm15 HIDAYATULLAH J.-Two questions have been
referred to this Bench for opinion. They are :
(1) Whether the State Trading Corporation, a
Company registered under the Indian Companies Act, 1956, is a citizen within
the meaning of Article 19 of the Constitution and can ask for the enforcement
of fundamental rights granted to citizens under the said Article ; and (2)
Whether the State Trading Corporation is notwithstanding the formality of
incorporation under the Indian Companies Act 1956, in substance a department
and organ of the Government of India with the entirety of its capital
contributed by Government ; and can it claim to enforce fundamental rights
under Part III of the Constitution against the State as defined in Article 12
thereof ? The State Trading Corporation has been assessed to sales tax by the
Commercial Tax Officer, Vishakhapatnam and a demand has been made upon it. By
this petition under Article 32 of the Constitution it challenges the demand on
the ground inter alia that the impugned order and the demand for the tax
infringe its fundamental rights which are guaranteed to citizens by Art. 19
sub-clauses (f) and (g) and these sub clauses read :
Art. 19(1). All citizens shall have the right
(f) to acquire, hold and dispose of property;
(g) to practice any profession, or to carry
on any occupation, trade or business.
The State Trading Corporation claims to be a
citizen for the application of these sub-clauses, which fact being disputed on
the other side, has given rise to the two questions above set out. As the
questions amply indicate, the share capital of the State Trading Corporation is
entirely contributed :by the Central Government. The shares are held by the
President of India and two Secretaries to Government.
The State of Andhra Pradesh, therefore,
denies that the State Trading Corporation being an artificial person is a
citizen and consequently contends that Art. 19 is inapplicable because the word
'citizen' in the article refers 120 to natural persons. Additionally, it
contends that being a department of Government, the State Trading Corporation
cannot claim protection of Art. 19 against an action of the State.
Mr. Setalvad in formulating the grounds on
which he rests the claim of the State Trading Corporation to citizenship,
points out that the Constitution does not define the word 'citizen', that Part
11 of the Constitution which deals with citizenship is not material inasmuch as
it is concerned with natural persons only and is not exhaustive and that the
Citizenship Act (LVII of 1955) which provides for certain matters relating to
citizenship but defines the word 'person' so as to exclude artificial persons
like corporations aggregate, cannot also be regarded as exhaustive. He thus
contends that corporations aggregate which, according to him, were citizens
before the Constitution and the Citizenship Act, continue to enjoy the
privileges of citizens, one of which is the guarantee in Article 19. In support
of his submission that corporations were and continue to be citizens, he relies
upon the fact that corporations possess a nationality and claims that in this
connection 'nationality' and 'citizenship' bear the same meaning. He relies
upon the observations of Mukherjea, J. (as he then was), in Chiranjit Lal
Chowdhuri v. The Union of India(1) where the learned Judge observed obiter :
"The fundamental rights guaranteed by
the Constitution are available not merely to individual citizens but to
corporate bodies as well except where the language of the provision or the
nature of the right compels the inference that they are applicable only to
natural persons. An incorporated, company, therefore, can come this Court for
enforcement of its fundamental rights and so may the individual shareholders to
enforce their own ; but it would not be open to an individual shareholder to
complain of an Act which affects the fundamental rights of the company except
to the extent that it constitutes an infraction of his own rights as
well." Mr. Setalvad also refers to other cases in which, though the point
was not decided, several corporations claimed the (1) [1950] S.C.R. 869, 898.
121 protection of Article 19 and no objection
was raised.
Lastly, he contends that the word 'citizen'
should be liberally construed to include a corporation aggregate which consists
of Indian citizens only. On the second question he contends that a company has
an existence which is independent of its members and the State Trading
Corporation cannot be equated with the shareholders or the Government since the
corporate veil cannot be allowed to be pierced.
He points out that there are several States in
our Republic and there is a great danger of one. Government stifling the
trading activities of another Government either by law or executive action
against which Article 19 is the only effective safeguard. He submits that it
could not have been intended that while every individual citizen should be
protected, a group of citizens, should by mere incorporation, lose the benefits
of the guarantee in Article 19.
We are dealing here with an incorporated
company. The nature of the personality of an incorporated company which arises
from a fiction of law, must be clearly under stood before we proceed to.
determine whether the word 'citizen' used in the Constitution generally or in
Article 19 specially, covers an incorporated company. Unlike an unincorporated
company, which has no separate existence and which the law does not distinguish
from its members an incorporated company has a separate existence and the law
recognises it as a legal person separate and distinct from its members. This
new legal personality emerges from the moment of incorporation and from that
date the persons subscribing to the memorandum of association and other persons
Joining as members are regarded as a body corporate or a corporation aggregate
and the new person begins to function as an entity. But the members who form
the incorporated company do not pool their status or their personality. If all
of them are citizens of India the company does not become a citizen of India
any more than if all are married the company would be a married person. The
personality of the members has little to do with the persona of the
incorporated company. The persona that comes into being is not the aggregate of
the personae either in law or in metaphor. The corporation really has no
physical existence ; it is a mere 'abstraction of law' as Lord Selborne
described it in G. E. Rly. v. 9-2 S. C. India/64 122 Turner(1), or as Lord
Macnaghten said in the well-known case of Salomon v. Salomon & Co. (2) it
is "at law a different person altogether from the subscribers to the
memorandum of association." This distinction is brought home if one
remembers that a company cannot commit crimes like periury, bigamy or capital
murder'. This persona dicta being a creature of a fiction, is protected by
natural limitations as pointed out by Palmer in his Company Law (20th edn.) p. 130
and which were tersely summed up by counsel in R. v. City of London(3) when he
asked "Can you hang its common seal?". It is true that sometimes the
law permits the corporate veil to be lifted, but of that later.
There is a rule of English Law that a company
or an incorporated corporation has a nationality and this nationality is
determined by the law of the country in which it is incorporated. Mr. Setalvad
thus begins his contention by citing certain obiter statements from Janson v.
Driefontein Consolidated Mines Ltd.(4) such as :
"I assume that the corporation...... was
to all intents and purposes in the position of a natural born subject of the
late South African Republic." (Lord Macnaghten-p. 497) "I think it
must be taken that the respondent company was technically an alien and became,
on the breaking out, of hostilities between this country and South African
Republic an alien enemy". (Lord Davey-p. 498) "The company must clearly
be treated as a subject of the Republic notwithstanding the nationality of its
shareholders." (Lord Brampton-p. 501) He contends that there is no
difference between 'nationality' and "citizenship" and the two words
are synonymous and relies upon the following passage from Weis on Nationality
and Statelessness in International Law (1956) pp. 4-5"One of the terms
frequently used synonymously with nationality is citizenship.
Historically, this is correct for States with
the Roman conception of nationa(1) [1872] L.R. 8 Ch. App. 152. (2) [1897] A.C.
22, 51.
(3) [1632] 8 St. Tr. 1087, 1138. (4 ) L.R. r
1902 1 A.C. 492.
123 lity, but not for States with the feudal
conception of nationality, where citizenship is used to denote not political
status but membership of a local community. It has, however, become usual to
employ the term citizen instead of subject in republican Statesincluding common
law countries such as the United States ; he who before was a 'subject of the
King' is now a 'citizen of the State' and in that sense and in those States the
terms 'nationality' and 'citizenship' must be regarded as synonymous." It
is, therefore, contended somewhat syllogistically that all incorporated
corporations have the nationality of the State under the laws of which they are
incorporated, that nationality is synonymous with citizenship and therefore
incorporated companies are citizens. From this it is but a mere step, which is
also taken, that incorporated companies in India were and still are citizens
and that the Constitution and the Citizenship Act have nowhere deprived than of
this citizenship or of the right to protect themselves by invoking Article
19(1) (f) and (g). Alternatively it is contended that if all the members of the
Corporation are Indian citizens then the Corporation as a whole must be a
citizen, for the whole cannot be different from its parts.
Both the arguments involve fallacies. The
first assumes that 'nationality' of corporations and citizenship of natural
persons are the same concepts and caps it with the fallacy of ignorantio
elenchi which in English is called the fallacy of irrelevant conclusion because
instead of proving that corporations are citizens, it is sought to be shown
that they ought to be citizens for the remedy is so good and effective. The
second involves the fallacy of petition principle because it tends to beg the
question and founds a conclusion. on a basis that as much needs to be proved as
the conclusion itself. In my opinion, the State Trading Corporation cannot be
said to be a citizen either by itself or by taking it as the aggregate of
citizens, that nationality of a corporation is a different concept not to be
confused with citizenship of natural persons,that the word "citizen"
in Art. 19(1) sub-clauses (f) and (g) refers to a natural person, that State
Trading Corporation is really a Department of Government behind the corporate
veil and that for all these 124 reasons the two questions must be answered in
favour of the objectors. I shall now make good these conclusions with reasons.
Article 19 uses the word 'citizen' while the
word 'person' is used in some other articles in Part III notably Art. 14
(creating equality before the law), Art. 21 (protection of life and personal
liberty). By Art. 367, (unless the context otherwise requires) the General
Clauses Act, 1897 applies to the interpretation of the Constitution. The word
'citizen' is not defined in the Constitution or the General Clauses Act but the
word 'person' is defined in the latter to include 'any company or association
or body of individuals whether incorporated or not.' The word"person"
therefore, conceivably bears this extended meaning at least in some places in Part
III of the Constitution. But it is not necessary to determine where in the
Constitution the word 'person' includes a company etc. because that word has
not been used in Article 19. The claim of corporations aggregate, like the
petitioner, to the benefits which Art.
19 gives, must depend on whether the word
'citizen' which is actually used can bear a similar enlarged meaning. Mr. Setalvad
is right in contending that use of the word 'person' with an enlarged meaning
in some places and of the word 'citizen' in other places does not by itself
prove that artificial persons are outside the meaning of the word 'citizen'.
The contrast may not be between natural and artificial persons so much as
between citizens and noncitizens, and it is possible that where the benefit is
intended to go to noncitizens, a word of wide meaning is used and where the
benefit is meant for citizens only the word 'citizen' is used. It is true that
the word 'citizen' cannot include an enemy or an alien while the more general
word 'person' may but that does not answer the question whether the word
citizen' can include a company or association or body of individuals, to borrow
the words of the definition. The answer to that question must depend, as
already pointed out, on the connotation of the word 'citizen' which must be
found out.
In attempting to determine whether the word
'citizen' in Art. 19 denotes only a natural person or includes a company etc.,
we must turn first to the Constitution to see if the use of the word 'citizen'
or citizenship in any other 125 place bears the extended meaning or throws any
light on this problem. The word 'citizen' is used in 29 places and the word
'citizenship' in 6 places. These words are also used in headings to Chapters
and marginal notes but these may be ignored. It is worth inquiring if there is
any place at all other than Art. 19 where not only a natural person but also an
artificial person is meant. The word first occurs in the preamble thus "We
the people of India having solemnly resolved to secure to all its citizens
justice, social, economic and political Liberty of through, expression, belief,
faith and worship ;
Equality of status and of opportunity; and to
promote among them all Fraternity assuring the dignity of the individual and
the Nation," etc.
'Liberty of thought, expression, belief,
faith and worship, equality of status' and 'dignity of the individual are
expressions appropriate to natural persons and not companies, associations and
other corporations aggregate and the word 'citizen' in the preamble refers to
individuals for whom the Constitution was being made. In this connection, it
must be remembered that a Constitution is a bond between the citizens and the
administration and regulates their respective actions. It is as Ahrens defined
it :
"L.' ensemble des institutions et des
lois fondamentales, destine eargler l'action de l'administration et de tous les
cityens.
(Ahren : Course de Droit Naturel & C. iii
p. 380) (The body of institutions and fundamental law designed to regulate the
action of the Administration and all the citizens).
The preamble in solemn words sums up what is
later provided in the Constitution. 'Citizens' in the preamble mean those
individuals who under the Constitution are guaranteed civic rights in the body
politic that is India and who can hold public offices and elect their
representatives to Parliament and Assemblies of the people. They are persons
who were declared citizens on the inauguration of the Constitution and those on
whom the rights of citizens were conferred and on whom they may 126 be
conferred by law. of course the Constitution also confers some rights on aliens
and assists and protects them but the guarantee in the preamble is to the
citizens alone that is individuals who enjoy full civic rights in the body
politic.
Then follows a special chapter entitled
"Citizenship". That part contains seven Articles. Art. 5 spoke at the
commencement of this Constitution. That article uses the word 'person' but the
context shows that only natural persons were meant. Citizenship was conferred
on every person who had his domicile in the territory of India and (a) who was
born in the territory of India ; or (b) either of whose parents was born in the
territory of India or (c) who has been ordinarily resident in the territory of
India for not less than five years immediately preceding such commencement.
The reference to the birth of the person or
of Ms parents clearly shows that only natural persons were meant because
corporations though born in a metaphorical sense do not have parents. By the
same token Art. 6 also refers to natural persons. Articles 7, 8, 9 and 10 so
clearly speak of a natural person as to need no elaboration. That leaves Art.
11 which gives Parliament the power to make
laws for the acquisition and termination of citizenship, and all other matters
relating to citizenship. That article reaffirms the power which is given to
Parliament by Entry 17 of List I of Schedule VII of the Constitution. As we
shall see presently, the Citizenship Act of 1955 expressly excludes companies,
etc. from its provisions. The power conferred by Art. 11 or Entry No. 17 may
give rise hereafter to the question whether Parliament can invest corporations
institutions, trusts, funds, ships or airplanes with citizenship but till
Parliament does so there is nothing in Part 11 to indicate that the words
'citizen' and 'citizenship' were used to include any of them.
In the fourth part which is entitled
'Directive Principles' the word 'citizen' is used twice. In Art. 39 it is qualified
by the words 'men and women' which addition tells its own story. In Article 44
the State is asked to endeavour to secure a uniform Civil Code for all citizens
and the word plainly means men and women because it is impossible to think that
the Constitution is thinking of a uniform Civil Code for corporations. In the
other parts of the Constitution 'citizenship' is a condition precedent for some
office, post or privilege. The President, the Vice President, the Governors,
the Members of Parliament and the Legislative Assemblies, the judges of the
Supreme Court and High Courts must be citizens. Members of Parliament and
Legislatures cease to be members if they cease to be citizens of India or
acquire the citizenship of other countries. The words 'citizen' and
'citizenship' thus refer to natural persons because these offices cannot be
held by corporations aggregate. Art. 326 says that every citizen 21 years in
age has a vote. This means only a natural person.
There remains only Part III entitled
'Fundamental Rights'.
In Articles 15 and 16, the word clearly means
a natural person. The words religion, race, caste, sex, descent, Place of birth
and residence mark out a human being. In Art. 18, which mentions titles, a
natural person is again meant because titles are ordinarily conferred on
individuals. In Art. 29(1), where citizens residing in the territory of India
having distinct language, script or culture of their own have been given a
right to preserve the same, the word definitely refers to natural persons. In
Art. 29(2) entrance to educational institutions is guaranteed to citizens and
the entrant can only be a natural person and not a corporation.
The above analysis shows that in 34 places,
the words citizen' and 'citizenship' refer to natural and not artificial
persons. The question is whether in the thirty fifth place the word is meant to
include corporations aggregate. For this purpose we must ascertain if there is
anything special which points to a different use of the word. Sub-clauses (a)
to (e) of Art. 19 contemplate natural persons. The claim is that the word
'citizen' must bear a different meaning in respect of clauses (f) and (g)
because corporations acquire, hold and dispose of property and carry on trade
or business. It is argued that if several citizens carry on business together
as an incorporated company they cannot lose the guarantee which is given to
citizens, and we are invited to give a meaning to the word which is wide enough
to include companies. It has been shown above that the way in which the words
'citizen' and 'citizenship' 128 have been used in the Constitution goes to show
that such was not the intention at least in 34 other places. It may however be
conceded that this is not decisive and if corporations can possess citizenship
there is no reason for not interpreting the Constitution liberally to give them
the benefits of clauses (f) and (g) of Art. 19(1). For this purpose it is
necessary to find out what is meant by 'citizen and citizenship' generally and
to trace historically the concept of citizenship to see if that concept
included at any time artificial persons like corporations so that the word can
be said to be intended to bear such a meaning.
The word 'citizen' which is used in Art. 19
of the Constitution has not been defined. Its meaning in the context of Art..
19 must be found out. If it bore the same meaning as in the other parts of the
Constitution, it would mean a member, born or naturalised, of the State, on
which the Constitution or a law of Parliament confers citizenship.
Is there in law a citizenship of a group of
persons who may be all citizens or some of whom may be non-citizens? The answer
is that the word in its normal meaning does not admit "bulk
citizenship" which is the only way to describe it.
Salmond in an article on "Citizenship
and Allegiance" 19011902 Law Quarterly Review Part I pp. 270-82, says that
the word is derived from the Latin 'civitas' and 'civis'. More directly, of
course, the root is in the French words 'citoyen' or 'citeyen'. From the
earliest times, the concept of citizenship concerned natural persons and not
groups of persons. In ancient Greece, according to Aristotle, the population of
Attica was divided into groups which were brotherhoods (phratriai) and of clans
(gene).
Groups of brotherhoods formed tribes
(phylai). The entire citizen body was thus included in the tribes and
brotherhoods but the wealthy formed the clans. When monarchy was abolished
through the efforts of the clans, the citizenship of the members of the brotherhoods
was in name only because they had no civic rights. Draconian reforms created
four classes according to wealth and Solon gave to the four classes the right
to act in a political capacity.
(ecclesia) and also in a judicial capacity
(heliaia) and thus earned the title 'the first champion of the people'.
But even under him, the concept of
citizenship was immature.
The first recognition of citizenship came
with Cleisthenes 129 under whose reforms there was a distribution of the population
on a geographical basis and an enfranchisement of persons of pure or partial
Athenian descent. Resident foreigners had inter-married and though there was a
partial recognition of foreigners permanently settled domiciled in Athens even
from the days of Peisistratus there was no recognition of the off springs of
mixed marriages as citizens. These were added to the list of citizens because
citizenship no longer depended on membership of the phratries. This state of
affairs continued till -Pericles abrogated the enlightened measure. He limited
citizenship to those of Athenian descent on both sides. Had he come earlier
some famous men of Athens like Themistocles would have been barred from not
only office but other civic rights. It is not necessary to follow the history
of Athens further. It is reasonable to believe that all other States in Greece
except Sparta followed this kind of citizenship.
The Spartans had their own system of rule
with two kings and an elected council (gerusia) elected by the citizens which
was both advisory and judicial. There was also an assembly of all citizens over
twenty called the appella which elected the magistrates and met monthly. The
right of vote in the election of the gerusia and membership of the appella was
open to those who were selected at the birth by the spartiate. All children
were inspected at birth by the heads of the tribe and those who were sickly
were exposed in a ravine of Mt. Taygetus and of the others those that lived all
boys were taken away at the age of seven and trained as citizens. All the
Hellenic States followed Athens but Crete perhaps was influenced by Sparta.
This is the earliest recognition of
citizenship that we need consider in Europe. The next to consider is the
conception of citizenship in Rome. The words 'civitas' and 'civis' were used in
Roman Law to describe persons who had the freedom of the city and who enjoyed
all political and civic privileges of Government. In this way were
distinguished a slave (servus), an enemy (hostis) who had none of these rights
on the one hand and a foreigner (peregrinus) particularly from a country with
which Rome was on terms of peaceful intercourse on the other, from citizens.
Though by Justinian's time everyon 130 became a citizen, unless he was an
unmanumitted slave, in the time of Gaius citizenship was the privilege of
Romans and carried with it the right to vote (jus suffragii) and the right to
hold public office (jus honorum) the right to a Roman marriage (jus connubium)
and the right to legal relations ('us commercial). The son of a Roman citizen
was also a Roman citizen irrespective of where he was born. The peregrinus had
no civic rights unless he belonged to a Latin country. There were different
laws for a long time for the citizens and the latini and the peregrini. The
first to be given the status of citizens were the latini. Later all free
subjects were to be cives. The only peregrines who were left were foreigners
and barbarians and they had no civic rights just as members of certain
treacherous communities (dediticii) and persons deprived of citizenship
(deportati) had none.
Thus both in Greece and Rome the idea of
citizenship was bound up with natural persons in whom certain civic rights were
considered to inhere and which marked them out from others. Sometimes descent,
sometimes the wealth, sometimes the status, military or other, determined the
privilege but at no time was there a concept of citizenship of any but a
natural person. In Roman Law citizenship was transmitted by birth to an
offspring of a Roman citizen.
So far we have dealt with citizenship namely
membership of body politic with full civic rights. In the middle ages this
membership of the State began to carry a dual status :
one status was political and the other civil.
The double status came in Central Europe in the wake of Roman Law and was
partly due to the growth of feudal vassalage by which what might have grown
into nations composed of 'clans' became divided into feudal Chief tan ships.
The feudal lord did not concern himself with descent as such so long as his
follower held land or rendered service according to his laws. Such laws did not
apply to foreigners but if the foreigners held lands or chattels or rendered
service he was equally bound. But the main reason was the impact of international
relations. An individual began to be viewed in two capacities. Firstly, he was
regarded as the subject of a certain State 131 (a political status) and
secondly as one entitled to certain rights and privileges in his own State (a
civil status).
Both arose from the bond to a particular
State or territory but it would be wrong to say that the word 'nationality'
describes the civil status. The word 'nationality' whether denoting an ethnic
group or political membership of a State is a word of much later origin. M.
Cogordan (La Nationalite p. 2) has given the origin of the word and in the
Dictionnaire de 1, Academie frans ais it appeared for the first time in 1835.
Even the Code Napoleon dealt with rules concerning the status of Frenchmen
abroad but did not provide for the status of foreigners in France. The
recognition of nationality as a test of the law applicable to an individual
-followed the famous lecture by Mancini at the University of Turin in 1851. The
impact of international relations added to the civic rights possessed by a
citizen by investing him with a policies status which he could claim abroad.
The word 'nationality' itself has now come to acquire two distinct meanings
political one by which is indicated the membership of a State and the other an
ethnic one denoting membership of a nation. All this time citizenship has also
meant membership of a State but in a municipal aspect. In this sense, the words
'national' and 'citizen' are not inter-' changeable as has been sometimes
supposed. In the United States Public Law 414 (82nd Congress, 2nd session)
section 308 is entitled "Nationals but not citizens of the United States
at birth". According to Weis Nationality and Citizens-hip p. 5:
"That the term American National has a
wider meaning than the United States citizen was recognised in Administrative
Decision No. V of the Mixed Claims Commission between the United States and
Germany ,'Decisions and Opinions Vol. I pp. 18-19; Hackworth Digest of
International Law, Vol. III p. 5 Annual Digest, 1923-24, Case No. 100)."
Weis has given other examples of the disparate use of the two words in the
Constitution of the Netherlands, Honduras, Nicaragua and Roumania. Even in the
United States Immigration and Nationality Act, 1952, the distinction is
preserved. This dual status which has caused all the trouble in this case was
summed up by Lord Westbury 132 in Udny v. Udny(1) by saying that the political
status :
"May depend upon different laws in
different countries, where as civil status is governed universally by one
single principle, namely that of domicile, which is the criterion established
by law for purposes of determining civil status. For it is on this basis that
the personal rights of the party, that is to say, the law which determines his
majority or minority, his marriage, succession, testacy or intestacy, must
depend." Thus, in the Middle ages, it was begun to be realised that the
legal personality of persons was composed of a political status and a civil
status. It was possible for a person to have political status but not civil
status, that is to say, he could be a national but not a citizen but it was
difficult to imagine a citizen without political status.
This political status was determined
according to two different theories. One was the theory of descent ('us
sanguinis) and the other a theory of domicile (us soli).
The European countries applied the former and
the Common Law countries the latter to determine the status. We have already
seen that according to Roman Law the son of a Roman citizen was also a Roman
citizen and it did not matter where he was born and this was the theory which
was recognised in Central Europe. In the Common Law countries (and 1 include
the United States of America) birth in the territory of the King (us soli)
determined political as well as civil status.
Descent from a citizen or subject outside the
territory was recognised statutorily. Statutes from the time of Edward III
recognised descent as one of the modes of acquisition of political as well as
civil status in England. In the United States the principle of descent also was
recognised statutorily except in the case of children whose parents though
citizens had never resided in the States, but the governing theory was birth in
the territory of the States.
I have, I think, sufficiently explained that
citizenship and nationality are not entirely similar concepts though the words
are sometimes used interchangeably owing to the fact that most citizens are
also nationals and vice versa. But strictly speaking citizenship:
(1) L.R. I H.L. S.C. 441.
133 "is a term of municipal law, and
denotes the possession within the particular State of full civil and political
rights, subject to special disqualification such as minority or sex. The
conditions on which citizenship is acquired are regulated by municipal
law." J. B. Moore (Digest of International Law Vol. III (1906) p. 273.)
The disqualifications of citizenship in the past and even today are many and
different from country to country. Some of them which operate even today in several
countries are:
minority, heresy, colour, lack of settled
abode, insolvency, infamy, treason, sex etc.
I have wondered what would have been the
argument in this case to support the claim of citizenship if our Constitution
had thought with Bluntschli (Die Lehre Vom modernen State, i, p. 246) "die
Politik ist Sache des Mannes." It will thus be seen that the concepts of
citizenship and nationality have been influenced either by descent or by birth
in a particular place. Some countries like the Republics of South America do
not recognise descent because, it is reasoned, to do so enables succeeding
generations of former citizens to claim the privileges of citizenship
irrespective of where they are born, while being outside the territory they do
not contribute to the country of which they are citizens. Some countries
recognise both the principles but there are many differences in the approach to
the problem of descent. In some countries, citizenship is confined to children
born from a citizen-father resident abroad and in others such descent is
considered applicable upto grandchildren. Thus certain statutes before the Act
of 1914 conferred British citizenship and nationality upon grand-children born
abroad of natural born subjects, while the French Naturalization Law (1889)
gave recognition only to children born in France of a father also born in
France and to children born abroad of a French father. The former German law
adhered only to the principle of descent but later recognised marriage,
naturalization etc. In Italy long residence of the father and his domicile in
Italy is considered sufficient. Today nationality has assum*Politics is men's
concern.
134 ed enormous importance and the principles
of dual nationality and statelessness cut across some of the former theories
and Cogordon's statement "quc tout homme doitposseder une
nationalite*" is no longer true because of many stateless persons.
It is not my intention to speak exhaustively
about citizenship and nationality. I have, I hope, sufficiently established my
point that citizenship and nationality from the earliest times to date have
been viewed as the attributes of natural persons. We are not concerned however,
with other peoples or nations or States. We arc concerned only with our laws 'on
the subject. When the French Naturalization Law of 1889 differed from the
English law, Sir James Ferguson stated on the advice of the law officers in
Parliament that if the English and the French laws differed there was no help
and each country was entitled to its own laws. We have thus to see how our own
citizenship has evolved and who are the persons who are citizens and what
further arrangement exists for investing others with citizenship.
As India was, for centuries, ruled by Britain
we have necessarily to examine the laws on the subject of citizenship and
nationality before independence. There was no law of citizenship in India. The
Indian Naturalization Act was merely supplemental to the Imperial Act and
hardly needed.
I have already pointed out that the English
Common Law recognised the principle of jus soli but English Statute Law (the
Naturalization Act of 1870 in particular) recognising descent conferred British
nationality on persons, (a) born in Great Britain or the Dominions (]'us soli)
(b) upto and including the second generation of descent from natural born
British subjects born abroad; and (c) by naturalization, denization and
resumption.
The statutes on the subject are collected by
Clive Parry in his Nationality and Citizenship Laws and need not be referred to
in detail here as we are really not concerned with them except as the
background of our laws. In 1914, the British Nationality and Status of Aliens
Act, *Every person must posses a nationality.
135 1914 was passed which was later amended
in 1943. The definition of a natural-born British subject in that Act shows the
classes of persons who were regarded as British subjects by birth. The word
'subject' need not be considered in a sinister sense. It only meant a citizen
though the feudal concept of subjection seemed to persist in the word. The Act
of 1914 as amended in 1943 made one significant departure and it was the
limitation of British nationality on birth to the first foreign-born
generation.
The Act of 1914 as amended in 1943 ruled the
field till the British Nationality Act, 1948 was passed. By that time the
problem of British-born subjects underwent a cataclysmic change along with the
changes in the British Empire. A new conception namely that of Commonwealth
citizenship came to be recognised but it was obvious that members of the
Commonwealth countries were about to enact their own citizenship and
nationality laws. The Act of 1948 did two things with which we are concerned.
It laid down rules by which the status of British subjects was conferred on
persons who were citizens of certain countries named in the Act. India was one
of such countries. This new citizenship was Commonwealth citizenship. It also
contained transitional provisions and s. 12(4) provided:
S. 12(4) :-A person who was a British subject
immediately before the (late of the commencement of this Act and does not
become a citizen of the United Kingdom and colonies by virtue of any of the
foregoing provisions of this section shall on that date become such a citizen
unless(a) he is then a citizen of any country mentioned in subsection (3) of
section 1 of this Act under a citizenship law having effect in that country or
a citizen of Eire ; or (b) he is then potentially a citizen of any country
,mentioned in sub-section (3) of section I of this Act.
One of the Commonwealth countries (Canada)
had already such laws but others followed immediately afterwards. India lagged
behind and the citizenship laws came in the Constitution and in the Act of
1955. During the period between 1948 and 1950 Indian citizens were only 136
potentially so. They however enjoyed Commonwealth citizenship which term was
synonymous with British subject in effect but 'was more appropriate to certain
countries in view of the attainment by them of full nationhood.' Thus every
Indian in British India by virtue of s. I of the English Act of 1948 and every
Indian in the Indian States as a protected person enjoyed Commonwealth
citizenship. of course this citizenship was to continue till India enacted its
own citizenship laws and thereafter if there was a common clause preserving
this citizenship and was to cease if there was an express abrogation of
Commonwealth citizenship.
Under the English Act of 1948, Indians became
Commonwealth citizens or British subjects without citizenship and were regarded
as potential citizens of India. The Indian Constitution made provisions for
citizenship on. the inauguration of the Constitution but it was not a law for
the purpose of the British Nationality Act, 1948. It only provided that certain
natural persons were to be regarded as citizens of India from January 26, 1950.
In so far as we are concerned this created a
hiatus because the scheme of Indian citizenship was not completely worked out
on 26th January, 1950. The Constitution no doubt declared who were Indian
citizens on that date but the status of a British subject without citizenship
which was mellifluously called Commonwealth Citizenship "could not be
liquidated" unless there was a citizenship law as contemplated by the
English Act of 1948. As a result, in the words of Clive Parry, "Pending
the completion of the scheme of Indian citizenship, persons who were
potentially citizens of India but are not citizens thereof remained British
subjects without citizenship in the eyes of the United Kingdom." No doubt
in 1955, the Citizenship Act was enacted by the Indian Parliament. Some writers
think that even that is not the citizenship law contemplated by the English Act
of 1948.
Whether or not it fulfills the test, it is
not necessary to decide here because it does not affect the status of
corporations. Its provisions are applicable to 'persons' and the definition of
the word 'person' in the Act expressly excludes "any company or
association or body of individuals, whether incorporated or not." 137 I
have attempted to establish that citizenship as viewed from country to country
and from one period of time to another was concerned with natural persons. The
manner of acquisition of citizenship and/or nationality described by me are
admirably summed up by Mervyn Jones in his book "British Nationality
Law" at p. 9 in the form of a pedigree which may be seen. It is enough to
read the various headings in the pedigree to realize that there is no room for
artificial persons there. From the point of view of Mr.
Setalvad's argument this raises an intriguing
situation. If corporations possessed citizenship immediately before our
Constitution they would be citizens under the English Act of 1948, that is to
say, British subjects without citizenship or Commonwealth citizens and only
potential citizens of India. The Indian Constitution dealt with natural persons
and not artificial persons in its provisions dealing with citizenship and the
status of corporations was not disturbed by those provisions. When the Citizenship
Act was enacted in 1955, it began to speak from January 26, 1950, 'and it might
have affected corporations but for the fact that it excluded them. Thus if
there was any citizenship which the corporations enjoyed, it remained where it
was. The corporations, if at all, would thus be Commonwealth citizens, not
Indian citizens because no law has made them Indian citizens. But I do not
accept the basic argument that corporations enjoyed citizenship even before,
because in the sense in which I have explained citizenship, there is no room
for artificial persons.
The argument here repelled is sought to be
supported by referring to the rule of law under which corporations are said to
possess nationality. Nationality in this context is not to be confused with the
status of a citizen. What is meant by that nationality may next be seen.
Ordinarily corporations are given recognition by law as persons who can sue or
be sued. Corporations also own property, carry on business or trade. But it is
not to be thought that corporations have an access to courts as a matter of
course.
The courts are open as a matter of course to
natural persons and not to 'intangible concepts' like corporations. Unless the
law gives this right to corporations they cannot sue or be sued. What the law
does is to invest corporations with a distinct personality and with a right to
sue and with a disability to be sued. Ordinarily such rights and disabilities
attach to 'persons' but that word is given an extended meaning to include
corporations. In this way the law invests an intangible body with a unity and individuality
and creates a legal person capable of suing or being sued. Foreign corporations
enjoy the same privilege by a comity of nations and also sue and are sued.
These privileges which corporations share with natural persons do not make them
'citizens' entitled to every other privilege which the municipal law gives, to
citizens. In other words corporations enjoy only such privileges under the
municipal law which that law expressly confers on them.
It is, of course, undeniable that
corporations have an existence in the eye of law. The law further regards that
corporations have a domicile and a residence. The law also recognises that
corporations have a nationality. What does the law mean by that? The concept of
the nationality of a corporation is comparatively new and it was really
developed during the First World War. Nationality of corporations becomes
important when it is necessary to apply the 'nationality of claims' principle
before an international tribunal or to give effect to law-making treaties
applying to 'nationals'. See Starke (An Introduction to International Law 4th
edn. p. 256). Starke has pointed ,out that there is no unanimity of opinion
regarding the tests to be applied to ascertain the nationality of corporations.
Clive Parry does not recognise this
nationality and calls it quasi-nationality. I shall now explain in what sense
the word 'nationality' is used in this connection.
There have been many theories about the
nationality of corporations which were again reconsidered during the First
World War. According to Hilton Young 22 Harvard Law Review p. 2, there were
four main theories at first. The first theory viewed a corporation as the
national of the State in which its members or the majority of them or owning
the greater part of the capital, were nationals. This theory considered the
word 'corporation' as 'a collective name for the corporators', the corporate
veil being considered to be of such gossamer texture as to hide almost nothing.
This theory of which the chief proponents were sommieres and Morawetz was
criticised on all hands 139 and particularly by Maitland and was abandoned as
it made nationality a matter of accident and liable to change day in and day
out. The second theory regarded nationality as determined by the nationality of
the State under which it was created. The United States of America has adhered
to it but England may be said to have adopted this theory modified by
considerations of domicile. The Germans call this theory Grundungstheorie that
is the theory of the place of birth.
The theory has great names behind it-Calvo,
Fiore, Pineau, Weiss etc. This theory is inadequate to cover corporations which
are not authorised by the State and has been modified in the United States by
evolving a theory of 'Implied consent to extraterrestrial service'. The third
theory considers that a corporation acquires the nationality of the place where
its acts or any of its acts are performed. This theory is rejected universally
by lawyers but it was adopted by businessmen in the Congress of Joint Stock
Companies held at Paris in 1889. Under this theory nationality can be changed
at will. Obviously enough difficulty is likely to be felt in the event of
simultaneous actions in different countries. The fourth theory considers that
corporations are domiciled where they have a permanent home. This Theory was
influenced by Von Bar who considered that though juristic persons could not be
nationals either lure sanguinis or jure soli, they could be nationals by
domicile.
Chief Justice Taney summed up the thought by
saying that "a corporation must dwell in the place of its creation and
cannot migrate to another sovereignty". The Bank of Augusta v. Erle (1).
Domicile of a corporation has more foundations than one. It may be fixed by the
territory of the sovereign which created it or by the charter or other
constitutive documents or by the place where the corporation discharges its
functions or by the bona fide centre of its administrative business. These
different concepts have led to diverse theories.
English Law regarded nationality as dependent
on domicile and was at first content to regard a corporation as the national of
a State where it was incorporated. But a glance at the history of the law of
corporations shows (1) [1839] 13 Pet. 519, 588-10 L. Ed. 274.
140 that there is a variation in this theme
in later years. The conception of domicile was adopted in the English Common
Law merely for purposes of jurisdiction and law. A corporation's domicile, it
was held, depended upon where it came into being and this domicile was not
changeable though Lord St. Leonards was of a contrary opinion in Carron Iron
Co. v. McLaren(1). Similarly it was held that a corporation had a residence
though it could change its residence and even have more than one residence
under certain laws. On what then did nationality depend? According to English
Common Law a corporation incorporated under the English Law had British
nationality and it did not matter if its members held a different nationality.
A corporation which was not of British nationality was an alien corporation.
According to the laws of many European countries particularly France,
nationality depended upon the siege social by which is meant the seat or centre
of control. Both these theories suffered during the First World War. As regards
the English Common Law the leading case was Janson v. Driefontein (2). from
which I have already quoted certain extracts. In that case it was decided that
a company possessed the nationality of the country under the laws of which it
was incorporated and that the nationality of the share-holders was not
determinative of the question. Once this nationality was determined then the
corporation received the treatment as a national, as an alien, or as an enemy
as the case was in peace or in war. This view was revised in the First World
War. In Daimler Co. Ltd. v. Continental Tyre and Rubber Co. (Great Britain Ltd.
(3), all the shares of the respondent company (except one) were held by a
German company and all directors were Germans though the company was
incorporated in Great Britain. If the principle that nationality follows
incorporation applied, the respondent company would have had a British
nationality and it could not change it. But the House of Lords applied the
principle of effective control to determine its nationality. In the Court of
Appeal the case was heard by the full Court and (1) [1952] 5 H.L.C. 416.
(2) [1902] A.C. 484.
(3) [1916] 2 A.C. 307.
141 the above principle was held applicable
(Buckley L. J. dissenting). The majority view was confirmed by the full
judicial strength of the House of Lords by majority. Lords Shaw and Parmoor
considered that enemy character depended on whether it was incorporated in an
enemy country. The majority (Lords Hatlsbury, Mersey, Kinnear, Atkinson, Parker
and Sumner) however, considered that it depended upon where the effective
control lay. Lord Parker summarized the law in six propositions as under :
(1) A company incorporated in the United
Kingdom is a legal entity, a creation of law with the status and capacity which
the law confers. It is not a natural person with mind or conscience. To use the
language of Buckley L. J., "It can be neither loyal nor disloyal.
It can be neither friend nor enemy." (2)
Such a company can only act through agents properly authorized, and so long as
it is carrying on business in this country through agents so authorized and
residing in this or a friendly country, it is prima facie to, be regarded as a
friend, and all His Majesty's lieges may deal with it as such.
(3) Such a company may, however, assume an
enemy character. This will be the case if its agents or the persons in de facto
control of its affairs, whether authorized or not, are resident in an enemy
country, or, wherever resident, are adhering to the enemy or taking
instructions from or acting under the control of enemies. A person knowingly
dealing with the company in such a case is trading with the enemy.
(4) The character of individual shareholders
cannot of itself affect the character of the company. This is admittedly so in
times of peace, during which every shareholder is at liberty to exercise and
enjoy such rights as are by law incident to his status as shareholder.
(5) In a similar way a company registered in
the, United Kingdom, but carrying on business in a neutral country through
agents properly authori142 zed and resident here or in the neutral country, is
prima facie to be regarded as a friend, but may, through its agents or persons
in de facto control of its affairs, assume an enemy character.
(6) A company registered in the United
Kingdom but carrying on business in an enemy country is to be regarded as an
enemy.
The House of Lords case is regarded as an
instance of judicial legislation on the subject of 'enemy character' and it
undoubtedly was so. It is not as if this theory has been universally accepted.
It was criticised by Sir Arnold Mcnair in 1923/24 British Year Book of
International Law p.
44 and by Mr. Ralph A. Norem: American
Journal of International Law Vol. 24 p. 310.
We have seen that in the United States a
corporation is a domestic corporation of the State which incorporates it or
under the laws of which it is incorporated. Some of the States have even laws
to this effect. While other countries were revising their attitude in Europe,
the United States adhered to this theory and the Supreme Court observed that
the Congress had definitely adopted the policy of disregarding stock ownership
as a test of enemy character.
In other words, in the United States there
was no attempt to look behind the corporate veil. We have also seen that
England drifted from the theory of domicile to the continental theory of siege
social. But France, Germany, Italy and Belgium went a step further than before.
The Cour de Cassation departed from the principle of siege social in Societe
Conserve Lenzburg in which it was held that the court was entitled "to go
to the bottom of things and ascertain whether a corporation was really French
or not." The French Minister of justice issued a circular in 1916 which
stated the French approach to the question thus :
Les formes juridique dont la societe est
revetue, le lieu de son principal establissement, tous les indices auxquels
s'attache le droit prive pour determiner la nationalite d'une societe, sont
inoperants, alors qu'il s'agit defixer au point de vue du droit public le
caractre reel de cette societe. Elle doit etre assimilee aux sujets de
nationalite ennemie des qne notoirement sa direction ou ses capitaux sont en
totalite ou en majeure partic 143 entre les mains de sujets ennemis, car, en
pareil cas, derriere la fiction du droit privi se dissimule vivante et
agissante la personnaliti ennemie elle-meme." (The juridical forms in
which the society is dressed, the place of its principal office and all the
indicia on which Private Law fastens to determine the nationality of a society,
are inoperative when one tries to fix from the point of view of Public Law the
real character of this society. The society 'must be counted among enemy
nationals if manifestly its direction or its capital wholly or in major part is
in enemy hands for in such a case behind the fiction of the Private Law lurks
the active personality of an enemy.) The Cour de Cassation justified the change
by holding that the corporation was a personne interposee under the cover of
which an enemy did business. The German attitude also changed to Geschaftssitz
from der Mittelpunkt des Geschaftes i.e., to the "seat" of real
control from the "centre of its enterprise". The corporation was said
to have its seat where the "brain" was and not where it had its
centre of exploitation. The Italians also adopted the same test. The Belgians
framed a law which sums up the new theory in crisp legal language (Act 172-Mai
23, 1913) :
"Toute societe dont le principal
etablissement est en Belgique est soumise a la loi belge bien que I'acte
constitutif ait ete passe en pays etranger. " (Every society of which the
principal establishment is in Belgium is under the laws of Belgium,
notwithstanding that the incorporation took place in a foreign country.) In the
Mixed Arbitral Tribunals which followed the First World War there were some
cases which were decided on the theory of control but many others were decided
on the theory of domicile depending upon the composition of the Tribunal.
There are indeed many other tests which I
have not mentioned such as the test of beneficial interest, or of substantial
ownership or of responsibility which it is not necessary to describe here.
It would not be wrong to say that the control
theory is also losing ground and there is a great support for the theory that
the juridical life of the corporation must ultimately fix its nationality. It
is also to be noticed that Herr Marburg and M. Mazeaud two noted thinkers have
pointed out that all this law is not so much to fix the nationality of a
corporation but its enemy character. Many writers (including Dicey, Cheshire,
Foote and Farnsworth) have also pointed out that the conception of the
nationality of a corporation is important only in war and it has significance
not so much in Municipal Law as in Public International Law.
During times of peace the domicile of a
corporation which, as Lord Westbury pointed out, is an idea of law creating a
relationship between an individual and a particular country is allowed to
operate a fiction. A corporation resembles a natural person in the matter of
domicile except that an individual can choose his domicile but a corporation's
domicile is tied to its place of birth. The law of the country of its birth
gives it such rights as it considers practicable and foreign corporations share
in those rights subject to any special provisions. In times of war these rules
and the rule of corporate entity give way and public policy dictated by the
consideration whether the resources of the corporation are likely to be used
for enemy purposes determines the issue. Thus in the Daimler case the fons et
origo of the control theory""The acts of a company's organs, its
directors, managers, secretary and so forth, functioning within the scope of
their authority are regarded as the company's acts. . . . " (1) The
operatives are regarded as the 'brain' of the corporation and where the brain
functions the corporation is held to function. During times of peace a corporation
may own property, do business because the Municipal law expressly permits that
all this can be done and foreign corporations also obtain the benefit of such
laws either because of provisions of the Municipal law or by a comity of
nations. In times of war all this changes. The law of nationality is thus a law
to determine the enemy character and not a law recognising nationality either
in a political or municipal sense. There may be some analogy between an
individual and a corporation but as Mr. Vaughan Williams said (49 L.Q.R. 334)
in an article which has been of great assistance to me, it is not necessary 'to
ride (1) [1916] 2 A.C. 307, 340.
145 the analogy to death.' The English Law
was summed up by Mervyn Jones (British Nationality Law, Revised Edn.
"A corporation is a juridical person,
but could not be a subject at Common Law, because allegiance, being essentially
a personal bond, was a conception limited in its application to individuals.
Nor have corporations been recognised as statutory British subjects or as
citizens of the United Kingdom and colonies." Oppenheim also points out
(International Law,, Lauterpacht Edition) p. 642 n. 3"The nationality of
corporations is mainly a matter of Private International Law, and
considerations of Public policy have a decisive influence upon the attitude of
every State with regard to it." Citizenship depends upon Municipal Law and
the same learned author says (ibid p. 643) :
"It is not for International Law but for
Municipal Law to determine, who is, and who is not, to be considered a
subject." Hyde in his International Law Vol. 2 (2nd Edn.) 1066 also says:
"Citizenship as distinct from
nationality, is a creature solely of domestic law. It refers to rights which a
State sees fit to confer upon certain individuals who are also its
nationals." But perhaps the most practical argument against the
recognition of corporations as citizens comes from M. Niboyet (who, as Mr. Vaughan
Williams points out) observed in his Manual of Private International Law that
in computing the total number of citizens of a country we do not add to the
number of physical persons the number ,of corporations of that nationality.
Indeed Lord Atkinson (and all who formed the majority except Lord Halsbury) was
of opinion in the Daimler case that"The question of the residence of the
company apart, I do not think that the legal entity, the company, can be so
completely identified with its share-holders, or the majority of them, as to
make their nationality its nationality."(1) We have only two laws on the
subject of citizenship -:and none on the subject of the nationality of
corporations. (1) (1) [1916] 2 A.C. 327.
146 The fundamental law provides only for
natural persons. where it enacts rules for determining citizenship and the Citizenship
Act excludes corporations. The chapter on fundamental rights does not
altogether ignore corporations as did the American Constitution. In places the
word 'person' is used which attracts the definition in the General Clauses Act
and in others the word 'citizen'. The word 'citizen' could have been defined
specially for Article 19(1) (f) and (g) but it is not. There is nothing which
can justify us in giving a special meaning to the word "citizen" for
purposes of clauses (f) and (g). The fact that corporations are regarded in
some circumstances as possessing nationality does not make them citizens. As
Mr. Menon rightly pointed out ships and aircraft also possess nationality in
International Law but it cannot be claimed that they possess citizenship in
Municipal Law.
Which corporations should be regarded as
possessing Indian Nationality is a question to be answered when it arises.
Whether the provisions of the Companies Act
dealing with foreign companies furnish any assistance in this behalf must also
be left unanswered. It is sufficient to say that even if it be established that
a corporation, possesses Indian Nationality this has not the result which is
contended for namely that all or any of the citizens rights arise. It may be
admitted that the State Trading Corporation which is incorporated in India is
not a foreign company under the Companies Act. If we were to lift the veil of
incorporation it will be found that the entire capital is subscribed by the
Government of India, that the share-holders are the President of India and two
Secretaries to Government, in their official capacities and that its management
is a governmental function for the benefit of the nation. It may be conceded
that it possesses Indian Nationality in an ideal sense and that there is also
no possibility of its acquiring an enemy character. But even so it is not a
'national' that is to say an individual who is a part of our nation. When we
count Indian nationals, for purposes of census we do not count the corporations
as nationals. The argument is not one what advanced by dropping the word
'citizen' and using the word 'national'. No doubt the existence of corporations
as entities is recognised but the entity obtains only such rights as the law
147 confers on it. This entity cannot claim other rights as a matter of course
or by standing side by side with citizens.
This entity cannot aspire to hold a. public
office or to membership of Parliament or the Legislatures or to franchise or to
entry into educational institutions. This is because it is not a citizen in the
true sense of the term and because its 'nationality' though of consequence in
Public or Private International Law, in treaties, in conventions and in
protocols, is of no consequence in Municipal Law except to the extent that the
Municipal Law says so.
This is not to say that corporations have not
been given any protection under our Constitution. Unlike the Constitution of
the United States of America our Constitution does not overlook corporations.
The General Clauses Act is applicable to interpret the Constitution and that
Act, as has been pointed out already, defines 'person' as including
corporations. The following articles of the Constitution employ the word
'person' which applies equally to individuals and to corporations etc.
Art. 14 Equality before the law.
Art. 20 Protection in respect of convictions
for offences.
Art. 27 Freedom as to payment of taxes for
promotion of any particular religion.
Art. 31 Compulsory acquisition of property.
The seven freedoms guaranteed by Art. 19(1)
are for 'citizens'. It was easy to say that the word 'citizen' included
corporations etc. of Indian Nationality for purposes of any of the clauses of
Art. 19(1) but it has not been so said. It is to be noticed that in the third
part the Constitution defines 'the State', 'the law', 'laws in force', 'estate'
and rights'. The expression 'law in force' is defined twice and differently.
Can it be said that the word 'citizen' was purposely left vague so that a broad
and liberal spirit could enter the interpretation? What a chance to take. It
must have been well-known that an attempt by the Supreme Court of the United
States to give an artificial meaning to the word 'citizen' has been regarded on
all hands as Constitution making. It is easy to see that our Constitution was
circumspect enough to use a word of larger import (person) in some places but
not in others.
The intention may well have been that the
seven freedoms 148 shall guarantee the rights of individuals whom the body
politic recognised as 'citizens' and not the rights of abstractions like
corporations. The observations of Chief Justice Mukherjea quoted earlier mean
that a corporation is protected only where the language admits the inclusion of
corporations otherwise only individuals are meant.
It is however argued that in the United
States the Supreme Court has held that the word 'citizen' includes
corporations. Reference was also made to the Constitutions of some minor
countries where corporations are expressly mentioned. It is not necessary to
refer to these Constitutions because no inspiration can be drawn from them to
rewrite our Constitution. As Willis. said (and he is not alone in this) of the
position in the United States that the rights and liabilities of corporations
"have been worked out under and through the judge-made United States Constitution".
Perhaps this was forced upon the Supreme Court by the diversity of citizenship
existing in the United States but it may be noted that the word 'citizen' has
not been held to include corporations in other articles. Since this precedent
was strongly relied upon I shall briefly refer to it.
The Constitution of the United States of
America overlooked corporations and this has made the language intractable in
places. The Supreme Court has supplied this want by 'judicial legislation'. How
this was done may be explained.
I have already referred to the dictum of
Chief justice Taney and to the attitude of the Congress and the Supreme Court
on the subject of nationality of corporations. There is a fixed view that
nationality follows incorporation and is unalterable. This geographical theory
coupled with dual citizenship of the State and United States has led to some
difficulties. Corporations were always regarded as the citizens of the State of
incorporation but not of the United States. The citizenship of the State has
been accepted for purpose of exercise of the Judicial power of the United
States.
The following provisions of the Constitution
of the United States may be read at this stage :
Art. I Sec. 8. "Congress shall have
power........ to establish an uniform Rule of Naturalization." Art. III
Sec. 1. "The judicial Power of the United States, 149 shall be vested in
one Supreme Court, and in such inferior Courts as the Congress may from time to
time ordain and establish Art. III Sec. 2. "The judicial Power shall extend
to controversies between a State and Citizens of another State ; between
Citizens of different States ; between Citizens of the same State claiming
Lands under Grants of different States, and between a State, or the Citizens
thereof, and foreign States, Citizens or Subjects." Art. IV Sec. 2 The
citizens of each State shall be entitled to all Privileges and Immunities of
Citizens in the several States." Amendment XIV Sec. I "All persons
born or naturalized in the United States, and subject to the jurisdiction
thereof, are citizens of the United, States and of the State wherein they
reside. No State shall make or enforce any law which shall abridge the
privileges or immunities of citizens of the United States ;
nor shall any State deprive any person of
life, liberty or property, without due process of law ; nor deny to any person
within its jurisdiction the equal protection of the laws." The Supreme
Court has held that a corporation is the citizen of the State of incorporation
for purposes of federal Jurisdiction on the ground of diversity of citizenship.
Though Art. I sec. 8 and Amendment XIV refer
to natural persons the word 'citizen' was given a larger meaning for purposes
of controversies between citizens of different States over which federal courts
alone have jurisdiction.
The jurisdiction of the national courts could
not be invoked if the defendant was a corporation but the Supreme Court has by
slow stages created a fictional jurisdiction. The development of the law has
had an interesting course.
Rather than describe it in my own words 1
quote a small passage from Willis, Constitutional Law of the United States (p.
850) :"At first a corporation was not regarded as a citizen for any
purpose and it could not get into or be taken into the federal courts on the
ground of diversity of citizenship. Then a case arose where all of the
stockholders of the corporation were citizens of the 150 same State where the
corporation was incorporated and the plaintiff was a citizen of another State,
and it was held that the Court would look behind the corporate veil to the
stockholders and give the federal courts Jurisdiction because of the diversity
of citizenship thus found. In a later case some of the stockholders were not
citizens of the State where the corporation was incorporated but of the state
in which the opposing litigant was a citizen. To avoid robbing the federal
courts of their jurisdiction, the Court held that for purposes of diversity of
citizenship all of the stockholders of a corporation would be conclusively
presumed to be citizens of the chartering state. This rule, however, had to be
modified later so as to make an exception in the case of a stockholder
plaintiff. Now it is believed that the courts have come to the position that
the corporation is itself a citizen of the state of its incorporation for the
purposes of diversity of citizenship." The following extract from St.
Louis & San Francisco Ramawy Co. v. James(1) sums up the position so far as
the Supreme Court is concerned "There is an indisputable legal presumption
that a State corporation, when sued or suing in a circuit court of the United
States, is composed of citizens of the State which created it........ That
doctrine began, as we have seen, in the assumption that State corporations were
composed of citizens of the State which created them ; but such assumption was
one of fact, and was the subject of allegation and traverse, and thus the
jurisdiction of the Federal courts might be defeated. Then after a long contest
in this court, it was settled that the presumption of citizenship is one of
law, not to be defeated by allegation or evidence to the contrary.
There we are content to leave it."
States have, however, begun to destroy the presumption which is thus erected by
requiring a corporation as a condition to doing business there to incorporate
in the State. This can be done because the Supreme Court (1) [1896] 161 U.S.
545, 562, 563.
151 has rejected the claim of corporations to
citizenship for purposes of the privileges and immunities clauses quoted above.
As Corwin pointed out in The Constitution and what it means today 11th edn. p.
166 :
"Nor does the term 'citizens' include
corporations. Thus a corporation chartered elsewhere may enter a State to
engage in local business only on such terms as the State chooses to lay down,
provided these do not deprive the corporation of its rights under the
Constitution-of its right, for instance, to engage in interstate commerce, or
to appeal to the national courts or, once it has been admitted into a State, to
receive equal treatment with corporations chartered by the latter." It
remains to point out that corporations have been held to be 'persons' within
the Fourteenth Amendment and are entitled to equal protection of the laws. But
a foreign corporation as Corwin points out (at p. 268) is entitled to equal
treatment with the corporations chartered by a State if there is submission to
the Jurisdiction of the State.
The Nationality Act of 1940 declared that for
the purpose of that Act a 'national' meant a person owing personal allegiance
to a State in the United States. Corporations were thus not included because in
the words of Buckley L.J.
a corporation cannot be loyal or disloyal.
For international purposes a corporation is treated as a national if subjected
to illegal treatment in an international aspect by a foreign power. The
position of corporations is protected in treaties as for example the treaties
between Great Britain and the United States of 1783 and 1794 and the treaty of
Guadalupe Hidalgo between the United States and Mexico. Other examples are
found in Hyde and international documents. Similarly treaties of commerce are
construed to include corporations within expressions denoting natural persons.
But even in international sphere corporations are not on a par with natural
persons or nationals. As Hyde points out:
"........ at least in a technical sense,
a corporation is not, for many purposes to be deemed a national of the State to
which its life is due, and lacks many privileges 152 that endure to a natural
person........
The question is whether the precedent of the
United States Supreme Court should be followed. Apart from the fact that this
involves a conscious effort at judicial legislation, I am of opinion that such
a spirit of libre recherche scientifique is hardly justified in India in view
of the following considerations -(a) We have a single citizenship and there is
no citizenship of the States to create diversity ;
(b) We have only one set of courts and not
two with separate jurisdiction ;
(c) Our Constitution has not completely
overlooked corporations and some of the fundamental rights are prima facie
guaranteed to corporations as well ;
(d) Members of a corporation who are citizens
can enforce the rights under Art.
19(1) (f) and (g). Even if corporations may
not be able to do so directly, the members who are citizens by enforcing their
personal rights can effectively benefit the corporation. The only persons who
are not able to do so are non-citizens whether as individuals or as members of
a corporation ;
(e) There has never been a recognition of a
corporation as a citizen ; and (f) Unless a presumption juris et de jure is
raised that corporations whether composed of citizens only or of non-citizens
only or of citizens and noncitizens are citizens of India, every time an
inquiry will have to be made into their composition and there is no discernible
principle on which the citizenship can be based when there is diversity of
citizenship in the composition of the corporation.
I am, therefore, of opinion that the State
Trading Corporation cannot be regarded as citizen for the purpose of enforcing
rights under Art. 19(1)(f) and (g).
The next question is whether the State
Trading Corporation is a department or organ of Government notwithstanding the
formality of incorporation. On behalf of the Corporation it is contended that
if the corporate veil is pierced one sees that the right to invoke Art.
153 19(1)(f) and (g) is being claimed by
three persons who are admittedly citizens of India namely the President of
India and the two secretaries. The contention on the other side is that the
corporate veil cannot be pierced at all and that if it is, then behind that
veil there is the Government of India.
It is quite clear that none of the
shareholders holds his share or shares for his personal beneficial enjoyment.
None of them has paid for the shares held in his name. The administration of
the affairs of the corporation though technically a company, is a concern of
the Government of India. The legal and beneficial ownership of the corporation
vests in the Government of India. Now there are not two veils so to speak, so
that by lifting the first one sees the shareholders and by lifting the other
the Government of India. There is but one veil and if it is at all to be
lifted, it must be lifted right off. What one would see on lifting the veil may
be described in the words of Martin Wolff (Private International Law, 1945 p.
56) as follows :"It occurs frequently that a state creates e.g., for a
commercial purpose, a separate legal entity, in law distinct from the state,
but in fact, if the veil of personality is pierced, identical with it. Examples
are........ notably many companies under state control, the state possessing
all or practically all the Shares in that company." If the corporation is
to be regarded as a separate entity from its members and not merely as an
association of individuals, it is not permissible to tear the veil aside.
Corporations in which the State owns the
stock do not, in the United States, benefit from the immunity of the State.
It is because of these difficulties that the
Supreme Court of the United States settled the question of federal jurisdiction
in the face of diversity of citizenship by making an irrebuttable presumption of
law that the stockholders of a corporation incorporated in a State are citizens
of that State and the corporation is thus also a citizen of that State. There
is a fiction upon a fiction.
I do not think that it is permissible under
our laws to raise such an irrebuttable presumption of Indian citizenship in
respect of every member of a corporation in India and it is obvious that if no
such presumption can be raised the citizenship of corporations raises an issue
of fact. Can we say that if all the corporators arc found to be Indian citizens
then we must hold that the corporation is an Indian citizen? Such a view was
held in an early case by the Supreme Court of the United States-see Bank of the
United States v. Deveaux(1). In that case Chief Justice Marshal, while
recognising that a corporation aggregate was certainly not a citizen because it
was an 'invisible', 'intangible' and ' artificial' being, held that since the
Constitution dealt with matters generally and not in detail, and the general
purpose and object of the law of incorporation showed that such an artificial
person was to have corporeal qualities, a corporation had the character of a
citizen if those that composed it had that character. In the Daimler case (opcit.
sup.) Lord Parker seemed to be of the opinion that this was the established law
in the United States but Farnsworth (The Residence and Domicile of Corporations
p. 311) supports Dr. Schuster (The Nationality of Trading Corporations 2
Grotius Society (1916) at p. 195) in the view that Lord Parker's statement was
inaccurate. Farnsworth has also quoted from Garner's International Law in the
World War Vol. I p. 227 where the opinion of the Federal Judge in FritzSchultz
Jr. Co. v. Raines & Co. (2) is quoted with approval :"In upholding the
right to bring the action the Court expressed the opinion that the authority in
the case of United States v. Deveaux has been much limited, if not overruled,
by subsequent cases and that 'at the present time the courts of this country
are entirely wedded to the doctrine that the cooperators of a corporation are
conclusively presumed to be citizens of the same State as the corporation'. The
statements of Lord Reading and Lord Parker in the Daimler case, that the
Supreme Court had laid down the principle that a court may look behind the
corporate name to ascertain the character of the individuals comprising it,
was, said Justice Lehman, obviously not accurate." I have earlier quoted
from St. Louis & San Francisco Railway Co., v. James (cit. sup.) which also
supports Dr. Schuster's view.
In my judgment it is not possible to pierce
the veil of incorporation in our country to determine the citizenship of the
members and then to give the corporation the benefit of Art. 19. If we did
pierce the 1 and saw that the corporation was identical with Government there
would be difficulty in giving, relief unless we held that the State can be its
own citizen. Nor is it possible to raise an irrebuttable presumption about the
citizenship of the members. I have given detailed reasons already in answer to
the first question posed for our decision. If we go by the corporate entity
then we must hold that Art. 19 applies to natural persons. On that subject I
have said a great deal but what I have said sums up to the following passage
from Ducat v. Chicago (1) quoted by Farnsworth (op. cit.) at p.
310 and approved by the United States Supreme
Court :"The term citizen can be correctly understood in no other sense
than that in which it was understood in common acceptation when the
Constitution was adopted, and as it is universally explained by writers on
government, without exception. A citizen is of the genus homo, inhabiting, and having
certain rights in some State or district........ these privileges attach to him
in every State into which he may enter, as to a human being-as a person with
faculties to appreciate them, and enjoy them, and not to an intangibility, a
mere legal entity, an invisible artificial being, but to a man, made in God's
image." It is not necessary to refer to the earlier cases of this court.
The point was not raised in this form before and ,even the observations of
Mukherjea J. (as he then was) were obiter. In most cases an individual member
also joined the corporation in the petition for the enforcement of fundamental
rights (as is the case here also) and this Court was content to leave the
matter there. Joseph Kur(1) (1868) 48 111. 172.
156 villa Vellukunnel v. Reserve Bank of
India(1) was heard by this Court in which the Palai Bank Ltd. was a party along
with others. No objection was raised about the competency of the Palai Bank to
claim the benefit of Art. 19. The main case (there were two heard together) was
an appeal from a decision of Raman Nayar J. in proceedings for the winding up
of the Palai Bank [I.L.R. (1961) Kerala 166]. It was an action properly brought
against the Palai Bank under the Banking Companies Act. The main question in
this Court was whether a section of the Banking Companies Act which enabled the
Reserve Bank to decide whether a banking company deserved to be wound up was
ultra vires in as much as it took away the right of the court to decide this
matter. It was held by majority that there was no flaw in the law and that it
was for Parliament to say at what stage in a particular case, the judicial process
should begin and not for the courts who come into the picture from the stage
the judicial process commences under the law. This point could be decided in an
appeal in which beside the corporation there were other interested parties.
Lastly, I have no cause for anxiety about
Corporations in general and companies in which the States own all or the
majority of the shares in particular. They are amply protected under our
Constitution. There can be no discrimination, no taxation without authority of
law, no curbs involving freedom of trade, commerce or intercourse and no
compulsory acquisition of property. There is sufficient guarantee there and if
more is needed then any member (if citizen) is free to invoke Art. 19(1) (f)
and (g) and there is no doubt that the corporation in most cases will share the
benefit. We need not be apprehensive that corporations are at the mercy of
State Governments.
For these reasons my answers to the question
posed are against the State Trading Corporation.
DAS GUPTA J.-I think the State Trading
Corporation of India is entitled to fundamental rights under Art.
(1) [1962] Supp. 3 S.C.R. 632.
157 19(1)(f) and (g) of the Constitution as
citizen of India.
The petitioner bases its claim to these
fundamental rights on the fact that all its members are citizens. That this is
so is not disputed by the respondent. But the respondent resists the claim on
the legal basis that the Corporation is not a natural person but only an
artificial person forming a distinct entity from the natural persons who are
its members. According to the respondent no artificial person is a citizen of
India either under the Constitution or under the Citizenship Act
which was passed in 1955 in accordance with the Constitution. The respondent
also contends that it would be a mistake to confuse nationality with
citizenship and while it is correct that the present petitioner having been
incorporated in India under the Indian Companies Act is a national of India it
would be wholly erroneous to think that it also became on such incorporation a
citizen of India. The fact that it is a national of India puts it in no better
position that any other person, natural or artificial, which is not a citizen
of India in the matter of fundamental rights.
While creating fundamental rights "the
people of India" created some which they conferred on all persons (Arts.
14, 20, 21, 22, 23, 24, 25, 26, 27, 28 and 30); but some were created that were
conferred only on citizens and were denied to others. Among those conferred on
citizens only are the fundamental rights created by Arts. 15, 16, 19 and 29.
The word "citizen" was not, however defined in the Constitution and
so we have not got a key that is provided by a clear definition, to the minds
of those who framed the Constitution, on the question whether they intended to
exclude corporations as such from the fundamental rights conferred on citizens.
The respondent points out that immediately before dealing with the question of
fundamental rights, the Constitution deals with question of citizenship in
seven Articles, viz., Arts. 5 to 11. There is force in the respondent's
contention that these articles do not appear to contemplate any artificial
person, like a corporation, being in its capacity of corporation, a citizen of
India. Article 5, the first and the main article dealing with the question
makes persons, (1) born in the territory of India, or (2) born of parents one
or both of whom were born in the territory of India, or (3) persons who have
been ordinarily residents in the territory of 158 for not less than 5 years
preceding the commencement of the Constitution, citizens of India. Article 6 and
7 deal with the cases of certain persons who have migrated to India from
Pakistan, while Art. 8 deals with the question of rights of citizenship of
persons of Indian origin residing outside India. Article 9 lays down that
inspite of Arts. 5, 6 or 8 a person who has voluntarily acquired the
citizenship of any foreign State shall not be a citizen of India. Article 10
embodies the provisions of continuity of citizenship "subject to the
provisions of any law that may be made by Parliament"; Article 11 makes an
express provision that Parliament would be competent to make any provision with
respect to acquisition and termination of citizenship and all other matters
relating to citizenship.
I agree with the contention raised on behalf
of the respondent that it is not reasonably possible to read into these
articles of the Constitution any intention that an artificial person might also
be a citizen. We also find that the Citizenship Act, 1955, which was enacted by
Parliament in exercise of the powers preserved to it by Art.
11 of the Constitution, expressly excludes
from its benefit "any company or association or body of individuals,
whether incorporated or not." A Corporation is not a citizen under the Citizenship
Act, 1955, nor is a corporation as such a Citizen under the constitutional
provisions on question of citizenship. From this it seems an easy step to say :
Arts.
5 to 11 do not make the corporation a
citizen; the Citizenship Act does not make the corporation a citizen there is
no other Indian law that makes the corporation a citizens; and so the problem
is solved : corporation is not citizen for the purpose of fundamental rights.
That" according to the respondent,
should end the search for light. I am unable Lo agree. After all it is a
constitution that we are interpreting and it has again and again been laid down
that those on whom falls this task have to take a broad and liberal view of
what has been provided and should not rest content with the mere grammarians'
role.
If, as is undoubtedly true, a syllogistic or
mechanical approach of construction and interpretation of statutes should
always be avoided, it is even more important when we construe a Constitution
that we should not proceed mechanically but try to reach the intention of the
159 Constitution-makers by examining the substance of the thing and to give
effect to that intention, if possible-.
There was some discussion at the Bar as to
whether there were citizens of India, even before the Constitution. It will
serve no useful purpose, in my opinion, to enter into that controversy. For, I
am inclined to think that the Constitution in dealing with the matter of
citizenship bad no intention to keep any former citizenship alive. If that had
been intended a suitable provision would have been made to make that clear. In
the absence of any provision to that effect it is difficult to hold that
citizenship as might have existed in pre-Constitution India continued even
after the Constitution.
Nor do I find it possible to agree that
because a company incorporated in India would be a national of India it would
necessarily be a citizen of India. Nationality and citizenship are not
identical; and it has been rightly said that while every citizen will be a
national, every national is not necessarily a citizen.
We are still left with the question whether
the framers of the Constitution when conferring some fundamental rights on
citizens only intended-that citizens forming themselves into a corporation
would cease to enjoy these rights. The peculiar position that results from the
strict 'legalistic approach to the problem can be best shown by means of an
illustration.
A, a citizen of India, whether under the
Constitution or under the Citizenship Act is entitled to the fundamental right
to acquire, hold and dispose of property under Art. 19 of the Constitution.
When A engages with another such citizen, B, in business the two can still come
to the courts to claim the benefit of the same fundamental right. The position
remains the same if A and B join more persons without incorporating themselves
into a company : even if the number is seven or more they can still join in the
same application and come to the court jointly for enforcement of their
fundamental right under Art. 19 when they are jointly engaged in the same
business. For, in all these cases the claim of each to the fundamental right
cannot be in law defeated by the fact that several other citizens have joined
him in making a similar claim for themselves. As soon as, however, two or more
persons who are in their 160 own right citizens of India form themselves into a
private company, or seven or more persons, each of whom is a citizen in his own
right, form a public incorporated company, they are faced with the proposition
that the company not being a citizen, it is excluded from the right which they
could have claimed.
It is well known that many years before 1950
when the Constitution came into force much of the trade and industry of this
country was being carried on by corporations. Most of these corporations were
and are composed of persons who are clearly citizens of India under the
provisions of the Constitution. The obvious effect of the strictly legalistic
approach that a corporation being an artificial person cannot be a citizen for
the purpose of any of the fundamental rights even when all its members are
citizens of India would thus be to deny a considerable part-if not the major
part of Indian industry and commerce (using the word "Indian" to mean
'carried on by Indian citizens') the valuable protection of the fundamental
rights under Art.
19(1)(f) and (g). No doubt the mere fact that
the effect is inconvenient or even regrettable can be no justification for a
forced construction of a constitutional provision. But it is permissible, nay
proper, often to consider the effect of proposed construction to find an answer
to the question was that the intention of the Constitution makers? What do we
find here? In Art. 19(1)(f) and (g) the Constitution-makers are creating a
right intended to be of great benefit to industry and trade. They decide to
restrict this benefit to only citizens of India. They are aware that much if
not most-of the trade and industry carried on by Indian citizens are carried on
by them, after forming themselves into corporations. They know equally well
that corporations are in law distinct entities from their members and so the
'State' naturally anxious to extend the domain where the restriction of
fundamental right on its powers does not operate, may well argue that
corporations even though composed entirely of citizens are not entitled to
fundamental rights. The concern of the Constitution makers to improve the
economic condition of the country is writ large over the Constitution's many
provisions. The question has reasonably been asked : why then did not the
Constitution-makers distinctly provide that corporations composed of Indian
citizens will be deemed to be citizens for at least the fundamental rights
under Art.
19(1) (f) and (g) ? The mystery disappears,
however, if we credit the Constitution-makers with the further knowledge that
in the United States of America when somewhat similar questions had arisen
regarding the character of corporations composed of citizens of a particular
State the courts had not hesitated to apply the process of what has been called
"tearing the veil" and granted to a corporation composed of citizens
of a State some of the rights of a citizen of that State, inspite of the fact
that the corporation as such is an artificial person distinct from its members.
Is it not reasonable to think that the makers of our Constitution trusted that
courts in India would also not hesitate to apply a similar process of going
under the surface and looking at the composition of the corporation, in deciding
whether the corporation is entitled to fundamental rights? In my judgment the
answer to the question must be in the affirmative. Indeed I would go further
and say that to take another view is an insult to the intelligence and
understanding of those who drafted the Constitution.
I am thus clearly of opinion that the
Constitution makers when they used the word "citizen" in Art. 19
intended that at least a corporation of which all the members were citizens of
India would get the benefit of the fundamental rights enshrined in that
Article. The legal position that the corporation is a distinct entity from its
members does not appear to me to create any real difficulty in the way of
giving effect to this intention. The proposition, viz., that the corporation is
a distinct legal entity from its members is too well established to require
discussion. I see no reason however why the charm of this legal learning should
so hold us captives as to blind us to the great rule of interpretation of
giving effect to the intention of those who made the law unless the words make
that impossible. I can find nothing in the words of the Constitution that stand
in the way of giving effect to the intention of the Constitution-makers of
giving all. citizens of India, whether forming into a corporation or not, the
benefit of the fundamental rights under Art. 19(1) (f) and (g). Whether the
Constitution-makers also 162 intended that a corporation of which the major
portion of the interest was held by citizens of India would also get the
benefits of the rights, it is unnecessary for the purpose of this case to
investigate.
This view of the law was taken, and in my
opinion rightly, by the Bombay High Court in The State of Bombay v. R.M.D. Chamarbaughuala(1).
It is of interest also to mention that in this view of the law it is possible
to appreciate what was said by way of dicta by Mr. justice Mukherjea (as he
then was) in Chiranjit Lal Choudhuri' v. The Union of India & ors.(2) :
"The fundamental rights guaranteed by
the Constitution are available not merely to individual citizens but to
corporate bodies as well except where the language of the provision or the
nature of the right compels the inference that they are applicable only to
natural persons. An incorporated company, therefore, can come up to this Court
for enforcement of its fundamental rights......." In that case the Court
had to consider an allegation of infringement of the fundamental rights not
only under Arts.
31 and 14 but also under Art. 19(1) (f).
While the observations of Mr. Justice Mukherjea may not perhaps be regarded as
a considered decision on the question now before us, it is not unreasonable to
think that his Lordship felt no difficulty about extending the fundamental
rights under Art.
19(1)(f) to the Sholapur Spinning and Weaving
Company, the share-holders of which were Indian citizens.
It is proper to mention this connection that
in the 13 years that have rolled by since the Constitution came into force
there have been many cases in which this Court as also the High Courts have
given companies of which the members were Indian citizens the benefit of
fundamental rights, special to citizens. In some of these cases the question
was sometimes raised whether or not a corporation was a citizen for the purpose
of the fundamental rights but that was left unanswered. Among the cases in
which relief claimed on fundamental rights, specially conferred on citizens has
been granted to corporations may be mentioned:
The Express Newspapers (Private) Ltd., v.
Union of (1) I.L.R. [1955] Bom. 680.
(2) [1950] S.C.R. 869.
163 India(1); The Bengal Immunity Co., v.
State of Bihar(2); The Bombay Dyeing & Manufacturing Co., Ltd., v. State of
Bombay(3).
In my judgment, therefore, the first question
referred to this Special Bench should be answered in the affirmative.
On the other question that has been referred,
I agree with the conclusion of my learned brother Shah J. that the State
Trading Corporation is not in substance a department and organ of the
Government of India. As I entirely agree with the reasoning on which he has
based this conclusion, I do not propose to discuss the matter further.
For the reasons mentioned above I would
answer the two questions referred to this Special Bench thus:(1) The State
Trading Corporation, so long as it consists wholly of citizens of India, can
ask for enforcement of the fundamental rights granted to citizens under Art.
19(1) (f) and (g) of the Constitution;
(2) The State Trading Corporation is not a
department or organ or the Government of India and can claim to enforce the
fundamental rights under Part III of the Constitution against the State as
defined in Art. 12 thereof.
SHAH J.-Or. May 18, 1956, the State Trading
Corporation of India Ltd.-hereinafter called 'the Company' was incorporated as
a Private Limited Company under the Indian Companies Act, 1956, with an
authorised capital of Rs. 5 crores divided into five hundred thousand shares of
Rs. 1.00 each. Ninety eight per cent of the subscribed capital which. was
contributed out of the funds of the Government of India stood registered in the
name of the President of India and the remaining two per cent in the names of
two joint Secretaries in the Ministry of commerce & Industries. On February
12 1961, the Commercial Tax Officer, Vishakhapatnam assessed the Company in the
sum of Rs. 5,79,198.17 nP. to sales tax in respect of certain transactions and issued
a notice demanding payment of the amount. The Company and Mr. K. B. Lall, Joint
Secretary, Ministry of Commerce & Industries then petitioned this Court for
a writ quashing the order of the Commercial Tax Officer and the notice (1)
[1959] S.C.R. 12.
(2) [1955] (2) S.C.R. 603.
(3) [1958] S.C.R. 1122.
164 of demand on the plea that the assessment
order and the notice of demand infringed the fundamental rights of the
petitioners, amongst others, under Art. 19(1)(f) and (g).
At the hearing of the petition; counsel for
the Commercial Tax Officer and the State of Andhra Pradesh submitted that the
petition was not maintainable because the Company was not a 'citizen' within
the meaning of Art. 19 of the Constitution, and in any event the Company being
"an organ, department or instrumentality" of the Government of India
was incompetent to enforce any fundamental right against the State of Andhra
Pradesh. The Court thereupon referred the following questions to a larger Bench
"(1) Whether the State Trading Corporation a Company registered under the
Indian Companies Act 1956 is a citizen within the meaning of Art. 19 of the
Constitution and can ask for the enforcement of fundamental rights granted to
citizens under the said article; and (2) Whether the State Trading Corporation
is notwithstanding the formality of incorporation under the Indian Companies
Act 1956 in substance a department and organ of the Government of India with
the entirety of its capital contributed by Government and can it claim to
enforce fundamental rights under Part III of the Constitution against the State
as defined in Art. 12 thereof ?" We are not at this stage concerned to
deal with any right which the second petitioner K. B. Lall may have, to maintain
the petition, for the questions deal only with the right of the Company to set
up the protection of Art. 19(1)(f) & (g) of the Constitution.
Article 19 guarantees certain basic freedoms
in favour of Citizens : it provides that "(1) All citizens shall have the
right(a) to freedom of speech and expression;
(b) to assemble peaceably and without arms;
(c) to form associations or unions;
(d) to move freely throughout the territory
of India-, (e) to reside and settle in any part of the territory of India;
(f) to acquire, hold and dispose of property;
and (g) to practise any profession, or to carry on any occupation, trade or
business." 165 The fundamental freedoms (exercise whereof is by cls. (2)
to (6) subject to certain restrictions) being expressly guaranteed to citizens,
the question which presents itself at the threshold is whether the Company can
claim to be a citizen and on that basis claim protection of the freedoms to
acquire, hold and dispose of property, and to carry on any trade, occupation or
business. The plea that a Company incorporated under the Indian Companies Act
is not a 'citizen' within the meaning of Art. 19 of the Constitution is
advanced principally on two grounds:
(1) That prior to January 26, 1950, there was
no law relating to citizenship in force in India and by Arts. 5 to 10 of the
Constitution only natural persons were for the first time declared citizens.
Under the provisions of the Citizenship Act, 1955, only natural persons may
claim rights of citizenship since the commencement of the Constitution. The
Company which came into existence after the promulgation of the Constitution
not being a citizen under the Citizenship Act, 1955, is therefore incompetent
to enforce the rights claimed by it, for Arts. 5 to 11 constitute an exhaustive
code relating to citizenship in India, and an artificial person not being of
the classes enumerated in Arts. 5, 6 & 8, nor under the Citizenship Act,
1955 (enacted in exercise of powers under Art. 11), the claim of the Company to
citizenship must stand rejected; and (2) Citizenship postulates allegiance to
the State of which a person claims to be a citizen and involves a duty to serve
when called upon in the Civil Administration, and in the defence forces in the
maintenance of peace or defence of the State in an emergency, and an artificial
person being incapable of owing allegiance and of rendering these services
cannot be regarded as citizen. This argument is based on what is called the
traditional concept of citizenship.
Counsel for the Company submits that
citizenship is the status which a person endowed with full civil and political
rights in a State possesses under its municipal law, and such rights inhere the
status of natural and artificial persons alike.
In determining the content of the expression
'citizen' used in Art. 19, which is defined neither in the Constitution 166 nor
in the General Clauses Act, it may, in the first instance, be useful to
consider the scheme under which the diverse fundamental rights are declared and
guaranteed by Part III of the Constitution and the extent of protection
afforded against infringement of those fundamental rights.
The Constitution in declaring the fundamental
rights uses different expressions to denote the beneficiaries of different
rights. By Arts. 14, 20(1), (2) & (3), 21, 22(1), (2) & (4), 25(1), 27,
28(3) and 31 certain fundamental rights are declared in favour of persons By
Arts. 16(1) & (2), 26(1) & (2), 19(1) and 29(2) citizens are the
recipients of fundamental rights guaranteed thereby.
Certain fundamental rights are declared in
favour of groups such as denominations, sections, minorities or institutions
e.g. Arts. 26, 29(1), 30(1) and 30(2): these would in the very nature of things
be groups of individuals. By certain other Articles prohibitions are declared
e.g. 17, 23(1), and 24 and 28(1) for removal of evils, such as untouchability,
traffic in human beings, forced labour, employment of children in hazardous
employment, and against imparting of religious instructions in educational
institutions. The expression 'citizen' used in Ch. III has undoubtedly narrower
connotation than 'person'. By Art. 367 of the Constitution read with s. 3(42)
of the General Clauses Act a "person" includes any company or
association or body of individuals whether incorporated or not. By declaring
rights in favour of persons, it may at first sight appear that it was intended
to confer those rights upon persons artificial as well as natural. But this
presumption is not in fact uniformly true. In Arts. 25(1), 28(3) and probably
Art. 20(3) by the use of the expression "person" having regard to the
character of the right conferred natural persons only could be the
beneficiaries of the rights declared thereby. By Art. 15(1) & (2)
prohibitions are Imposed against the State in making discrimination between
citizens on the ground of religion, race, caste, sex or place of birth cls. (1)
& (2) of Art. 16 declare equality of opportunity to citizens in matters of
public employment, and Art. 18(2) imposes restrictions on citizens against
acceptance of titles from any foreign State. In these Articles, the expression
citizen may refer only to a natural person. But that cannot be decisive of the
meaning of the expression 'citizen" in Art. 19. In ascertaining the
meaning of expressions used in a vital document like the Constitution of a
nation, a mechanical approach would be impermissible. The Constitution is but
the declaration of the will of the people, and must be interpreted liberally,
and not in any narrow or doctrinaire spirit. It must be interpreted according
to its true purpose and intent as disclosed by the phraseology in its natural
signification in the light of its setting and its dynamic character which is
intended to fulfill the aspirations of the people. There can be little doubt
that an artificial person like a Corporation is capable of exercising rights
conferred by cls. (a), (c), (f) and (g) of Art. 19(1) and the right to hold
property and the right to carry on trade or business are two rights of vital
importance vested in artificial persons and a substantial segment of trade and business
in India and abroad is carried on through corporate activity. On the view that
only a natural person having certain attributes under the municipal law may be
a citizen, the rights conferred by Art. 14 (equality before the law and equal
protection of the laws), Art. 27 (freedom from payment of taxes for promotion
of any particular religion or religious denomination), Art. 20(1) & (2)
(bar against retrospective operation of penal statutes, and rule against double
jeopardy) and Art. 31 (bar against deprivation of property otherwise than by
authority of law) are guaranteed even in the case of artificial persons, but
some of the most cherished rights i.e. right to acquire, hold and dispose of
property, and to carry on trade or business of artificial persons may not be
Protected against executive or legislative action. Was it intended by the
Constituent Assembly when declaring the freedoms under Art.
19 to make a deliberate departure, and in
respect ,of rights declared under Art. 19 to restrict the enforcement thereof
against action of the law makers or the executive ,only in favour of natural
persons and not in favour of artificial persons;) It is in this background we
may turn to the question whether, the declaration of citizenship under Arts. 5,
6 & 8 of the Constitution, and the Citizenship Act, 1955, was to be
exhaustive; or merely to deal with the rights of natural persons. It may be
necessary first to have a true concept of -citizenship and to ascertain whether
the common law of England which formed the foundation of the Indian jurisprudence,
attributed to artificial persons prior to the Constitution the status of
citizens or 'subjects' as it was usual to call them in a monarchical form of
Government.
Waite C.J. in Virginia L. Miner v. Reese
Happersett (1) observed :
"There cannot be a nation without a
people.
The very idea of a political community, such
as a nation is,, implies an association of persons for the promotion of their
general welfare. Each one of the persons associated becomes a member of the
nation formed by the association. He owes it allegiance and is entitled to its
protection. Allegiance, and protection are, in this connection, reciprocal
obligations. The one is a compensation for the other allegiance for protection
and protection for allegiance.
For convenience it has been found necessary
to give a name to this membership. The object is to designate by a title the
person and the relation he bears to the nation. For this purpose the words
"subject", "inhabitant" and "citizen" have been
used, and the choice between them is sometimes made to depend upon the form of
the government. Citizen is now more commonly employed, however, and as it has
been considered better suited to the description of one living under a
republican government, it was adopted by nearly all of the States upon their
separation from Great Britain, and was afterwards adopted in the Articles of
Confederation and in the Constitution of the United States. When used in this
sense it is understood as conveying the idea of membership of a, nation, and
nothing more." In the Digest of International Law (J. B. Moore) Vol. III,,
1906 Edn. at p. 273, it is stated:
"Citizenship, strictly speaking' is a
term of municipal' law, and denotes the possession within the particular state
of full civil and political rights, subject to special disqualification, such
as minority or sex.
The condition's on which citizenship is
acquired are regulated by, municipal law." In Oppenheim's International
Law (Lauterpacht) Vol. 1'. p. 644 it is stated:
(1) 21 Wall. 162 :88 U.S. 627.
169 "In the United States of America,
while the expressions 'citizenship' and 'nationality' are often used
interchangeably, the term 'citizen' is, as a rule, employed to designate
persons endowed with full political and personal rights within the United
States, while some persons-such as those belonging to territories and
possessions which are not among the States forming the Union-are described as
'nationals'. They owe allegiance to the United States and are United States
nationals in the contemplation of International Law; they do not possess full
rights of citizenship in the United States In the British Commonwealth of
Nations it is the citizenship of the individual States of the Commonwealth
which is primarily of importance for International Law, while the quality of a
'British subject' or 'Commonwealth citizen' is probably relevant only as a
matter of the Municipal Law of the countries concerned." Citizenship and
nationality emphasize different facets of a single concept of association with
or membership of a political community. The form and content of the association
have varied in their historical evolution with the complexion of the governmental
machinery, but in essence they denote the relation which a person bears to the
sovereign authority. Citizenship is the relation that a person bears to the
State in its national or municipal aspect;
nationality appertains to the domain of International
Law, and represents the political status of a person, by virtue of which he
owes allegiance to a particular sovereign authority. 'Citizen' and 'national'
are frequently used as interchangeable terms, but the two terms are not
synonymous.
Citizenship in most societies is the highest
political status in the State, it is employed to denote persons endowed with
full political and civil rights. There are in some States nationals who though
owing allegiance, lack citizenship such as those belong to colonial possessions
which are not included within the metropolitan territory, and (lo not
participate in the Government. Even in States where association of nationals in
the governmental machinery does not exist or is too tenuous to be effective,
the national endowed with capacity to exercise personal and political.
12-2 S. C. India 64 170 rights may be called
a citizen. Again there may be citizens even in States having a form of
government, which permits an effective association of its citizens with the administration,
who do not participate in the government, or who by reason of sex, minority or
personal disqualification are incompetent or are unable to participate.
Citizenship is therefore membership of a jural society investing the holder
with all the rights and privileges which are normally enjoyed by its nationals,
and subjecting him to corresponding duties; nationality is the link between a
person and a State, ensuring that effect be given to his rights in
international affairs. Every citizen is a national, but every national is not
always a citizen. The tie which binds the national and the citizen is the tie
of allegiance to the State; it arises by birth, naturalisation or otherwise in
a political society which is called a State, Kingdom or Empire.
Under the English common law, a company or a
corporation aggregate is regarded as possessing attributes which would make it
a national of the State in which it was incorporated and the incapacity of a
corporation aggregate to discharge obligations such as performance of military
or civil service, or to exercise franchise, has not been held to be a bar to
the recognition of its status as a national of the State of its incorporation.
This is reflected in the judicial decisions that public corporations aggregate
are nationals of the country of incorporation, irrespective of the nationality
of the share-holders. The English Statute Law did not regulate the nationality
of Corporations, but the decisions of the highest tribunals regarded them for
certain purposes as capable of possessing all the attributes of nationality. In
Janson v. Driefontain Consolidated Mines Ltd.(1) the House of Lords regarded a
company registered under the laws of the South African Republic as a national
of that State. The observations of Lord Macnaghten at p. 497, of Lord Davey at
p. 498, of Lord Barmpton p. 501 and of Lord Lindley at p. 505 proceed on the
view that the Company concerned in that case was a national of the Republic of
South Africa and the question as to the validity of the contract of insurance
by British underwriters against cap(1) L.R. (1902) A.C. 494.
171 ture during transit to the United Kingdom
by the foreign State before declaration of war was valid. Similarly Attorney
General v. Jewish Colonization Association(1) was decided on the footing that a
public Corporation is ,capable of nationality, and in General v. Selim
Cotrap(2) it was accepted that a public Corporation has the attributes of
nationality. In Gasque v. Commissioners of Inland Revenue(3) Macnaughten J., observed
:
"But by analogy with a natural person
the attributes of residence, domicile and nationality can be given, and are, I
think, given by the law of England to a body corporate. It is not disputed that
a company formed under the compaines Acts, has British nationality, though,
unlike a natural person, it cannot change its nationality." In Kuenigi v.
Donnersmarck(4) it was held that a company incorporated under the laws of
England and registered in England and so having an English domicile, and by analogy,
British nationality, did not cease by English law to be an English company
subject to English law merely because it was under enemy control. Mc. Nair J.
observed at p. 535:
'I think that it is also clear that, in so
far as nationality can by analogy be supplied to a juristic person, its
nationality is determined in an inalienable manner by the laws of the country
from which it derives its personality." The personality of a Corporation
aggregate therefore springs from the laws of the country in which it is
incorporated, and upon that personality is impressed the nationality of that
country, for the Corporation is by virtue of the law incorporating it capable
of exercising rights, is subject to obligations and by common acceptance is
entitled to claim protection in international affairs of the State of its
incorporation.
If a Corporation aggregate is a national, can
it be regarded as a citizen? According to our law a juridical person may
normally exercise all civil rights except those which from the nature of its
constitution or of the rights, cannot be exercised or enforced by the
Corporation. A (1) [1901] 1 K.B. 123.
(2) L.R. (1932) A.C. 288.
(3) L.R. [1940] 2 K.B. 80.
(4) L.R. [1955] 1 Q.B. 515.
172 juridical person may acquire, hold and
dispose of property, carry on trade or business, take up residence within the
territory and form associations. It is also liable to discharge obligations
which the nature of its incorporation permits. There are no special
restrictions placed upon its activity and upon exercise of its rights in its
corporate character. It is capable of exercising to the fullest extent a large
majority of civil rights which natural persons may exercise as citizens, its
incapacity to exercise others arises from the nature of its personality and
constitution and not from any special restriction imposed upon it. Undoubtedly
franchise cannot be exercised by the Corporations but the capacity to exercise
franchise is not a sine qua non of citizenship. The State normally affords to
Corporations protection as to its nationals abroad and recognises its corporate
character with capacity to exercise rights within the realm. In the matter of
protection, the law makes no distinction between natural persons and artificial
persons like corporations. Was it then intended by the Constitution which
afforded protection of the widest amplitude in favour of Corporations as well
as natural persons against discrimination under Art. 14, against deprivation of
property under Art. 31(1), against compulsory acquisition or, requisition of
property for purposes not public and without payment of compensation under Art.
31(2), against imposition of taxes the proceeds of which are specifically
appropriated for payment of expenses for maintenance of a particular religion
or religious denomination under Art. 27, against being subjected to taxation
without authority of law under Art. 265, and to the freedom of trade, commerce
and intercourse, subject only to the provisions of Part XIII, still did not
guarantee the right to carry on business of trade, to acquire, hold, and
dispose of property and the right to form associations. or the right to take up
residence of its choice within the territory ? Unless the language or the
scheme of the Constitution is so compulsive, it would be difficult to reach
that conclusion, on any predilection as to a limited connotation of the
expression citizen occurring in Art. 19(1). It may he remembered that
Constitutional practice is not inconsistent with the recognition of artificial
persons as citizens. The Constitution of the United States of Maxico 1917, of
El Salvador 1950, and of the Spanish People 173 do recognise the status of
Corporations as citizens. It was also not disputed at the Bar and could not
reasonably be disputed that it was open to the Constitution-makers, and the
Parliament of India to make express provisions declaring artificial persons as
citizens of India.
But it is urged that the intention of the
Constitution makers was not to recognise the corporate character of a Company
as a citizen. It is said that the provisions of Arts. 5, 6 and 8 and the law
made under Art. 11 in matters post-constitutional, are exhaustive of the
conferral of the right of citizenship and there can be no citizen who does not
satisfy the prescribed requirements. A necessary corollary of that thesis is
that there were no citizens in India before the Constitution-natural or
artificial-and it was by the Constitution and the Citizenship Act, 1955, that
only natural persons are made citizens and no one else.
To examine the validity of this assumption,
it is necessary to examine carefully the relevant provisions of the
Constitution and the material provisions which preceded the Constitution. It
must be conceded that persons mentioned in Arts. 5(1), 5(b), 6 and 8 are
natural persons and the expression 'person' in the context of those provisions
does not include artificial persons. Clause (c) of Art. 5 refers to persons
resident within the territory of India for not less than five years, and it may
be presumed that this clause was also intended to apply to natural persons.
Similarly by the definition contained in s. 2(f) of the Citizenship Act, 1955,
the Act is made applicable only to natural persons. But the assumption that
there were in India prior to January 26, 1950, no citizens, and citizenship
rights were conferred for the first time by the Constitution is not warranted
either by the language used in the Constitution, or the history of our national
evolution.
The status of British Indians prior to 1947
was governed by the British Nationality and Status of Aliens Act, 1914.
They were regarded as British subjects, and
entitled in British India to such rights and privileges as were accorded to
British nationals in India. Their status as British subjects was analogous to
the status of citizens of a republic. They exercised civil rights, and such
political rights as the form of Government permitted. If a citizen is a
national who under the law of the state is entitled to enforce full civil and
political rights, 174 British Indian subjects prior to the Constitution had
within the territory of British India that quality of rights which would go to
make them citizens. Similarly the subjects of the Indian States had the rights
of citizenship within their own States, and those rights were not affected by
the standstill and merger agreements of their rulers with the Dominion of
India. The thesis being merely to establish the existence of rights which were
analogous to rights of citizenship prior to the enactment of the Constitution,
it is unnecessary to enter upon a detailed examination of the constitutional
developments which took place between August 1947, and the 26th of November,
1949, which culminated in the setting up of the Republic of India by the
erstwhile British Indian subjects and the subjects of the Indian States. It may
be sufficient to observe that before the Indian Independence Act, 1947, the
Legislature was invested with the power to confer upon foreigners rights as
British Indians by naturalization, and had also sought to invest the Government
of the day with power to deny entry into India to foreigners or even of
nationals of British possessions.
Part II of the British Nationality &
Status of Aliens Act, 1914, relating to the naturalization of aliens was not
extended to British India, though Parts I & III were intended to apply to
all territories which formed part of the British empire subject to the
provisions of s. 26 of the Act which preserved the power of Colonial or
Dominion Governments and Legislatures to legislate on the subject of
nationality and to safeguard the validity of laws passed by them relative to
the treatment of different classes of British subjects. Under the Act of 1914
the place of birth within the British empire was determinative of British
nationality, but power was reserved to the Dominions and the Colonies by
legislation to make provision for naturalization restricted to their territory.
'the British Indian legislature in 1926 enacted the Indian Naturalization Act,
1926, which enabled the local Governments to grant certificates of
naturalization to persons applying in that behalf and satisfying the local
Government on matters specified therein. Power was also reserved to revoke the
certificates of naturalization. The Legislature also enacted the Immigration
into India Act, III of 1924, which authorised the Central Government to make rules
for the purpose of securing that persons not being of Indian ori175 gin,
domiciled in any British Possession, shall have no greater rights and
privileges, as regards entry into and residence in British India than are
accorded by the law and administration of such possession to persons of Indian
domicile. The effect of these statutory provisions was subject to certain
exceptions to recognize the right of British subjects in India and to
approximate them to the rights of citizenship, to grant such rights by
naturalization and to restrict immigration into India. The British Nationality
Act, 1948, was enacted after the Indian Independence Act, 1947, and was not
incorporated in the stream of the statute law in India. The effect of that Act
was to create a new statutory concept of citizenship of the various constituent
units of the British Commonwealth and to provide for a dual citizenship of the
country in which the local community resided within the units and of the
Commonwealth. The concept of allegiance which was the foundation of the status
of a subject, was excluded from the rules governing local citizen-Acts by
various Dominions and till the enactment of such Acts accorded to the citizens
potential or actual of any Dominion (which expression included India) the
status of Commonwealth citizen. In relation to this citizenship, allegiance to
the British Crown was not a condition.
This brief review of the legislative history
is sufficient to destroy the assumption that the status of citizenship was not
recognized under the common law operative in India prior to January 26, 1950,
for, in my judgment, British subjects of Indian origin held for all purposes
the status in British India of citizens. That status arose by birth and could
also be conferred by naturalization.
If a natural person could be a citizen prior
to November 26, 1949 (the day on which by Art. 394, Arts. 5 to 9 came into
force), there is no reason to suppose that artificial persons who were
nationals of the British Empire and who could claim the protection abroad could
not claim rights of citizenship within the territory of India, when they were
in fact exercising all the rights and privileges which natural persons who were
citizens exercised, except those which by their incorporation they could not
exercise. There was before the Constitution no statute which indicated even indirectly
that a Corporation aggregate could not be a citizen.
176 At the time when the Constitution of the
United States of America was proclaimed, no citizenship laws were enacted, but
rights of citizenship were recognized under diverse provisions of the
Constitution of the United States. The American Constitution recognised even
without any express statute law, citizenship of States, and also of the Union.
Under the Constitution of the United States
of America, the expression "citizen" has been given different
meanings under diverse Articles. In some clauses the expression
"citizen" meant only natural persons, in others it included
artificial persons like Corporations. Though Constitution as originally
proclaimed was silent upon the subject, corporations were regarded as citizens
of the State of their incorporation for the purpose of federal Jurisdiction.
Initially no corporation was regarded
according to the decisions of the Court in the United States as a citizen
within the meaning of Art. 3 s. 2 : The Bank of the United States v. Deveaux
et(1). But this view was modified in a later case : The Louisville, Cincinnati
& Charleston Railroad Company v. Thomas W. Letson (2 ). This case arose on
the interpretation of-' the "diversity clause" in Art. 3 s. 2. In
neither of these cases was the capacity of corporations to be citizens of the
State in which they were incorporated, denied. For the purpose of the 14th Amendment
which prohibits a State from making or enforcing any law which abridged
privileges or immunities of citizens of the United States, an individual alone
was regarded as a citizen : Orient Insurance Company v. Robert E. Daggs(3) and
Bankers Trust Company v. Texas & Pacific Railway(4). In cases arising under
Art. 4 s. 2 it was also held that a corporation could not be regarded as a
citizen of a State other than the State of its incorporation. In Paul v.
Firginia(5) Field J. delivering the opinion
of the Court observed at p. 359.
"But in no case which has come under our
observation, either in the State or Federal Courts, has a corporation been
considered a citizen within the meaning of that provision of the Constitution
which declares that the citizens of each State shall be entitled to all the (1)
3 L.Ed. 38. (2) 11 L.Ed. 353.
(3) 172 U.S. 552. (4) 241 U.S. 295.
(5) 75 U.S. 357.
177 privileges and immunities of citizens of
the several States." The learned judge however made it clear that he was
restricting the observations only to the claim of citizenship made by a
Corporation in a State other than the State which incorporated it.On p. 360 he
observed :
"......a grant of corporate existence is
a grant of special privileges to the corporators, enabling them to act for
certain designated purposes as a single individual, and exempting them (unless
otherwise specially provided) from individual liability. The corporation being
the mere creation of local law, can have no legal existence beyond the limits
of the sovereignty where created.
Having no absolute right of recognition in
other States, but depending for such recognition and the enforcement of its
contracts upon their assent, it follows, as a matter of course, that such
assent may be granted upon such terms and conditions as those States may think
proper to impose." It may be noticed that corporations have been regarded
as persons within the meaning of the 14th Amendment and therefore they cannot
be deprived of their property or rights without due process of law : Smyth v.
Ames(1) and Kentucky Finance Corporation v. Paramount Auto Exchange
Corporation(2). Our Constitution has not accepted the doctrine of due process
as a test for protection of fundamental freedoms, but has sought to effectuate
protection of those freedoms by the 19tb Article.
In this Court there has been no definite
expression of opinion about the rights of corporations aggregate to enforce the
fundamental freedoms under Art. 19 of the Constitution, though it seems to have
been consistently assumed that corporations aggregate are entitled to claim
protection of the Courts against violation of fundamental freedoms enumerated
in Art. 19(1). In Chiranjit Lal Chowdhuri' v. The Union of India(1), Mukherjea
J., observed "The fundamenal rights guaranteed by the Cons(1) 169 U.S.
466. (2 ) 262 U.S.
(3) [1950] S.C.R. 869, 893.
178 titution are available not merely to
individual citizens but to corporate bodies as well except where the language
of the provision or the nature of the right compels the inference that they are
applicable only to natural persons. An incorporated company, therefore, can
come up to this court for enforcement of its fundamental rights and so may the
individual shareholders to enforce their own, but it would not be open to an
individual shareholder to complain of an Act which affects the fundamental
rights of the company except to the extent that it constitutes an infraction of
his own rights as well." In that case an individual shareholder petitioned
this Court for the issue of a writ declaring that the Sholapur Spinning and
Weaving Company (Emergency Provisions.) Act (XXVIII of 1950) which enacted that
the managing agents of the Company stood dismissed and the Directors
automatically vacated their office, and which authorised the Government to
appoint new Directors and restricted the rights of shareholders in the matter
of voting and appointment of Directors, passing resolutions and applying for
winding up and which further authorised the Government to modify the Indian Companies
Act was ultma vires the legislative authority of Parliament, in that it
infringed the fundamental rights of the shareholders and the action taken
thereunder infringed the shareholders' fundamental rights under Arts. 19(1)(f),
31 and 14 of the Constitution. The Court in that case dismissed the petition
holding that the fundamental rights of the petitioner under Art. 31(1) &
(2), 19(1)(f) and 14 were not infringed. The observations of Mukherjea J.,
cannot be regarded as an expression of a considered opinion of the Court
holding that all fundamental rights are enforceable by individual citizens as
well as corporate bodies. The question was mooted in two later cases: The
Bengal Immunity Company Ltd v. The State of Bihar(1) and The State of Bombay v.
R.M.D. Chamarbauguvala(2). It may be pointed out that the High Court of Bombay
in The State of Bombay v. R.M.D. Chamarbaugwala(3) held that an application at
the instance of a corporation alleging infringement of a fundamental right (1)
[1955] 2 S.C.R. 603. (2) [1957] S.C.R. 874.
(3) I.L.R. [1955] Bom. 680.
179 to carry on business was maintainable.
Again in The State of West Bengal v. The Union of India(1) Sinha C.J., in
delivering the judgment of the majority observed :
"The fundamental rights are primarily
for the protection of rights of individuals and Corporations enforceable
against executive and legislative action of a governmental agency.
It may be pointed out that there have been
scores of cases in this Court in which it has been assumed without contest that
a company is a citizen, and competent to enforce fundamental rights under Art.
19(1) (f) & (g) of the Constitution, I propose only to set out a short
illustrative list of cases picked up at random :
(1) [1955] I. S. C. R. 752 Bijay Cotton Mills
Ltd. v. State of Ajmer.
(2) [1959] S. C. R. 1 Messrs Kasturi and Sons
(Private) Ltd. v. Shri N. Salivateeswaran.
(3) [1959] S. C. R. 12 Express Newspapers
(Private) Ltd. v. Union of India.
(4) [1960] 2 S. C. R. 408 Messrs Fedco (P)
Ltd. & Another v. S. M. Bilgram".
(5) [1960] 3 S. C. R. 328 ... M/S Hathisingh
Manufacturing Co. Ltd. v.
Union of India.
(6) [1961] 1 S. C. R. 379 Tata Iron &
Steel Co. Ltd.
v. S. R. Sarkar.
(7) A. I. R. 1963 S.C. 548 State Trading
Corporation of India Ltd. v. The State of Mysore.
There have arisen a number of cases in the
High Courts in which conflicting views have been expressed. In the
Narasaraopeta Electric Corporation Ltd. v. The State of Madras(2) the Madras
High Court held that Art. 19(1) (f) applies only to citizens and a company
incorporated under the Indian Companies Act does not satisfy the requirements
of the definition of citizen in Art. 5. This case reached the Supreme Court in
Rajahmundry Electric Supply Corporation Ltd. v. A Nageswara Rao(3), but the
question whether the fundamental right could be enforced by a company was, it
appears, not raised. In Jupiter General Insurance Company Ltd. v.
Rajgojalan(4), it was held by the Punjab (1) [1964] 1 S.C.R. 371. (2) A.I.R.
1951 Mad. 979.
( 3) [1955] 2 S.C.R. 1066. (4) I.L.R. [1952]
Punjab 1.
180 High Court that a company cannot raise
the question that an impugned legislation takes away or abridges the rights
conferred by Art. 19(1)(f) & (g) of the Constitution, because a company is
not a citizen. In Amrita Bazar Patrika Ltd. v. Board of High School and
Intermediate Education U.P.(1) a single judge of the Allahabad High Court held
that Art. 5 applied to natural-born persons and not to artificial persons and
hence a corporation is not a citizen within the meaning of Art. 19. But the
Rajasthan High Court in Maharaja Kishangarh Mills Ltd. v. State of Rajasthan (2)
assumed that the question whether a corporation was a citizen for the purpose
of Art. 19 was generally decided in Chairanjitlal Chowdhur's case(3) and held
that a corporation was entitled to raise by a petition under Art. 226 a plea of
a breach of a fundamental right under Art. 19. Authorities in the Calcutta High
Court appear to be somewhat conflicting. In Everett Orient Line Incorporated v.
Jasjit Singh(4) it was held that the rights conferred by Art. 19 being granted
only to citizens, non-citizens could not enforce such rights and the Company
incorporated in India not being a citizen could not challenge the validity of
ss.
52-A and 167(12-A) of the Sea Customs Act on
the ground that those provisions infringed Art. 19(1)(g) of the Constitution.
The same view was affirmed in Cherry Holsery Mills Ltd. v. S. K. Ghose(5). It
was held in that case that a company was not entitled to enforce the
fundamental rights granted under Art. 19, which are available only to citizens.
But it was held in M/s T. D. Kumar and
Brothers Private Ltd.
v. Iron and Steel Controller(6) that a
corporation ordinarily resident in India for a period exceeding five years
prior to the commencement of the Constitution being a person was a citizen
within the provisions of Art. 5(c) of the Constitution and entitled to enforce
fundamental rights under Art. 19(1), but a company incorporated after January
26, 1950, will not be regarded as a citizen., for the Citizenship Act expressly
excludes artificial persons from the benefit of citizenship rights. In
recording this conclusion the earlier judgment of the Calcutta (1) A.I.R. 195)
All. 595. (2) I.L.R. [1953] Raj. 363.
(3) [1950] S.C.R. 869, 893. (4) A.I.R. 1959
Cal. 237.
(5) A.I.R. 1959 Cal. 397. (6) A.I.R. 1961
Cal. 258.
181 High Court in Liberty Cinema v. The
Commissioner, CorPoration of Calcutta(1) was referred to, and it was pointed
out that in the group of cases which were then heard relief was granted to
petitioners some of whom were corporations claiming that their fundamental
rights were infringed.
In The State of Bombay v. R.M.D.
Chamarbaugtvala(2) in considering whether a company incorporated under the
Indian Companies Act prior to the Constitution could claim protection of its
fundamental rights under Art. 19(1)(g), Chagla C.J., speaking for the Court
observed ".......can it be said in the first place that a corporation can
ever be under any circumstances a citizen, and if it can be so said, 'What must
be the constitution of the corporation before it could be said that it is a
citizen? "Citizen" has not been defined by the Constitution and the
only provision which is relevant is the provision contained in Art.
5. But that article only deals with the
citizenship at the commencement of the Constitution and it lays down who was a
citizen at the commencement of the Constitution. although domicile is a
question of private international law, rights and acquisition of citizenship is
a creation of municipal law and it is only Parliament by municipal law that can
determine who is a citizen. It would be perfectly competent to Parliament by
legislation to provide that a corporation satisfying certain conditions should
be deemed to be a citizen for the purpose of Art. 19(1) but Parliament has not
done so. But the very curious anomaly that arises is that when we turn to some
of the provisions of Art. 19(1) it is impossible to contend that it could ever
have been the intention of the Constituent Assembly that the rights guaranteed
by those provisions were not to apply to corporations but only to individual
citizens. Take two of the rights guaranteed under Art. 19(1)(f) and (g). Can it
be suggested that a corporation which, let us (1) A.I.R. 1959 Cal. 45.
(2) I.L.R. [1955] Bom. 680.
182 assume, is Indian in every sense of its
termits shareholders are Indians, its directors are Indians, its capital is
Indian-that such a corporation should not have the right under cl. (f) to
acquire, hold and dispose of property, or under cl. (g) to practice any
occupation, trade or business?" In The Assam Company Ltd. v. The State of
Assam(1) the High Court of Assam proceeded to consider the claim for protection
of fundamental rights under Art. 19(1)(f) on the assumption that a corporation
could seek to enforce those rights.
In Reserve Bank of India v. Palai Central
Bank Ltd.(2) Raman Nayar J. observed :
"Many of the rights in Art. 19(1) and,
in particular those in clauses (f) and (g) thereof, are capable of. enjoyment
by companies. Our Constitution-makers could not have been unaware of the
existence of legal persons. By Article 19(1)(c) they gave all "citizens
the right to form associations and unions, and it could not have been their
intention that the corporate bodies so formed by citizens, should be denied the
rights guaranteed to the individual citizens, in particular that the agencies
through which a substantial portion of their business is conducted by the
citizens of this country and a considerable portion of their property held,
should not have the protection of clauses (f) and (g).
That would mean a denial of the fundamental
rights to property and occupation not merely to companies but to all corporate
bodies even though they may be Indian in every sense of the term, their members
Indian, directors Indian, and capital Indian,a denial which virtually amounts
to a denial of those fundamental rights to the citizens who (though, of course,
different persons) really constitute those bodies." The Palai Central
Bank's case(2) was carried to this Court in appeal, and the Court entered upon
an exhaustive discussion of the complicated questions raised (1) A.I.R. 1953
Assam 177. (2) I.L.R. [1961] Kerala 166.
183 therein, instead of disposing of the
appeal on the limited ground that the Palai Bank was not a citizen and could
not claim any fundamental rights under Art. 19(1)(f) and (g) :
Joseph Kuruvilla Vellukunnel v. Reserve Bank
of India(1).
It was submitted that he alone can be a
citizen who can take an oath of allegiance to the State because the bond of
citizenship arises by virtue of the allegiance which the citizen bears to the
State. Municipal laws of various States do insist upon an oath of allegiance
being taken on naturalisation, but the actual swearing of an oath of allegiance
is not one of the conditions which go to make or constitute the right of
citizenship. Children of Indian citizens become citizens by their birth and
taking of oath or even capacity to swear an oath of allegiance is not
predicated as a condition of citizenship. If allegiance may be presumed from
birth and the requirement of taking a formal oath of allegiance is not a
condition of citizenship the law proceeding upon a presumption of allegiance in
respect of natural persons, I see no reason why such a presumption of
allegiance may not be made in respect of artificial persons like corporations.
It was also submitted that corporations are
incapable of rendering military service, or to assist in the maintenance of
peace when called upon to serve the State. But that again, in my view, is not a
ground on which the rights of citizenship could be denied. Incapacity to render
service may arise on account of diverse causes such as infancy, physical or
mental incapacity, and such incapacity in the case of a natural person will not
deprive him of the rights of citizenship. By reason of their constitution,
artificial persons are incapable of rendering service-military or civil but
that may not by itself be a ground for holding that they cannot be citizens. If
the corporations or artificial persons can be regarded as nationals of the
State where they are incorporated and if they are permitted to exercise the
various functions for which they are constituted and no prohibition is imposed
upon them in the enforcement of the rights similar to those which are
enforceable by natural per (1) A.I.R. 1962 S.C. 1371.
184 sons who are citizens, notwithstanding
the special character of the corporations and their incapacity to perform
duties or to exercise such other rights which natural persons may possess, it
will not be a ground for depriving them of the rights of citizenship for
enforcing the fundamental rights under Art. 19.
Two views are presented before us as to the
meaning of the expression "citizen" used in Art. 19(1). On the one
hand it is said that a citizen is a person natural or artificial who is
entitled to all the rights which are capable of being enjoyed by the citizens
under the municipal law as distinguished from persons who are aliens or persons
who arc not competent to exercise such rights. The distinction, according to
this view, springs from the capacity to exercise the rights-whether the body
which exercises the rights is a natural person or an artificial person. The
other view is that citizens are only natural persons who being national and not
aliens are under the municipal law competent to exercise all the rights which
the State permits. This view proceeds on the assumption that an artificial
person can never be a citizen and it is only the natural persons who can be
citizens. But having regard to the privileges and duties of nationals competent
by the municipal law to exercise full political and civil rights, and also
having regard to the fact that companies invested with important fundamental
rights like equality before law, protection against taking of property without
authority of law, protection against acquisition of property without payment of
compensation or without public purpose, protection from imposition of taxes for
sectional purposes, and also having regard to the fact that the companies are
persons by their constitution and by the recognition afforded to them are
competent to hold property and a dispose of property and to carry on trade, business,
vocation or occupation and are protected from levy of taxes without authority
of. law and are guaranteed the freedom of trade, commerce and intercourse it
would be difficult to hold that the expression citizen" used in Art. 19
was intended to have a restricted meaning of one who is a natural person.
The alternative argument submitted by Mr.
Setalvad based upon the decision of the Bombay High Court in The 185 State of
Bombay v. R.M.D. Chamarbaugwala(1) need not then be considered in any detail. Chagla,
C.J., in delivering the judgment of the Court relying upon a number of cases
which arose under Art. 3 s. 2 of the Constitution of the United States of
America expressed the view that it was open to the Court "to tear the
corporate veil" and to look behind it and if all the shareholders of the
corporation are found to be citizens, the corporation should not be denied the
fundamental rights which each of the shareholders has under Art. 19(1)(g) of
the Constitution. In reaching that conclusion the learned Chief justice relied
upon the observation made by Mukherjea J., in Chiranjit Lal Chowdhury's case(2)
which have already been set out. I am however unable to agree with the
principle enunciated by the learned Chief justice. A corporation is distinct from
the shareholders who constitute it. The theory of corporate existence
independent of shareholders, and its capacity to exercise rights has been built
on Salomon v. Saloman and.
Company Ltd.(3). The rights and obligations
of the company are different from the rights and obligations of the
shareholders. By action taken against the company, the shareholders may be
indirectly affected because their interest in the capital of the company is
reduced. But action taken against the company does not directly affect the
shareholders. The company in holding its property and carrying on its business
is not the agent of the shareholders. Mukherjea J. in Chiranjit Lal Chowdhury's
case (2) pointed out the difference in the passage already quoted between the
rights of the company and the shareholders. Even if a company consists of
shareholders who are all Indian citizens, the company has still a distinct
personality and an infringement of the rights of the company alone will not
furnish a cause of action to the share holders. The doctrine of what is called
ripping open the Corporate veil was evolved by American jurists in dealing with
cases under the "diversity of jurisdiction" clause to enable
companies constituted within one State to have recourse to the Federal Courts
in respect of disputes arising in other States as citizens. If the company is
not a citizen it would be difficult to found a claim upon this doctrine
attributing status of (1) I.L.R. [1955] Bom. 680. (2) [1950] S.C.R. 869, 893.
(3) L.R. (1897) A.C. 22.
13-2 S. C. India/64 186 citizenship to the
company relying upon the status of its shareholders and thereby to enforce
rights of the shareholders as if they were the fundamental rights of the Company.
In enforcing the rights of the shareholders, as if they were the rights of the
company as envisaged by Chagla C.J. numerous practical difficulties may arise.
Suppose in the case of a company a substantial number of shareholders though
not the majority are aliens, would it be -possible for the Court to attribute
right of citizenship to the company relying upon the citizenship of some of its
members so as to enable it to enforce fundamental rights under Art. 19?
Similarly in a case where a company incorporated in India may have a majority
of its shareholders aliens. Would it be possible for the Court to enter upon an
enquiry and to deny the rights of citizenship notwithstanding the place of its
incorporation, because a majority of its members are aliens? The shareholding
may vary from time to time : to-day the shareholding of aliens may exceed the
shareholding of citizens and the next day the position may be revised. Can it
be said that the company goes on changing its citizenship, according as the
shareholding fluctuates between nationals and aliens? If the place of
incorporation and the centre of management of its affairs do not confer right
of citizenship upon the company, it would be impossible to project the
citizenship of the shareholders upon the company so as to enable it to claim
this reflected right and on that basis to claim relief for breach of
fundamental rights.
The first part of the second question raises
what is essentially a question of fact. The State Trading Corporation was, on
the date of the petition, functioning under the direct supervision of the
Government of India, the shareholding was in the names of the President and two
Secretaries to the Government and its entire subscribed capital was contributed
by the Government of India. But it is a commercial body, incorporated as the Memorandum
of Association indicates to organise and undertake trade generally with State
Trading countries as well as other countries in commodities entrusted to it for
such purpose by the Union Government from time to time and to undertake
purchase, sale and transport of such commodities in India or anywhere else in
the world and to do various acts for that pur187 pose. The Articles of
Association make minute provisions for sale and transfer of shares, calling of
general meetings, procedure for the general meetings, voting by members, Board
of Directors and their powers, the issue of dividend, maintenance of accounts
and capitalisation of profits. The State Trading Corporation has been
constituted not by any special statute or charter but under the Indian Companies
Act as a Private Limited Company. It may be wound up by order of a competent
Court. Though it functions under the supervision of the Government of India and
its Directors; it is not concerned with performance of any governmental
functions. Its functions being commercial, it cannot be regarded as either a
department or an organ of the Government of India. It is a circumstance of
accident that on the date of its incorporation and thereafter its entire
share-holding was held by the President and the two Secretaries to the
Government of India.
Strong reliance was sought to be placed upon
the decision of the House of Lords in Bank Voor Handel En Scheepvasrt N.V. v.
Administration of Hungarian Property(1) in support of the contention that the
State Trading Corporation, which is the first petitioner in this case, was
merely an agent of the Government of India. That was a case in which after the
invasion of Holland in 1940, certain stocks of gold belonging to a Dutch
banking corporation in London were transferred to the Custodian of Enemy
Property, who sold the same and invested and reinvested the proceeds. These
investments were subsequently transferred to the Administrator of Enemy
Property in the erroneous belief that they were the property of a Hungarian
national. After the termination of hostilities the Bank obtained judgment for
recovery of the proceeds of sale, together with interest or other profits
earned thereon. During the management of the Custodian, tax was paid to the
British Treasury on the income received by him by the sale of the stocks of
gold but the Bank claimed that it was entitled to recover a sum equivalent to
an amount assessed on the Custodian as tax in respect of the income of the
invested proceeds of sale and paid by him. The House of Lords by a majority
held that if the Custodian had asserted Crown (1) L.R. (1954). 584.
188 immunity, he would not have been obliged
to pay tax on the income, for the Custodian was a servant or agent of the Crown
and under the 'trading with the enemy legislation' the Crown had sufficient
interest to enable it to invoke immunity from tax if it chose to do so even if
the Crown had no beneficial interest in the income. The principle of that case,
in my judgment, has no application in the present case. The Custodian who was
constituted a Corporation sole was regarded by the House of Lords as entitled
in the circumstances of the case to Crown immunity from payment of income-tax.
The question whether the corporation either
sole or aggregate is an agent or servant of the State must depend upon the
facts of each case. In the absence of any statutory provision a commercial
corporation acting on its own behalf, even if it is controlled wholly or
partially by a Government Department, will be presumed not to be a servant or
an agent of the State. The fact that a Minister appoints the members of the
Corporation and is entitled to call for information and to supervise the
conduct of the business, does not make the Corporation an agent of the
Government. Where, however, the Corporation is performing in substance
governmental, and not commercial functions an inference that it is an agent of
the Government may readily be made.
In Tamlin v. Hannaford(1) a house had vested
by the operation of the Transport Act, 1947, in the British Transport
Commission and the question arose whether the house could be regarded as owned
by the Crown and administered by the British Transport Commission as Crown's agent.
Denning L.J., pointed out that the Minister of Transport had extensive powers
over the British Transport Commission. The Minister had powers as great as
those of a man who holding all the shares in a private company possesses. He
appointed the Directors i.e. the Members of the Commission and fixed their
remuneration. They were bound to give him the information he wanted, he was
entrusted with power to give directions of a general nature, in matters which
appeared to him to affect the national interest, as to which he was the sole
judge and the Commissioners were bound to obey him.
Notwithstanding these great powers (1) L.R.
(1950) 1 K.B 18.
189 the Corporation could not be regarded as
an agent of the Minister any more than the Company is the agent of the
share-holders or even of the sole shareholder. Denning L.J., observed :
"In the eye of the law, the corporation
is its own master and is answerable as fully as any other person or
corporation. It is not the Crown and has none of the immunities or privileges
of the Crown. Its servants are not civil servants, and its property is not
Crown property. It is as much bound by Acts of Parliament as any other subject
of the King.
It is, of course, a public authority and its
purposes, no doubt, are public purposes, but it is not a government department
nor do its powers fall within the province of government." The assumption
underlying the second question that a department and organ of the Union or the
State even if it is entitled to be called a citizen cannot claim to, enforce
fundamental rights under Part III of the Constitution against the
"State" as defined in Art. 12 thereof needs to be examined. Assuming
that the State Trading Corporation is a department or organ of the Government
of India, it is not still seeking to enforce any fundamental rights against the
Union of India; it is seeking to enforce its rights against the State of Andhra
Pradesh. By Art. 12 of the Constitution the Union as well as the State of
Andhra Pradesh are States.
Assuming that the State Trading Corporation
be regarded as 'the State' within the meaning of Art. 12 of the Constitution,
if it be regarded as a citizen there is nothing in Art. 19 which prohibits
enforcement by the citizen of the fundamental rights vested in it. For the application
of Art. 19, two conditions are necessary-(1) that the claimant to the
protection of the right must be a citizen and (2) that the right infringed must
be one of the fundamental freedoms mentioned in Art. 19 If these two conditions
are fulfilled, the citizen would, in my judgment, be entitled subject to the
restrictions imposed by the Article to enforce the rights against their
infringement by action executive or legislative by any Government or the
Legislature of the Union or the State and all local or other authorities within
the territory of India or under the control of the Government of India. There
is no warrant for restricting the enforcement of these rights on :some
implication that an agent or servant of the State if he 190 or it be a citizen
cannot enforce the fundamental rights against another body which can be
regarded also as a State within the meaning of Art. 12 of the Constitution.
In my view, therefore, the first question
should be answered in the affirmative, and the first part of the second
question in the negative. The answer to the second part of the second question
will be as follows : even if the State Trading Corporation be regarded as a
department or organ of the Government of India, it will, if it be a citizen
competent to enforce fundamental rights under Part III of the Constitution
against the State as defined in Art. 12 of the Constitution.
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