Case Note & Summary
The case involved a group of writ petitions filed under Article 32 of the Constitution of India by several companies, including Tata Engineering and Locomotive Co. Ltd., against the State of Bihar and others. The petitioners challenged sales tax demands made by Sales Tax Officers under various State Sales Tax Acts. They contended that the transactions in question were inter-State sales and therefore protected under Article 286(1)(a) of the Constitution, which prohibits a State from imposing tax on sales or purchases taking place outside the State. The Sales Tax authorities had rejected this contention and held that the transactions were taxable. The petitioners alleged that the erroneous levy of sales tax violated their fundamental rights under Article 31(1) and sought orders setting aside the directions of the Sales Tax authorities. A preliminary objection was raised by the respondents that the writ petitions were not competent because they were filed by corporations or companies, which are not citizens under Article 19 of the Constitution. The petitioners argued that the right to move the Supreme Court under Article 32 is itself a fundamental right, and that since companies are associations of shareholders, the shareholders joining as co-petitioners should be allowed to maintain the petitions. They relied on the doctrine of lifting the corporate veil, contending that in substance corporations are nothing more than aggregations of shareholders and members. The Supreme Court, comprising Chief Justice P.B. Gajendragadkar and Justices K.N. Wanchoo, J.C. Shah, N. Rajagopala Ayyangar, and S.M. Sikri, dismissed the writ petitions. The Court held that corporations and companies are not citizens within the meaning of Article 19 and therefore cannot claim fundamental rights guaranteed by that Article. The Court reiterated the principle that a corporation has a separate legal entity distinct from its shareholders. Its business is its own business, not the business of the citizens who formed it. The Court rejected the argument that shareholders could indirectly achieve what the company could not directly achieve, stating that allowing such a plea would effectively nullify the constitutional limitation. The Court also held that the doctrine of lifting the corporate veil, though recognized in certain exceptional cases, did not apply to the present case. The presence of one or two shareholders as co-petitioners did not cure the defect of incompetence. Accordingly, the writ petitions were dismissed as incompetent.
Headnote
A) Constitutional Law - Fundamental Rights - Corporation Not a Citizen - Constitution of India, Article 19 - A corporation has a distinct legal entity separate from its shareholders and its business is not the business of its shareholders; therefore, a corporation cannot claim fundamental rights guaranteed to citizens under Article 19. The petitioners' contention that shareholders should be allowed to file petitions because companies are associations of shareholders was rejected. Held that corporations cannot achieve indirectly through shareholders what they cannot achieve directly (Paras Not mentioned). B) Company Law - Corporate Veil - Separate Legal Entity - Exceptions to corporate veil not applicable to claim fundamental rights - Indian Companies Act, 1913 - The court reiterated that a corporation is in law equal to a natural person with its own name, seal, assets, and liabilities, and its creditors cannot reach members' assets. The doctrine of lifting the corporate veil has been applied in some cases, but not to convert a company into an aggregation of citizens for Article 19 purposes. Held that the present case did not fall within any recognized exception to the separate legal entity rule (Paras Not mentioned). C) Writ Jurisdiction - Article 32 - Locus Standi of Corporations - Constitution of India, Article 32 - Since the petitioners were corporations and not citizens, their writ petitions under Article 32 for enforcement of Article 19 rights were incompetent. The presence of one or two shareholders as co-petitioners did not cure the defect. Held that the petitions were dismissed on this preliminary ground (Paras Not mentioned).
Issue of Consideration
Whether a corporation or company is a citizen under Article 19 and whether a writ petition under Article 32 filed by a corporation claiming a fundamental right guaranteed under Article 19 is competent; whether shareholders joining as co-petitioners can make the petition maintainable; whether the doctrine of piercing the corporate veil can be invoked to enable the company or its shareholders to claim Article 19 rights.
Final Decision
The writ petitions were dismissed as incompetent. The Court held that corporations and companies are not citizens under Article 19 of the Constitution and cannot claim fundamental rights guaranteed by that Article. The presence of one or two shareholders as co-petitioners did not cure the defect. The doctrine of lifting the corporate veil was not applicable.
Law Points
- A corporation or company has a separate legal entity distinct from its shareholders
- a corporation is not a citizen under Article 19 of the Constitution and cannot claim fundamental rights under that Article
- a writ petition under Article 32 by a corporation or company for enforcement of Article 19 rights is incompetent
- shareholders cannot indirectly enforce rights through the corporate veil
- the doctrine of lifting the corporate veil does not apply to treat a company as an association of citizens for claiming fundamental rights
- the business of a company is the business of the company itself and not the business of its shareholders
