Tata Engineering And Locomotive Co. Ltd vs State Of Bihar And Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 25 February 1964

Coram: P.B. Gajendragadkar, K.N. Wanchoo, J.C. Shah, N. Rajagopala Ayyangar, S.M. Sikri

The matter before the Supreme Court of India was titled Tata Engineering and Locomotive Co. Ltd versus State of Bihar and others, and the judgment was delivered on 25 February 1964. The case was reported in 1965 AIR 40 and 1964 SCR (6) 885, with subsequent citations including D 1970 SC 564, RF 1973 SC 106, R 1974 SC 1300, R 1981 SC 1368, RF 1983 SC 937, RF 1984 SC 420 and RF 1986 SC 1370. The bench comprised Chief Justice P. B. Gajendragadkar, Justice K. N. Wanchoo, Justice J. C. Shah, Justice N. Rajagopala Ayyangar and Justice S. M. Sikri. The petitioner was Tata Engineering and Locomotive Co. Ltd, and the respondents were the State of Bihar together with other parties.

The petitioner challenged orders of the Bihar sales‑tax authorities that required it to pay sales tax on certain transactions it had carried out within the State. The petitioner contended that the sales in question had taken place outside the territorial limits of Bihar and therefore fell within the protection of Article 286(1)(a) of the Constitution, which exempts sales made outside a State from that State’s sales‑tax on the basis of the freedom of trade guaranteed by Article 19. The sales‑tax authorities rejected the contention and held that Article 286(1)(a) was not applicable to the petitioner. Consequently, the petitioner filed writ petitions under Article 32 of the Constitution, seeking a declaration that the tax demand was unconstitutional.

The respondents raised a preliminary objection, arguing that the writ petitions were not maintainable because they were filed by a corporate entity. The respondents asserted that Article 19 confers rights only on citizens and that a corporation cannot be a citizen; therefore, the petitioner could not invoke the fundamental right guaranteed by Article 19. The petitioners further argued that, although one or two shareholders of the corporation had joined the proceedings, the petitions should be treated as competent because the corporation was merely an association of its shareholders.

The Court dismissed the writ petitions as incompetent. It held that Article 19 guarantees rights only to individual citizens and that an association, even if composed of citizens, cannot claim the fundamental rights under that article simply by virtue of being an aggregation of persons. The Court explained that once a company or corporation is formed, the business it conducts is the business of the corporate entity itself, not the business of the individual shareholders who founded or invested in it. Accordingly, the rights of the incorporated body must be assessed on the basis of its separate legal personality, and they cannot be equated with the rights of the shareholders as individuals. The Court rejected the petitioners’ argument that shareholders could invoke the writ on the corporation’s behalf, emphasizing that allowing such a claim would effectively permit corporations to achieve through indirect means what they are legally unable to achieve directly, contrary to the Constitution’s intention that corporations are not citizens and therefore are not entitled to the protections of Article 19.

In this case, the Court observed that corporations cannot achieve the benefits of Article 19 directly, but might attempt to do so indirectly by invoking the doctrine of lifting the corporate veil. The Court noted that if corporations and companies are not regarded as citizens, the Constitution evidently intended that they should not be entitled to the protections of Article 19. The Court explained that, under law, a corporation is treated as an entity equal to a natural person and possesses its own distinct legal existence. This legal personality is entirely separate from that of its shareholders; the corporation bears its own name, uses its own seal, and holds assets that are separate and distinct from the personal assets of its members. The Court further stated that a corporation may sue and be sued in its own name for its own purposes, and that its creditors cannot claim satisfaction from the assets belonging to its shareholders. The liability of shareholders is limited to the capital they have invested, and the creditors of the shareholders have no claim on the corporation’s assets. The Court acknowledged that there are limited exceptions to the rule that a corporation enjoys an independent legal entity, and that courts have sometimes applied the doctrine of lifting the veil to examine the substance behind the corporate form. However, the Court clarified that none of those exceptions applied to the present matter. The Court then listed a series of authorities where the doctrine of lifting the veil had been considered, namely State of Trading Corporation of India Ltd. v. The Commercial Tax Officer & Ors., A.I.R. 1963 S.C. 1811; Smt. Ujjam Bai v. State of Uttar Pradesh, [1963] 1 S.C.R. 778; Indo‑China Steam Navigation Co. Ltd. v. Additional Collector of Customs, [1964] 6 S.C.R. 594; Kailash Nath v. State of U.P., A.I.R. 1957 S.C. 790; Thakur Amar Singhji v. State of Rajasthan, [1955] 2 S.C.R. 303; M/s. Mohanlal Hargovind v. State of Madhya Pradesh, [1955] 2 S.C.R. 509; Y. Mahaboob Sheriff v. Mysore State Transport Authority, [1960] 2 S.C.R. 146; J. V. Gokar & Co. (P) Ltd. v. Assistant Collector of Sales‑tax (Inspection), [1960] 2 S.C.R. 852; Universal Imports Agency v. Chief Controller of Imports & Exports, [1960] 1 S.C.R. 305; State Trading Corporation of India Ltd. v. State of Mysore, 14 S.T.C. 188; State Trading Corporation of India Ltd. v. State of Mysore, 14 S.T.C. 416; Salomon v. Salomon & Co., [1897] A.C. 22; H.L. The English & Scottish Joint Co‑operative Wholesale Society Ltd. v. Commissioner of Agricultural Income‑tax, Assam, 1948 I.T.R. 270; Daimler Company Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd., [1916] A.C. 307; and All India Bank Employees’ Association v. National Industrial Tribunal & Ors., [1962] 3 S.C.R. 269, all of which were cited for reference. The judgment was issued under criminal jurisdiction for Writ Petitions Nos. 112 and 113 of 1961, filed under Article 32 of the Constitution of India for enforcement of fundamental rights. Counsel for the petitioners appeared on behalf of the petitioners in Writ Petitions Nos. 112 and 113 of 1961 and Writ Petitions Nos. 79 to 80 of 1962. Counsel for the respondents represented the respondents in Writ Petitions Nos. 112 and 113 of 1961. The Additional Solicitor‑General and other counsel also appeared for the respondents.

The petitioners were assisted by G. S. Pathak, B. Dutta, J. B. Dadachanji, O. C. Mathur and Ravinder Narain in the writ petitions numbered 202 to 204 of 1961, while the respondents in writ petitions 79 and 80 of 1962 were represented by counsel whose names were listed earlier. In writ petitions 202 and 203 of 1961, the respondents were represented by A. Ranganadham Chetty and T. V. R. Tatachari, and in writ petition 204 of 1961, the respondent was represented by Lal Narain Sinha, M. K. Ramamurthi, R. K. Garg and S. C. Agarwal. The judgment was delivered on 25 February 1964 by the Chief Justice, Gajendragadkar. The Court noted that these writ petitions were grouped together for hearing because each petition raised the same question of law concerning the validity of sales‑tax demands imposed by various Sales‑Tax Officers in different jurisdictions. Although the factual circumstances and the years to which the tax demands related differed among the petitions, the pattern of claim and the arguments advanced by the petitioners were identical across all of them.

The petitioners contended that the authorities, acting under the different Sales‑Tax Acts, were attempting to levy sales‑tax on transactions in which the petitioners were involved, even though those transactions were not subject to taxation under Article 286 of the Constitution. Article 286(1)(a) expressly provides that no law may impose, or authorise the imposition of, a tax on the sale or purchase of goods when such sale or purchase occurs outside the State. The petitioners argued that every transaction in dispute concerned sales that took place outside the State and therefore fell within the protection of Article 286(1)(a). The Sales‑Tax authorities, however, rejected this contention, holding that the transactions were not inter‑State sales and that Article 286(1)(a) did not apply. A comparable conclusion was reached with respect to Article 286(2). The petitioners maintained that this erroneous classification resulted in the levy of tax on transactions shielded by Article 286(1)(a), thereby infringing their fundamental rights under Article 31(1). They sought relief under Article 32(1), asserting that the very right to approach the Court under Article 32(1) is itself a fundamental right, and therefore, under Article 32(2), the Court should set aside the directions issued by the Sales‑Tax authorities that required the petitioners either to pay the tax or to comply with additional orders. The Court observed that it was unnecessary to repeat the detailed facts of each individual petition and, for convenience, would refer to the facts as previously outlined.

The petitioner, Tata Engineering & Locomotive Co. Ltd., was identified in writ petitions numbered 112 and 113 of 1961. The company had been incorporated under the Indian Companies Act, 1913 and was engaged in the manufacture of diesel truck and bus chassis, together with the spare parts and accessories for those vehicles, at its plant in Jamshedpur, located in the State of Bihar. Its commercial operations extended nationwide; the firm sold its manufactured products to dealers, State Transport Organisations and other business entities across various Indian states, while its registered office was situated in Bombay. To facilitate nationwide distribution, the petitioner entered into separate dealership agreements with numerous parties, and it carried out its trade in each region by supplying its products to the dealers pursuant to the terms of those agreements. Accordingly, the petitioner distributed and sold its vehicles to dealers, State Transport Organisations and end‑consumers in the manner described in the petitions. The petitioner argued that the sales forming the subject of the present petitions were part of inter‑State trade and therefore could not be taxed under the relevant provisions of the Sales Tax Act. By contrast, the Sales‑tax Officer asserted that the sales had occurred within the territorial limits of Bihar, characterising them as intra‑State sales that were subject to assessment under the Bihar Sales Tax Act, and consequently threatened further action to recover the sales‑tax assessed by the appropriate authorities. The petitioner was a company whose majority shareholders were Indian citizens, two of whom had joined the present petitions. The petitioners in writ petitions numbered 79 and 80 of 1962 were identified as the Automobile Products of India Ltd. and another entity, whose majority shareholders were likewise Indian citizens, and one shareholder had joined those petitions. Writ petitions numbered 202 to 204 of 1961 had been filed by the State Trading Corporation of India Ltd., whose shareholders included the President of India and two Additional Secretaries of the Ministry of Commerce and Industry, Government of India, with one of those secretaries joining the petitions. It was noted that these writ petitions had been heard by a Special Bench of the Court on 26 July 1963 to resolve the constitutional issue of whether the State Trading Corporation could be deemed a citizen within the meaning of Article 19 of the Constitution. The Special Bench had rendered a majority decision that the State Trading Corporation was not a citizen under Article 19 and therefore could not invoke the fundamental rights guaranteed by that provision, as recorded in State Trading Corporation of India Ltd. v. The Commercial Tax Officer and Others (1).

In these proceedings the petitioner together with other petitioners filed the writ petitions both in the names of the companies concerned and in the names of one or two of their shareholders respectively. The petitioners contended that, although the company or corporation might not qualify as an Indian citizen within the meaning of Article 19, that limitation should not prejudice the case because, in substance, the corporation functioned merely as an instrument or agent appointed by its Indian shareholders. Accordingly, the petitioners argued that the shareholders themselves, whether acting directly as companies or through their shareholdings, ought to be permitted to invoke the relief sought in the petitions under Article 32 of the Constitution.

The respective States opposed the petitions on the ground that the writs were not competent to be entertained under Article 32. The respondents alleged that the principal challenge raised by the petitioners was directed against the findings of the sales‑tax officers concerning the character of the disputed sale transactions. They submitted that even if those findings were erroneous, such a challenge could not invoke Article 32 because the validity of the sales‑tax statutes themselves was not questioned. The respondents further explained that, exercising the powers conferred by the relevant sales‑tax Acts, the adjudicating authorities had, during the assessment proceedings, concluded that the transactions in question were intra‑State sales and therefore did not fall within the ambit of Article 286(1)(a). This conclusion was described as a quasi‑judicial determination; consequently, even a mistaken decision rendered in those assessment proceedings could not be said to violate any fundamental right of a citizen that would warrant resort to Article 32. In other words, the alleged infringement of the petitioners’ fundamental rights, if any, related only to a quasi‑judicial order issued by a tribunal established under a valid sales‑tax Act, and therefore did not bring the matter within the scope of Article 32. This constituted the first preliminary ground on which the competence of the writ petitions was contested. To support this argument, the respondents relied upon a recent decision of a Special Bench of this Court in Smt. Ujjam Bai v. State of Uttar Pradesh ([1963] 1 S.C.R. 778). A second preliminary objection was also raised, based on the Court’s earlier decision in State Trading Corporation of India Ltd. (A.I.R. 1963 S.C. 1811). The respondents contended that the earlier ruling, which held that the State Trading Corporation was not a citizen, necessarily meant that the fundamental rights guaranteed by Article 19 could be claimed only by citizens and therefore could not be asserted by the corporation. Consequently, they argued, no basis existed for looking beyond the corporate form to grant the shareholders, indirectly, rights that the corporation as a separate legal entity could not claim. The respondents further maintained that, in addressing the petitioners’ plea, the Court should therefore reject any attempt to lift the corporate veil and examine the substantive character of the corporation.

In this matter the respondents maintained that the legal fiction which treats the corporation as a separate entity should be disregarded, and that the true substance of the corporation ought to be examined without relying on the technical description of the corporation as a distinct legal person. They urged that this approach be consistent with the precedent set by the Supreme Court in the case of State Trading Corporation of India Ltd. (1). Relying upon this line of argument, the respondents also submitted that if the fundamental rights guaranteed by Article 19 of the Constitution are not available to the petitioners, then the petitioners’ claim that the sales‑tax imposed on them is inconsistent with Article 31(1) must fail. To support this contention they cited the recent Supreme Court decision in Indo‑China Steam Navigation Co. Ltd. v. The Additional Collector of Customs and Others (2). The respondents reasoned that the second preliminary objection necessarily precedes the first, because if the petitioners cannot be regarded as citizens and therefore lack standing to invoke Article 19, the entire basis of their petitions would be extinguished.

All counsel appearing for the petitioners acknowledged that the writ petitions could proceed to a substantive consideration of merit only if the two preliminary objections raised by the respondents were both dismissed. Only in that circumstance would the court be called upon to examine whether the sales sought to be taxed fall within the ambit of Article 28 6(1)(a) of the Constitution. Conversely, the respondents argued that success on either of the two preliminary objections would render the writ petitions hopeless, precluding any examination of the substantive claims. The Court concluded that the second preliminary objection must be upheld and therefore declined to issue any ruling on the first preliminary objection. Nevertheless, because the issues underlying the first objection had been thoroughly debated before the Court, a brief outline of the principal arguments presented by both sides was offered.

The dispute concerning the scope and effect of the provisions of Article 32, which form the basis of the first preliminary objection, fundamentally revolved around the legal consequences of the Supreme Court’s decision in Smt. Ujjam Bai’s case (1). The petitioners contended that, although the majority in that case held the writ petition of Ujjam Bai to be incompetent, the reasons articulated in most of the judgments actually support the petitioners’ position. They argued that where a citizen’s fundamental rights are violated—potentially through a quasi‑judicial order that seeks to recover tax from that citizen—the resulting erroneous determination of the transaction’s nature should be deemed a breach of the citizen’s fundamental right.

In the present dispute the petitioners contended that the circumstances described would permit them to approach this Court under Article 32 of the Constitution. The respondents, however, submitted that the decision rendered in the case of Ujjam Bai clearly demonstrates that when a quasi‑judicial authority has resolved a question concerning the taxability of a particular transaction, no breach of fundamental rights can be said to arise that would justify an invocation of Article 32. According to the respondents, the entry of a quasi‑judicial order alters the nature of the controversy between the parties, and in such situations the only recourse available to a dissatisfied citizen is to pursue the appeals, revisions and other remedies that are expressly provided for under the relevant taxing statute. They argued further that Article 32 was never intended to give this Court appellate jurisdiction for the purpose of reviewing or assessing the correctness of quasi‑judicial orders issued by bodies exercising powers under various tax statutes. It may happen that, after a party has exhausted all statutory appeals and revisions, the party could seek the Court’s intervention under Article 136, but the respondents maintained that Article 32 would remain inapplicable in those circumstances.

The respondents referred to the earlier judgment in Ujjam Bai (1) to illustrate their position. The first question before the Special Bench in that case was whether an assessment order passed by an authority under a taxing statute, which was within the authority’s legal power, could be challenged on the ground that it conflicted with Article 19(1)(g) because it was based on a mis‑construction of a provision of the Act or a notification issued thereunder. The second question was whether the validity of such an assessment order could be attacked in a petition filed under Article 32 of the Constitution. The majority of the Bench held against the petitioner. Justice S.K. Das, delivering the majority judgment, observed that when a quasi‑judicial authority issues an order in the undisputed exercise of its jurisdiction pursuant to an intra‑vires provision of law, any error of law or fact committed by that authority may be challenged only through the appeal mechanisms prescribed by the statute, unless the error goes to the very jurisdictional foundation of the authority. Consequently, he concluded that an assessment order made by an authority under a valid taxing statute, exercised in the undisputed scope of its jurisdiction, cannot be attacked under Article 32 merely on the ground that it was based on a mis‑construction of the statute or a related notification. In contrast, Justice Subba Rao argued that Article 32 confers a broad jurisdiction on this Court to enforce fundamental rights and that the Court has a duty to entertain a writ petition whenever a citizen alleges that a fundamental right has been violated, regardless of whether the dispute involves a question of jurisdiction, law or fact.

In this case, the Court noted that a minority view expressed in the earlier judgment in Ujjam Bai’s case held that the Constitution’s article 32 could be invoked for breaches of jurisdiction, law, or fact; this minority position was articulated in that earlier decision. Hidayatullah J., who generally agreed with the majority, stated that when a quasi‑judicial tribunal undertakes an action that lies completely outside the scope of the law it is meant to enforce, a jurisdictional question arises and such a circumstance would justify an application under article 32. Ayyangar J. added that if it appeared that the contested assessment order was founded upon an obvious and patent misinterpretation of the taxing statute, that misinterpretation itself would amount to a claim that the authority had acted beyond its jurisdiction, and consequently a petition under article 32 could be warranted. Applying this reasoning, the learned judge observed that the construction advanced by the taxing authority had not been demonstrated to be patently erroneous, and therefore he declined to grant any relief to Ujjam Bai, aligning himself with the majority decision. Mudholkar J., who also sided with the majority, expressed a willingness to carve out an exception in situations where an erroneous legal construction would result in the recovery of a tax that exceeds the legislative competence or contravenes the provisions of Part III or any other constitutional provision. Accordingly, it became evident that although the majority resolved that Ujjam Bai’s petition should be dismissed, the rationales offered by the judges who concurred with the majority were not uniform; they did not reveal a single, consistent approach, and this lack of uniformity gave rise to the present arguments in the writ petitions, with both sides contending that the majority judgment in Ujjam Bai could be interpreted to support their opposing views. Counsel for one party strongly argued that if the misinterpretation of the notification relied upon by Ujjam Bai was not deemed sufficient to justify a petition under article 32, then a misinterpretation concerning the nature of the transaction could not be treated any better, even though the latter misinterpretation might involve taxing a transaction protected by article 286(1)(a). Counsel explained that the logic would be that any violation of fundamental rights, irrespective of its cause, should permit recourse to article 32; however, once it is held that a breach of fundamental rights alleged to arise from a misreading of a notification or statute enacted under a valid taxing law does not attract article 32, it becomes logically impossible to claim that another type of breach, alleged to result from a misappreciation of the transaction’s nature and an erroneous conclusion about its taxable character, would fall within the jurisdiction of article 32.

In the first situation, the Court observed that the mistaken interpretation of the notification violated the provisions of Article 265 of the Constitution and consequently amounted to a breach of Article 31(1). In the second situation, the Court held that the erroneous view regarding the taxable character of the transaction infringed Article 286(1)(a) and therefore also engaged Article 31(1). On the basis of this reasoning, counsel argued that the essential consequence of the decision in Ujjam Bai is that, even if the Sales‑tax Officer incorrectly concluded that the challenged transactions were not inter‑State transactions, the aggrieved citizen would not have recourse to a petition under Article 32 of the Constitution. Conversely, counsel for the other side vigorously contended that the decision in Ujjam Bai rested upon the premise that the misinterpretation of the notification did not involve any violation of constitutional limitations or prohibitions. To support this position, counsel referred to passages from the judgments of Justices Das, Kapur and Mudholkar, emphasizing that where an erroneous decision of a sales‑tax officer results in the breach of a constitutional prohibition or limitation, a different set of considerations arises and the aggrieved citizen becomes entitled to approach this Court under Article 32. Counsel further highlighted that Justice Das had expressly held that the view adopted in Kailash Nath v. State of U.P. (1) was erroneous, while approving other decisions cited at the Bar on the ground that those cases fell within the category where an executive authority acted without authority of law, or a quasi‑judicial authority transgressed a constitutional prohibition and acted without jurisdiction (2). The decisions cited in this context were: Thakur Amar Singhji v. State of Rajasthan (3); M/s. Mohanlal Hargovind Dass v. The State of Madhya Pradesh (4); Y. Mahaboob Sheriff v. Mysore State Transport Authority (5); J. V. Gokar & Co. (Private) Ltd. v. The Assistant Collector of Sales‑tax (Inspection) (6); and Universal Imports Agency v. Chief Controller of Imports and Exports (7).

Further, counsel pointed out that Justice Kapur made a similar observation when he stated that in the case of M/s. Mohanlal Hargovind Dass (4) the dispute did not arise from a misreading of any statute by a quasi‑judicial authority; rather, it involved a transaction that lay outside the taxing powers of the State, making any action taken by the taxing authorities an act without authority of law. The Court noted the citations supporting this view: A.I.R. 1957 S.C. 790 (1); [1963] 1 S.C.R. at 842 (2); [1955] 8 S.C.R. 303 (3); [1955] 2 S.C.R. 509 (4); [1960] 2 S.C.R. 146 (5); [1960] 2 S.C.R. 852 (6); [1961] 1 S.C.R. 305 (7). In support of the same line of argument, both counsel for Mr. Pathak and counsel for Mr. Palkhivala heavily relied upon two subsequent decisions of this Court in which writ petitions filed under Article 32 were entertained on grounds akin to those raised in the present petitions, notably the decisions involving the State Trading Corporation of India Ltd. and others.

In the matter before the Court, the counsel for the petitioners referred to the decisions in Another v. The State of Mysore and Another (1) and The State Trading Corporation of India Ltd. and Others v. The State of Mysore and Another (2). Relying on those judgments, Mr Pathak argued that the question of whether a particular sale transaction falls within the protection of article 286(1)(a) of the Constitution constitutes a collateral fact, the determination of which grants jurisdiction to the Sales‑Tax Officer. He maintained that any decision of the Sales‑Tax Officer, who is a tribunal of limited jurisdiction, on such a collateral jurisdictional point may be reviewed under article 32 whenever that decision affects a citizen’s right safeguarded by article 286(1)(a). Mr Palkhivala presented a related but distinct argument on jurisdiction. He contended that the notion of jurisdiction he relied upon was not merely the authority to decide a case, but rather a different, more fundamental concept that becomes crucial when constitutional restrictions or prohibitions are implicated in any determination made by a Sales‑Tax Officer. Conversely, Mr Setalvad submitted that the Sales‑Tax Officer should not be characterized as a tribunal of limited jurisdiction because the charging provisions in the relevant Sales‑Tax Acts empower the Officer and the hierarchy of officers contemplated by those statutes to decide the taxability of a transaction and to levy tax in accordance with the Acts. He explained that where a tribunal is authorized to deal with transactions that fall under the charging sections of the statute, it would be inaccurate to describe the tribunal’s decision on the taxability of the transaction as a decision on a collateral jurisdictional fact. Accepting such a view would imply that every question whose answer necessarily precedes the imposition of tax would become a collateral jurisdictional fact, a result that the charging provisions of the various Acts do not intend. Regarding the constitutional limitations and prohibitions raised by Mr Palkhivala, Mr Setalvad argued that if article 286(1)(a) renders the Sales‑Tax Officer’s determination of the character of a sale a jurisdictional matter, then it would be difficult to exclude the Officer’s decisions on other points from having the same jurisdictional character. He highlighted that the provisions of article 286(1)(a) cannot be distinguished from those of article 265. Having already concluded that the other preliminary objection raised by the respondents must be sustained, the Court indicated that it would not express any further opinion on that aspect of the parties’ controversy. This brings the discussion to the question of whether the petitioners, some of whom are companies registered under the Companies Act and one being the State Trading Corporation, are entitled to file the present writ petitions under article 32, in view of the Court’s earlier decision in The State Trading Corporation of India Ltd. case (1). The petitioners contend that the earlier decision merely held that the State Trading Corporation was not a citizen, and that the issue of whether the corporate veil could be pierced to recognise the shareholders’ rights under article 19 remains unanswered and is the subject of argument in the present petitions.

The petitioners, several of whom are companies incorporated under the Indian Companies Act and one of whom is the State Trading Corporation, contend that they may maintain the present writ petitions under Article 32 in view of the Supreme Court’s decision in State Trading Corporation of India Ltd. (1). They argue that that decision merely held that the State Trading Corporation of India Ltd. was not a citizen of India. The earlier judgment did not resolve the question of whether the corporate veil could be lifted to recognise the shareholders’ rights under Article 19, and it is on that point that the petitioners have raised arguments before the Court in these writ proceedings. The correct legal position concerning the nature of a corporation or company that is created by a statutory authority is well settled and is not in dispute. Under law a corporation is treated as a legal person comparable to a natural person and it possesses a separate legal entity. The corporation’s entity is distinct from that of its shareholders; it has its own name and its own seal; its assets are separate and distinct from the assets of its members; it can sue and be sued in its own name; its creditors cannot claim satisfaction from the members’ assets; the liability of the members or shareholders is limited to the amount of capital they have paid; likewise, creditors of the members have no claim over the corporation’s assets. This principle has been consistently affirmed since the decision in Salomon v. Salomon & Co. (1) rendered in 1897, and it remains a recognised rule of common law. Over time, however, the doctrine that a corporation possesses an independent legal personality has been subject to exceptions through the legal fiction that the corporate veil may be lifted so that the substance of the corporation can be examined. The doctrine of lifting the veil therefore signifies a shift from the original legal approach that treated the corporation as a separate entity. Because of the increasing complexity of economic relationships, courts have at times recognized exceptions to the rule of corporate personality. It is possible that, as new economic problems arise, the number of such exceptions will increase and the scope of the doctrine of separate corporate personality may become more limited. The issue that now requires determination is whether, in the circumstances of the present petitions, the Court should accept the petitioners’ argument that the veil of the corporations should be lifted and that, consequently, the shareholders—who are Indian citizens—should be permitted to invoke the protection of Article 19 and, on that basis, approach the Court under Article 32 to challenge the validity of the sales‑tax orders that are alleged to be unlawful.

In the petitions before the Court, the question arose whether the shareholders of the companies, all of whom were Indian citizens, could be allowed to rely on the protection guaranteed by Article 19 of the Constitution and, on that basis, invoke Article 32 to challenge the validity of the orders issued by the Sales‑tax Officers. The order of the officers pertained to transactions that the petitioners claimed were not liable to tax. Counsel for the petitioners, a noted jurist, argued forcefully that because the controversy involved the fundamental rights of citizens, the Court should examine the substance of the matter and should not be bound by the doctrinaire view that treats a company as a separate legal entity. He contended that if every shareholder of the respondent companies was an Indian citizen, the Court ought to look beyond the formal corporate veil and grant the shareholders the ability to challenge what they alleged to be a breach of their fundamental rights. The counsel acknowledged that shareholders could not assert that the assets of the companies belonged to them personally, nor could they claim that the business of the companies was their own business in a strict legal sense. He pointed out that the doctrine of lifting the veil implies a duality between a corporation and its members, and therefore emphasizing the technical separation would not resolve the issue of whether the veil should be lifted. To support his submission, he referred the Court to the Privy Council decision in The English and Scottish Joint Co‑operative Wholesale Society Ltd. v. Commissioner of Agricultural Income‑tax, Assam and to the House of Lords decision in Daimler Company Ltd. v. Continental Tyre and Rubber Company (Great Britain) Ltd. The respondents did not dispute that certain exceptions to the principle of a corporation’s separate juridical personality had been recognised. The counsel further noted that the doctrine of lifting the veil had been applied, as explained by legal scholar Palmer, in five distinct categories: (i) relationships between holding companies and their subsidiaries or sub‑subsidiaries; (ii) situations where a shareholder lost the benefit of limited liability and became directly liable to the company’s creditors because, with his knowledge, the company continued its business for six months after its membership fell below the legal minimum; (iii) matters relating to taxes, death duties and stamp duties, particularly where the issue of a “controlling interest” arose; (iv) issues concerning exchange control; and (v) cases involving trading with the enemy where a test of control was applied.

The counsel observed that in several of the aforementioned categories, judicial decisions had indeed lifted the corporate veil and examined the substantive reality of the transactions. He argued that such an approach was necessary to ensure that the fundamental rights of the shareholders were not thwarted by a rigid application of the corporate personality doctrine. By referring to the cited authorities and the established categories, the counsel sought to demonstrate that the Court possessed a well‑recognised basis for looking beyond the formal separation of the corporation and its shareholders, thereby allowing the shareholders to invoke constitutional protections and challenge the tax orders that they contended were invalid.

The Court observed that Gower had likewise summarised the prevailing position, noting that in several important respects the legislature had effectively torn apart the veil created by the Salomon decision. According to Gower, this was especially true in the area of taxation and in the measures that had been taken toward recognising an enterprise‑entity rather than a corporate‑entity. The Court further pointed out that Gower emphasized that courts had interpreted statutes as “cracking open the corporate shell” only when the clear language of the statute forced them to do so, and that the judiciary had deliberately avoided such an interpretation whenever possible. Consequently, the current judicial approach to piercing the corporate shell was described as cautious and circumspect, applied only where a legislative provision expressly justified such a step. In rare instances where courts felt capable of disregarding the corporate entity and treating individual shareholders as liable for the corporation’s actions, the same approach was adopted, as noted in the citation (2). Gower’s conclusions were summarised by the classification of seven categories of cases in which the corporate veil had been lifted. The Court stressed that it was impossible to formulate a rigid, consistent, and inflexible rule to determine when the veil should be lifted. In broad terms, the Court explained that wherever fraud needed to be prevented or trading with an enemy needed to be defeated, judicial decisions had lifted the veil and held the shareholders to be the persons actually operating the corporation. Having set out this background on the doctrine of lifting the veil and the principle that the veil could be lifted in certain circumstances, the Court posed the issue for determination: whether the veil of the petitioners could be lifted so that it could be said that the shareholders were in fact moving the Court under Article 32, and consequently, whether the separate legal and juristic existence of the petitioners as a corporation should render the petitions filed under Article 32 incompetent. The Court indicated that it could not answer this question affirmatively. While acknowledging the petitioners’ claim that their fundamental rights had been infringed, and noting the truism that the Court, as guardian of fundamental rights, would ordinarily seek to protect those rights, the Court referred to its earlier decision in State Trading Corporation of India Ltd. (1). In light of that precedent, the Court expressed doubt that it could legitimately entertain the petitioners’ relief, because granting the petition would effectively permit corporations or companies to achieve indirectly through the veil what they could not achieve directly.

In this case, the Court considered the argument that the doctrine of lifting the veil might allow corporations and companies, which are not citizens, to enjoy the benefits of Article 19 of the Constitution. The petitioners had suggested that although Article 19 is expressly confined to citizens, the drafters of the Constitution might have intended that, when corporations seek to invoke Article 19, courts would apply the doctrine of lifting the veil and would not treat such corporate attempts as falling outside the scope of Article 19. The Court found this line of reasoning unconvincing. By confining Article 19 to citizens, and distinguishing that category from persons to whom other provisions such as Article 14 apply, the Constitution clearly limits the rights guaranteed by Article 19 to citizens alone. The Court observed that if the legislature intended to extend the benefit of Article 19 to corporations, it could have done so by amending the definition of “citizen” in the Citizenship Act, using the powers granted to Parliament by Articles 10 and 11. The absence of any such legislative amendment, the Court noted, indicates that Parliament did not intend to treat corporations as citizens. Consequently, relying on the earlier judgment of this Court in State Trading Corporation of India Ltd. (1) A.I.R. 1963 S.C. 1811, the Court concluded that the petitioners could not argue that their shareholders should be permitted to file the present petitions on the ground that, in substance, corporations and companies are merely associations of shareholders and members. The Court therefore rejected the proposition that the veil could be lifted in the present petitions. The Court also examined the submissions made by counsel Mr Palkhivala, who attempted to differentiate between a citizen’s right to carry on trade or business, which is guaranteed by Article 19(1)(g), and a citizen’s right to form associations or unions, guaranteed by Article 19(1)(c). Mr Palkhivala argued that Article 19(1)(c) enables citizens to select the instruments or agents through which they exercise their fundamental right to engage in business. Accordingly, if citizens choose to establish a corporation or a company as the vehicle for conducting trade or business, that choice is protected by Article 19(1)(c). Building on this distinction, Mr Palkhivala contended that the Court should not hesitate to lift the corporate veil, because doing so would give effect to both fundamental rights protected by Article 19(1). The Court was not persuaded by this argument. It held that the fundamental right to form an association cannot be combined with the right to carry on trade or business in the manner suggested, and therefore the reasoning advanced by Mr Palkhivala could not support a claim that the veil should be lifted in the present petitions.

In this case, the Court observed that the fundamental right to carry on any trade or business cannot be merged with the right to form associations. The Court referred to its earlier decision in All India Bank Employees' Association v. National Industrial Tribunal and Others (2) and explained that the argument presented before it ignored the principle that Article 19, unlike Articles 26, 29 and 30, confers rights directly on individual citizens. The Court stressed that an association cannot claim the rights guaranteed by Article 19 merely because it is a collection of citizens, that is, because it consists of individuals who possess those rights. The Court noted that the rights secured by Article 19(1)(c) and Article 19(1)(g) are distinct, citing the authorities (1) A.I.R. 1963 S.C. 1811 and (2) [1962] 3 S.C.R. 269. The Court held that these rights must be asserted separately and within their own limits; although each right has a broad scope, they cannot be combined to support the claim advanced by the petitioners through Mr. Palkhivala. The Court explained that when citizens incorporate a company, they have already exercised the right under Article 19(1)(c) and no limitation or infringement of that right has occurred. After incorporation, the business carried out by the company belongs to the company itself, not to the individual citizens who formed it, and therefore the rights of the corporate entity must be evaluated on that basis rather than being treated as extensions of the individual citizens’ business rights. Consequently, the Court concluded that the distinction between the two constitutional rights and any attempt to merge them does not permit the petitioners to invoke the doctrine of lifting the corporate veil. On that basis, the Court found the writ petitions to be incompetent under Article 32, even though one or two shareholders of the respective companies had joined the petitions. Accordingly, the Court upheld the second preliminary objection raised by the respondents, dismissed the writ petitions as incompetent under Article 32 of the Constitution, and ordered that no costs be awarded. The petitions were dismissed.