In the Supreme Court of India. Decided on 26th July,1963. Citations: 1963 AIR 1811, 1964 SCR (4) 89. Bench: Hon’ble Justice B.P Hon’ble Justice S.K Das Hon’ble Justice P.B Gajendragadkar Hon’ble Justice A.K Sarkar Hon’ble Justice K.N Wanchoo Hon’ble Justice M. Hidayatullah Hon’ble Justice K.C Gupta Hon’ble Justice J.J Shah Hon’ble Justice N. Rajagopala Ayyangar Petitioner: The State Trading Corporation of India Ltd. and Others Respondent: The Commercial Tax Officer, Vishakhapatnam and Others Counsel for the Petitioners: M. C. Setalvad, G. S. Pathak, B. Parthasarthy, B. Dutta, J. B. Dadachanji, O. C. Mathur and Ravinder Narain. Counsel for the Respondents: D. Narasarj, T. V. R. Tatachari, V. K. Krishna Menon, Anil Kumar Gupta, R. K. Garg, D. P. Singh, M. K. Ramamurthi and S. C. Agarwala
The Supreme Court through this judgment has defined what rights are available to juristic or artificial persons and whether Part II and Part III apply to such entities. It has helped define whether an Artificial or Juristic Person can be called a ‘natural citizen’ within the meaning of the Citizenship Act of 1955.
Constitution and Statutory Provisions Discussed: Indian Companies Act, 1956. The Citizenship Act,1955. Part II and Part III of the Constitution of India.
The State Trading Corporation of India is registered under the Indian Companies Act of 1956 as a private limited Company. Its head office is situated in Delhi and its entire capital is contributed by the Government of India. The Sales-tax authorities of Bihar and Andhra Pradesh had initiated proceedings to assess the sales tax of the corporation under their respective sales tax Acts. Accordingly, these states issued notices of demand. Upon such notice, the petitioners through a writ petition of certiorari under Article 32 of the Constitution sought for quashing the proceedings initiated by the State governments. The corporations claiming to be citizens alleged that such proceedings would infringe their Fundamental Rights under Article 19 (f) and (g).
Issues: The following issues were put forth for this case by the Constitution Bench to the Special Bench as it involved questions of great Constitutional importance.
- Can the State Trading Corporation registered under the Indian Companies Act of 1956 claim to be Indian citizens under Article 19 of the Constitution and whether the said Corporation can claim for the enforcement of Fundamental Rights under Article 19.
- Whether the State Trading Corporation is an organ of the Government of India as its entire capital is contributed by the Government and can the said Corporation enforce Fundamental rights under Part III against the State defined under Article 12 of the Constitution?
Contentions put forth by the Petitioners:
- It was contended that Fundamental Rights under Part III of the Constitution would also be applicable to juristic persons.
- Mr. Setalvad contended that Part II of the Constitution and the Citizenship Act, 1955 are irrelevant in the present case as they do not define the term ‘citizen’ or deal with citizenship in its totality. It was submitted that ‘nationality of the company is synonymous with ‘citizenship’.
- It was contended that the term ‘citizen’ be liberally construed to include corporation which consists of Indian citizens.
- It was submitted that the distinction between “persons” and “citizens” is not the same thing as the distinction between ‘natural person’ and ‘juristic person’. It was contended that “person” would include citizens and non-citizens as well as an artificial or juristic person.
Contentions put forth by the Respondents:
- It was contended that the State Trading Corporation being an artificial person cannot claim to be a citizen under Article 19 as the term ‘citizen’ under the said article refers to only ‘natural person’.
- It also contended that the Corporation is a department of the Government, cannot claim protection against an action of the State under Article 19.
The judgment of Hon’ble Justices Sinha, S. K. Das, Gajendragadakar, Sarkar, Wanchoo, and Ayyangar was delivered by B.P Sinha. The court for this case had elucidated the applicability of Part III of the Constitution. The court stated that Part III, which deals with Fundamental Rights, of which some are available to “any person” and some rights are available only for “all citizens”. The fundamental rights available to any person regardless of whether they are citizens or an artificial person are: Article 14, 20, 21, 26, 27, 28, 29, and 31. The fundamental rights available exclusively to citizens of India are Article 15, 16, 18. Article 19 which the case is concerned with mentions 7 clauses namely:
- Freedom of speech and expression
- Freedom to assemble peacefully without arms
- Freedom to form associations or unions
- Freedom to move freely throughout the territory of India
- Freedom to reside and settle in any territory of India
- Freedom to acquire and dispose of property
- Freedom to practice any profession, or to carry any occupation, trade or business.
The court stated that clauses (a) to (e) are only applicable to citizens whereas clauses (f) and (g) can be enjoyed by natural persons as well as juristic. The right to move the Supreme Court by way of Article 32 is a fundamental right available to all. Under the Constitution ‘all citizens’ are persons but ‘all persons’ are not citizens.
The court stated that the term ‘citizenship’ has not been defined in the Constitution. Part II of the Constitution, namely Articles 5-11 deal with citizenship. The court while stating all the necessary provisions of Part II of the Constitution noted that these rights within Part II were inapplicable to juristic persons. Juristic persons are also outside the purview of the Citizenship Act of 1955 enacted by the Parliament by power of Article 11. In the Act, Section 2 (1) (f) states that the word ‘person’ does not include ‘any company or association or body of individuals whether incorporator or not’. Thus, any subsequent provisions of the Act relating to citizenship will not be applicable to juristic persons.
The court on examining the relevant provisions of the Constitution and the Citizenship Act, 1955 regarding the present case concluded that the corporation cannot be considered a ‘citizen’. It was stated that corporations may have nationality in accordance with the country of incorporation but that does not confer upon them the right of citizenship. The court held that Part II of the Constitution and the Citizenship Act,1955 was exclusive to a natural person only. Thus, the first question of the issue was answered negatively by the court. The court didn’t consider it necessary to answer the second question as that would only be probable if the first question was answered in the affirmative. It was decided that the case should go back to the bench with the present opinion of the court.
Justice Hidayatullah expressed a different opinion to the case than the majority opinion. He disagreed with the contention of Mr. Setalvad, counsel for the petitioner, and stated that the Corporation having the nationality of the country would not make the Corporation a citizen. It was stated that the corporation doesn’t have a physical existence but is a mere abstraction of law.
He analyzed the reference to the word ‘citizen’ with Article 19 and stated that the clauses (a) to (e) within the Article are applicable solely to natural persons. He analyzed the procedure of citizenship of various countries namely Rome, Europe, Greece, and concluded that they were all concerned with natural persons. He stated that there was no room for artificial persons in the Citizenship Act, 1955. It was stated that a corporation being a separate entity from its members, it would be impossible to look through the veil of incorporation to determine the citizenship of its members in order to give the corporation benefit of Article 19. He thus also opined that the State Trading Corporation cannot be regarded as a citizen for enforcing rights under Article 19 (f) and (g). Coming to the second question, he stated that Corporations in which the States own all or the majority of the shares, in particular, are protected by the Constitution. There is sufficient guarantee provided that there will no discrimination, no taxation without authority, etc. He stated that there was no need to be apprehensive that corporations are at the mercy of State Governments. Thus, Justice Hidayatullah answered both the questions in the negative.
Justice Das Gupta and Justice J.J Shah gave a dissenting opinion.
Justice Das Gupta stated that the answer to the first question must be in the affirmative. He stated that the Constitution has to be interpreted liberally and not grammatically. He stated that the Constitution makers when using the word ‘citizen’ under Article 19 had the intention, that a corporation comprising of all Indian citizens would get the benefit of Fundamental Rights. He stated that all citizens including a corporation would have the benefit of Article 19 (f) and (g). In his view, the State Trading Corporation was not a department of the Government. According to him the first part of the second question should be answered in negative while the latter part should be answered in the affirmative.
Justice J.J Shah stated that interpreting the Constitution in a mechanical approach was impermissible. He stated that a juridical person is also capable of exercising civil rights which are exercised by natural persons. Its incapacity to exercise other rights arises from its personality and constitution and it’s not due to any restriction imposed on it. It is impossible to interpret the term ‘citizen’ in Article 19 in a limited connotation and it cannot be restricted to natural persons. Regarding the second question, he stated that to determine whether a company is an agent of the state or not would depend on the facts of the case. He stated that a company performing commercial function whether controlled wholly or partially by the Government would be presumed to not be an agent of the State. On the other hand, a corporation performing governmental functions and not commercial will be presumed to be an agent of the Government. He stated that if the State Trading Corporation is recognized as ‘State’ within the meaning of Article 12, the corporation can enforce Fundamental Rights Under Article 19. Thus, according to him, the first question should be answered in affirmative and the first part of the second question should be answered in negative, and the latter part in affirmative.
Thus, by a majority decision, the court was of the opinion that the petitioners cannot be construed as ‘citizens’ for the enforcement of their Fundamental Rights under Article 19. The court through this verdict has defined the ambit of citizenship under our Constitution and has answered vital questions pertaining to the rights of artificial or juristic persons.