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PETITIONER: TATA ENGINEERING AND LOCOMOTIVE CO.  LTD.

       Vs.

RESPONDENT: STATE OF BIHAR AND OTHERS

DATE OF JUDGMENT: 25/02/1964

BENCH: GAJENDRAGADKAR, P.B. (CJ) BENCH: GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N. SHAH, J.C. AYYANGAR, N. RAJAGOPALA SIKRI, S.M.

CITATION:  1965 AIR   40            1964 SCR  (6) 885  CITATOR INFO :  D          1970 SC 564  (17)  RF         1973 SC 106  (11)  R          1974 SC1300  (24)  R          1981 SC1368  (7)  RF         1983 SC 937  (12)  RF         1984 SC 420  (46)  RF         1986 SC1370  (90)

ACT: Corporation-Position  of-Whether  citizen-Whether   petition under  Art. 32 by Corporation claiming a  fundamental  right guaranteed under Art. 19 competent-Doctrine of piercing  the corporate  veil -Exceptions to rule that Corporation  has  a separate     legal     entity-Levy     of     Sales      Tax challenged--Constitution  of India, Arts. 19, 32 and  286(1) (a).

HEADNOTE: The petitioners were ordered to pay sales-tax on account  of certain  transactions  made by them in the State  of  Bihar. Their  contention was that the sales in question took  place outside  the  state  and hence they  were  entitled  to  the protection  of Art. 286(1)(a).  Their plea was  rejected  by the  Sales-tax  authorities  and  it  was  held  that   Art. 286(1)(a) did not apply to them.  The petitioners challenged the  orders of the sales-tax authorities by  writ  petitions filed by them under Art. 32 of the Constitution. A  preliminary objection was taken on behalf of  respondents that the petitions were not competent as those were filed by corporations or companies and the provisions of Art. 19  did not  apply  to  them  as  corporations  were  not  citizens. Dismissing the writ petition, Held.-The petitions under Art. 32 were incompetent  although in  each  of  them one or two of the  share-holders  of  the petitioning  companies  or  corporations  had  also  joined. Article  19  guarantees  rights  to  citizens  as  such  and associations  cannot  lay claim to  the  fundamental  rights guaranteed  by  that Article solely on the  basis  of  their being  an  aggregation  of citizens.  Once a  company  or  a

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corporation  is formed, the business which is carried on  by the  said  company  or corporation is the  business  of  the company  or  corporation  and is not  the  business  of  the citizens who got the company or corporation formed or incor- porated  and  the rights of the incorporated  body  must  be judged  on  that  footing  and  cannot  be  judged  on   the assumption  that  they  are the right  attributable  to  the business of individual citizens.  The petitioners cannot  be heard  to say that their share-holders should be allowed  to file the present petitions on the ground that in  substance, the  corporations  and  companies  are  nothing  more   than association of share-horders and members thereof.  If  their contention  is accepted, it would really mean that what  the corporations or companies cannot achieve directly, they  can achieve  indirectly by relying upon the doctrine of  lifting the  veil.   If  the  corporations  and  companies  are  not citizens, it means that the Constitution intended that  they should not get the benefit of Art. 19. 886 The position of a corporation is that it is in law equal  to a natural    person and has a legal entity of its own.  That entity  is entirely separate from that of its  shareholders. It  bears  its own name and has a   seal of  its  own.   Its assets are separate and distinct from those of its  members. It can sue and be sued exclusively for its own purpose.  Its creditors cannot obtain satisfaction from the assets of  its members.   The liability of the members or share holders  is limited  to the capital invested by them.  The creditors  of the members have no right to the assets of the  corporation. However.  there  are some exceptions to the  rule  that  the corporation or a company has a jurisfic or legal entity  and the  doctrine  of  lifting the veil  of  a  corporation  and examining  its  face in substance has been applied  in  many cases but the same does not apply in the present case. 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, referred to.

JUDGMENT: CRIMINAL  JURISDICTION:  Writ Petitions Nos.112 and  113  of 1961 etc. Petition  under  Art. 32 of the Constitution  of  India  for enforcement of, Fundamental rights. N.   A.  Palkhivala,  J.  B. Dadachanji, O.  C.  Mathur  and

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Ravinder  Narain, for the petitioners (in W.P. Nos. 112  and 113 of 61 and 79 to 80 of 1962). M.   C. setalvad, D. P. Singh, m. K. Ramamurthi, R. K.  Garg and S. C. Agarwal. for the respondents (in W.P. Nos. 112 and 113 of, 1961). 887 S.   V.  Gupte, Additional Solicitor-General, N.  S.  Bindra and  R. H. Dhebar, for the respondents (in W.P. Nos. 79  and 80 of 62). G.   S. Pathak, B. Dutta, J. B. Dadachanji, O. C. Mathur and Ravinder  Narain,  for the petitioners (in  W.P.  Nos.  202- 204/1961). A.   Ranganadham  Chetty  and T. V. R.  Tatachari,  for  the respondents (in W.P. Nos. 202 and 203 of 1961). Lal Narain Sinha, M. K. Ramamurthi, R. K. Garg and    S.  C. Agarwal, for the respondent (in W.P. 204 of 1961). February 25, 1964.  The Judgment of the Court was  delivered by GAJENDRAGADKAR,  C.J.-These writ petitions have been  placed for  hearing  before  us in a group, because  they  raise  a common  question  of law in regard to the  validity  of  the demand  for  sales  tax  which has  been  made  against  the respective   petitioners  by  the  Sales-tax  Officers   for different  areas.  The facts in respect of each one  of  the writ petitions are not the same and the years for which  the demand  is  made  are also different;  but  the  pattern  of contention is uniform and the arguments urged in each one of them are exactly the same.  Broadly stated. the case for the petitioners  is that the appropriate authorities  purporting to act under the different Sales Tax Acts- are attempting to recover  from  the  petitioners  sales-tax  in  respect   of transactions  to which the petitioners were parties,  though the said transactions are not taxable under Art. 286 of  the Constitution.   Art.  286(1) (a) provides that no law  of  a Sales shall impose, or authorise the imposition of, a tax on the  sale or purchase of goods where such sale  or  purchase takes place outside the State; and the argument is that  the sales in question are all sales which took place outside the State  and as such, are entitled to the protection  of  Art. 286(1) (a).  The authorities under the respective Sales  Tax Acts  have  rejected the petitioners’  contention  that  the transactions in question are inter-State sales and have held that  Art. 286(1)(a) is not applicable to them.   A  similar finding has been recorded against the petitioners under Art. 286(2).  The petitioners’ grievance 888 is  that  by coming to this erroneous conclusion, a  tax  is being  levied  against  them  in  respect  of   transactions protected by Art. 286(1)(a) and that constitutes a breach of their  fundamental  rights under Art. 3 1 (1).  It  is  this alleged  infringement of their fundamental rights that  they seek   to  bring  before  this  Court  under   Art.   32(1). It  has  been urged on their behalf that the right  to  move this  Court under Art. 32(1) is itself a fundamental  right, and  so,  under Art. 32(2) an appropriate  order  should  be passed setting aside the directions issued by the  Sales-tax Authorities calling, upon the petitioners either to pay  the sales-tax, or to comply with other directions issued by them in that behalf. For dealing with the points raised by these writ  petitions, it is not necessary to set out the facts in respect of  each one of them.  For convenience we will refer to the facts set out  by  the  Tata Engineering & Locomotive  Co.  Ltd.,  the petitioner  in  W.Ps. Nos. 112 and 113 of 1961.   The  peti- tioner  is a company registered under the  Indian  Companies

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Act,  1913  and carries on the  business  of  manufacturing, inter alia, Diesel Truck and Bus chassis and the spare parts and accessories thereof at Jamshedpur in the State of Bihar. The company sells these products to dealers, State Transport Organisations and others doing business in various States of India.   The  registered  office of  the  petitioner  is  in Bombay.   In  order  to promote  its  trade  throughout  the country,  the petitioner has entered into Dealership  Agree- ments  with  different persons.  The modus  adopted  by  the petitioner in carrying on its business in different parts of India  is to sell its products to the dealers by  virtue  of the  relevant  provisions  of  the  Dealership   Agreements. Accordingly,  the  petitioner  distributes  and  sells   its vehicles  to  dealers,  State  Transport  Organisations  and consumers  in  the  manner set out  in  the  petition.   The petitioner  contends that the sales in respect of which  the present  petitions  have  been filed were  effected  in  the course of inter-State trade and as such, were not liable  to be taxed under the relevant provisions of the Sales Tax Act. The Sales-tax Officer, on the other hand, has head that  the sales  had  taken place within the State of Bihar  and  were intra-State  sales  and as such, were liable  to  assessment under the Bihar Sales Tax  889 Act.  In accordance with this conclusion, further steps  are threatened against the petitioner in the matter of  recovery of the sales-tax calculated by the appropriate  authorities. The  petitioner  is a company and a majority of  its  share- holders  are  Indian citizens, two of whom have  joined  the present petitions. The  petitioners  in  W.Ps. Nos. 79  and  80/-1962  are  the Automobile Products of India Ltd. and Another.  The majority of  the share-holders of this company are also  citizens  of India and one of them has joined the petitions. Writ  petitions  Nos. 202-204/1961 have been  filed  by  the State Trading Corporation of India Ltd.  The shareholders of this  Corporation  are  the  President  of  India,  and  two Additional  Secretaries, Ministry of Commerce and  Industry, Government  of India; one of these Secretaries,  has  joined the petitions.  It may incidentally be stated at this  stage that  these writ petitions were heard by a Special Bench  of this Court on the 26th July, 1963 in order to determine  the constitutional  question  as to whether  the  State  Trading Corporation  Ltd.  can  claim to be  a  citizen  within  the meaning  of  Art.  19 of  the  Constitution.   The  majority decision   rendered   in  these  writ   petitions   on   the preliminary,  issue referred to the Special Bench  was  that the  petitioner  as  a State Trading Corporation  is  not  a citizen  under  Art.  19,  and  so,  could  not  claim   the protection of the fundamental rights guaranteed by the  said Article [vide State Trading Corporation of India Ltd. v. The Commercial  Tax  Officer and Others(1)].  That is  why  this petitioner  along  with  other  petitioners  have  made  the petitions  in the names of the companies as well as  one  or two  of  their shareholders respectively.  It is  argued  on behalf  of  the petitioners that though the company  or  the Corporation may not be an Indian citizen under Art. 19, that should  not  prejudice  the petitioners  case,  because,  in substance, the Corporation is no more than an instrument  or agent appointed by its Indian share holders and as such,  it should  be open to the petitioners either acting  themselves as companies or acting through (1)  A.I.R. 1963 S.C 1811, 890 their shareholders to claim the relief for which the present

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petitions have been filed under Art. 32. These petitions are resisted by the respective States on the ground  that the petitions are not competent under Art.  32. The  respondents  contend  that  the  main  attack  of   the petitioners  is  against  the  findings  of  the   Sales-tax Officers  in  regard to the character of the  impugned  sale transactions  and they urge that even if the  said  findings are  wrong, that cannot attract the provisions of  Art.  32. The  validity  of  the  respective  Sales-tax  Acts  is  not challenged and if purporting to exercise their powers  under the  relevant provisions of the said Acts,  the  appropriate authorities  have,  during  the  course  of  the  assessment proceedings,  come  to  the  conclusion  that  the  impugned transactions  are  intra-State sales and do not  fall  under Art.  286(1)(a), that is a decision which is  quasi-judicial in character and even an erroneous decision rendered in such assessment  proceedings  cannot be said  to  contravene  the fundamental rights of a citizen which would justify recourse to  Art.  32.   In other words, the alleged  breach  of  the petitioners’ fundamental rights being referable to a  quasi- judicial  order made by a Tribunal appointed under  a  valid Sales-tax Act, does not bring the case within Art. 32.  That is  the first preliminary ground on which the competence  of the writ petitions is challenged.  In support of this  plea, reliance  is placed by the respondents on a recent  decision of a Special Bench of this Court in Smt.  Ujjam Bai v. State of Uttar Pradesh(1). There  is  another  preliminary  objection  raised  by   the respondents  against the, competence of the writ  petitions, and  that  is based upon the decision of this Court  in  the case of the State Trading Corporation of India Ltd. (2).  It is  urged  that the decision of this Court  that  the  State Trading Corporation is not a citizen, necessarily means that the  fundamental rights guaranteed by Art. 19 which  can  be claimed  only  by  citizens  cannot be  claimed  by  such  a Corporation,  and so, there can be no scope for  looking  at the  substance of the matter and giving to the  shareholders indirectly the right which the Corporation as a separate (1) [1963] 1 S.C.R. 778. (2) A.I.R. 1963 S.C. 1811. 891 legal  entity  is  not  directly  entitled  to  claim.   The respondents have urged that in dealing with the plea of  the petitioners  that  the  veil worn by the  Corporation  as  a separate  legal entity should be lifted and the  substantial character  of the Corporation should be  determined  without reference to the technical position that the Corporation  is a  separae entity, we ought to bear in mind the decision  of this  Court in the case of the State Trading Corporation  of India  Ltd.(1).  Basing themselves on this  contention,  the respondents have also argued that if the fundamental  rights guaranteed by Art. 19 are not available to the  petitioners, then  their plea that the sales-tax is being collected  from them contrary to Art. 31(1) must fail and in support of this contention reliance is placed upon a recent decision of this Court in the case of Indo-China Steam Navigation Co. Ltd. v. The Additional Collector of Customs and Others(2). Logically,  the  second  preliminary  objection  would  come first, because if the petitioners cannot claim the status of citizens  and  are not, therefore, entitled  to  base  their petitions  on the allegation that their  fundamental  rights under  Art. 19 have been contravened, that would be the  end of the petitions.  It has been conceded before us by all the learned  counsel  appearing for the petitioners that  it  is only  if  both  the preliminary  objections  raised  by  the

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respondents  are  over-ruled that the hearing  of  the  writ petitions would reach the stage of considering the merits of their pleas that the sales which are sought to be taxed fall under  Art.  28  6  (1) (a) of  the  Constitution.   If  the respondents  succeed  in  either  of  the  two   preliminary objections raised by them, the writ petitions would fail and there  would  be no occasion to consider the merits  of  the pleas raised by them.  Since we have come to the  conclusion that   the  second  preliminary  objection  raised  by   the respondents  must be upheld, we do not propose to  pronounce any  decision on the first preliminary objection.   However, as  the  point  covered  by  the  said  objection  has  been elaborately  argued before us, we would prefer  to  indicate briefly  the broad arguments urged fry both the  parties  in that behalf. (1) A.I.R. 1963 S.C. 1811.      (2) (1964) 6 S.C.R. 594. 892 The  controversy  between the parties as to  the  scope  and effect  of the provisions contained in Art. 32 on which  the validity   of   the  first  preliminary   objection   rests, substantially  centres round the question as to what is  the effect  of the decision of this Court in Smt.   Ujjam  Bai’s case(1).   The  petitioners argue that though  the  majority view in that case was that the writ petition filed by  Ujjam Bai was incompetent, it would appear that the reasons  given in most of the judgments support the petitioners’ case  that where  the fundamental rights of a citizen are  contravened, may  be by a quasi-judicial order, in pursuance of  which  a tax  is  attempted  to  be recovered  from  a  citizen,  the erroneous  conclusion  in  regard  to  the  nature  of   the transaction must be held to contravene the fundamental right of  the citizen, and as such, would justify the  petitioners in moving this Court under Art. 32. On  the other hand, the respondents urge that the effect  of the  decision.  in Ujiam Bai’s case plainly tends.  to  show that if a quasi-judicial decision has determined a matter in regard  to the taxability of a given transaction, there  can be no question about the breach of fundamental rights  which would justify an application under Art. 32.  The argument is that the intervention of a quasi-judicial order changes  the complexion of the dispute between the parties, and in  cases of that character, the only remedy available to an aggrieved citizen  is  to  take  recourse to  the  appeals  and  other proceedings  prescribed by the taxing statute  in  question. Art. 32 is not intended to confer appellate jurisdiction  on this  Court  so  as to review or examine  the  propriety  of quasi-judicial  orders  passed  by  appropriate  authorities purporting to exercise their powers and jurisdictions  under the   several  taxing  statutes.   It  may  be  that   after exhausting  the  remedies by way of  appeals  and  revisions prescribed by the statute, the party may come to this  Court under Art. 136, but Art. 32 is inapplicable in such cases. In  Ujjam Bai’s case(1), the first issue which was  referred to the Special Bench was whether an order of assessment made by an authority under a taxing statute which is intra  vires is open to challenge as repugnant to (1)  [1963] 1 S.C.R. 778. 893 Art.  19 (1)(g), on the sole ground that it was based  on  a misconstruction   of  a  provision  of  the  Act  or  of   a notification issued thereunder; and the second question was, can  the  validity  of  such an order  be  questioned  in  a petition  under Art. 32 of the Constitution?   The  majority view expressed in this case was against the petitioner.   S. K.  Das J. who delivered the main judgment on behalf of  the

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majority view observed that where a quasi-judicial authority makes   an   ,order  in  the  undoubted  exercise   of   its jurisdiction  in  pursuance of a provision of law  which  is intra  vires,  an error -of law or fact  committed  by  that authority  cannot  be impeached otherwise  than  on  appeal, unless  the erroneous determination relates to a  matter  on which the jurisdiction of that body depends; and so, he held that  if  the  impugned order of assessment is  made  by  an authority  under  a valid taxing statute  in  the  undoubted exercise  of its jurisdiction it cannot be challenged  under Art.  32  on  the  sole  ground  that  it  is  passed  on  a misconstruction   of  a  provision  of  the  Act  or  of   a notification issued thereunder. Subba Rao J., on the other hand, took the view that Art.  32 confers  wide  jurisdiction  on this Court  to  enforce  the fundamental rights, and he held that it is the duty of  this Court  to entertain a writ petition wherever  a  fundamental right  of  a citizen is alleged to  have  been  contravened, irrespective  of  whether  the question  raised  involves  a question of jurisdiction, law, or fact; this is the minority view pronounced in Ujjam Bai’s case. Hidayatullah J., who agreed broadly with the majority  view, expressed  the  opinion that if  a  quasi-judicial  tribunal embarks upon an action wholly outside the pale of the law he is  enforcing, a question of jurisdiction would be  involved and that would justify an application under Art. 32. Ayyangar J. held that if it appeared that the impugned order of   assessment   was  based  upon  a   plain   and   patent misconstruction  of  the provisions of the  taxing  statute, that itself would give rise to a plea that the authority was acting  beyond  its  jurisdiction  and in  such  a  case,  a petition under Art. 32 may be justified.  Proceeding on this view, the learned Judge held that the construction placed by the taxing authority was not shown to be patently erroneous. 894 and  so,  he was not prepared to grant any relief  to  Ujjam Bai.  That is how the learned Judge agreed with the majority decision. Mudholkar  J., who also agreed with the  majority  decision, was  disposed  to  make  an  exception  in  cases  where  an erroneous construction of the law would lead to the recovery of a tax which is beyond the competence of the  legislature, or  is  violative of the provisions of Part III  or  of  any other provisions of the Constitution. It  would, thus, be seen that though the  majority  decision was  that  Ujjam  Bai’s petition should  be  dismissed,  the reasons  given  in the judgments pronounced by  the  learned Judges  who  agreed with the majority decision are  not  all uniform  and-do not disclose an identity of approach  or  of reasons, and that naturally has given rise to the  arguments in the present writ petitions, both parties suggesting  that the majority decision in the case of Ujjam Bai supports  the rival views for which they contend. Mr. Setalvad has strongly urged that if a misconstruction of the notification on which Ujjam Bai rested her case, was not held  to  justify  a  petition under  Art.  32,  that  would necessarily  mean that the misconstruction of the nature  of the  transaction  would be no better, even  though  in  this ’latter  case, the wrong decision on the question as to  the character  of  the sale transaction may  involve  -taxing  a transaction which is protected by Art. 286(1) (a).  One  can understand the argument, said Mr. Setalvad, that a breach of the  fundamental rights, however it is caused would  justify recourse  to Art. 32; that would be consistent and  logical; but once it is held that a breach of the fundamental  rights

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alleged  to  have  been caused by  a  misconstruction  of  a notification or a statute placed by an appropriate authority acting  under the provisions of a valid taxing law does  not attract  Art. 32, it is not logically possible to urge  that another  kind  of breach alleged to have been  caused  by  a misappreciation  of  the nature of the  transaction  and  an erroneous conclusion as to its taxable character would  make any   difference.    In  the  first  case,   the   erroneous construction of the notification violates the provisions  of Art.  265  of  the Constitution and thereby  brings  in  the breach of Art.                             895 31  (1);  in the other case, the misconstruction as  to  the taxable character of the transaction violates Art. 28 6 (1 ) (a)  and  thereby brings in Art. 31 (1).  Therefore,  it  is urged that he necessary consequence of the decision in Ujjam Bai  is that even if the Sales-tax Officer has held  wrongly that   the   impugned  transactions  are   not   inter-State transactions,  the remedy of petition under Art. 32  is  not open to the aggrieved citizen. On the other hand, Mr. Palkhivala has strenuously urged that the  decision  in  Ujjam Bai rested on the  basis  that  the misinterpretation  of the notification did not  involve  the violation of any constitutional limitations or  prohibitions and he has referred us to some passages in the judgments  of Das,  Kapur  and Mudholkar JJ.  In support of  his  argument that  where  an  erroneous decision of  a  salestax  officer results in the violation of a constitutional prohibition  or limitation,  different  considerations would  arise  and  an aggrieved citizen would be entitled to move this Court under Art. 32, Mr. Palkhivala has emphasised the fact that whereas Das J. expressly held that the view taken in Kailash Nath v. State  of  U.P.(1) was not right, he approved of  the  other decisions  which  were  cited at the  Bar  and  exhaustively discussed on the ground that those decisions ’fall under the category  in  which  an  executive  authority  acts  without authority  of  law, or a quasi-judicial  authority  acts  in transgression  of a constitutional prohibition  and  without jurisdiction"(2).  These decisions are: Thakur Amar  Singhji v.  State of Rajasthan(3); M/s.  Mohanlal Hargovind Dass  v. The  State  of  Madhya Pradesh(4); Y.  Mahaboob  Sheriff  v. Mysore  State  Transport Authority(5); J.  V.  Gokar  &  Co. (Private)  Ltd.  v.  The Assistant  Collector  of  Sales-tax (Inspection)  (6);  and Universal Imports  Agency  v.  Chief Controller of Imports and Exports ( 7 ) . To the same effect is  the observation made by Kapur J. when the learned  Judge stated that in the case of M/s.  Mohanlal Hargovind Dass ( 4 )  ’:he dispute did not turn upon a misconstruction  of  any statute by any quasi-judicial authority, but that was a case      (1) A.I.R. 1957 S.C. 790(2) [1963] 1 S.C.R. at 842.      (3) [1955] 8 S.C.R. 303.(4) [1955] 2 S.C.R. 509.      (5) [1960] 2 S.C.R. 146.(6) [1960] 2 S.C.R. 852. (7)  [1961] 1 S.C.R. 305. 896 in which the very transaction was outside the taxing powers   of   the  State  and  any  action  taken  by  the   taxing authorities was one without authority of law. In  support  of the same argument, both Mr. Pathak  and  Mr. Palkhivala strongly relied upon the two subsequent decisions of this Court where writ petitions filed under Art. 32  were entertained  on grounds somewhat similar to those  on  which the  present writ petitions are founded, The  State  Trading Corporation of India Ltd. and Another v. The State of Mysore and  Another(1) and The State Trading Corporation  of  India Ltd. and Others v. The State of Mysore and Another(2).

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Basing  himself  on these decisions, Mr. Pathak  has  argued that the question as to whether a particular transaction  of sale  attracts  the  protection  of Art.  286(1)  (a)  is  a collateral  fact the decision of which confers  jurisdiction on the Sales-tax Officer; and he contends that the  decision of  the  Sales-tax  Officer, who is a  Tribunal  of  limited jurisdiction,  on  a  collateral  jurisdictional  point  can always  be challenged under Art. 32 of the  Constitution  if the   said  decision  impinges  upon  the  citizen’s   right protected by Art. 28 6 (1) (a). Mr.  Palkhivala  urged  the argument of  jurisdiction  in  a slightly  different way.  He contended that the  concept  of jurisdiction  on which he relied was not based on  the  view that  jurisdiction means authority to decide.  According  to him, the concept of jurisdiction was of a different category and was of a vital character when constitutional limitations or  prohibitions were involved in the decision of  any  case brought before a Sales-tax Officer. On the other hand, Mr. Setalvad has urged that the Sales-tax Officer  is not a Tribunal of limited jurisdiction  and  the charging sections in the respective Sales-tax Acts leave  it to  the  Sales-tax  Officer and the  heirarchy  of  officers contemplated  by  them  to decide  the  question  about  the taxability  of any given transaction and impose a tax on  it in  accordance  with the provisions of the  Acts.   Where  a tribunal is entitled to deal with transactions which fall (1) 14 S.T.C. 188. (2)  14 S.T.C. 416. 897 under  the  charging sections of the statute,  it  would  be erroneous  to contend that the decision of the  Tribunal  on the said question about the taxability of the transaction is the  decision on a collateral jurisdictional fact.   If  the said  argument is accepted, logically, it may mean that  all questions  the  decision of which  inevitably  precedes  the imposition  of the tax, would be  collateral  jurisdictional fact; and that clearly cannot be the effect of the  charging sections of the different Acts. In  regard  to the point of constitutional  limitations  and prohibitions raised by Mr. Palkhivala, Mr. Setalvad contends that if the provisions of Art. 286(1) (a) makes the decision of the Sales-tax Officer on the character of the sale trans- action one of jurisdiction, then it is difficult to see  why his decision on other points should also not partake of  the same character.  In that connection, he emphasised the  fact that   the   provisions  of  Art.  286(1)  (a)   cannot   be distinguished  from the provisions of Art. 265.  As we  have already  indicated, having regard to the fact that  we  have come to the conclusion that the other preliminary  objection urged  by the respondents must be upheld, we do not  propose to  express  any  opinion on this part  of  the  controversy between the parties. That takes us to the question as to whether the petitioners, some  of  whom  are companies registered  under  the  Indian Companies  Act  and  one  of  whom  is  the  State   Trading Corporation,  can claim to file the present  writ  petitions under Art. 32 having regard to the decision of this Court in the case of the State Trading Corporation of India Ltd. (1). The  petitioners  argue that the said decision  merely  held that  the State Trading Corporation of India Ltd. was not  a citizen.   The  question  as  to whether  the  veil  of  the Corporation can be lifted and the rights of the shareholders of the said Corporation could be recognised under Art. 19 or not,  was  not  decided, and it is on  this  aspect  of  the question  that  arguments have been urged before us  in  the

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present writ petitions. The  true  legal position in regard to the  character  of  a corporation or a company which owes its incorporation to (1) A.I.R. 1963 S.C. 1811. 134-159 S.C.-57 898 a  statutory  authority, is not in doubt  or  dispute.   The corporation  in law is equal to a natural person and  has  a legal  entity of its own.  The entity of the corporation  is entirely  separate from that of its shareholders;  it  bears its    own  name and has a seal of its own; its  assets  are separate and distinct from those of its members; it can  sue and  be sued exclusively for its own purpose; its  creditors cannot  obtain satisfaction from the assets of its  members; the  liability of the members or shareholders is limited  to the  capital invested by them; similarly, the  creditors  of the members have no right to the assets of the  corporation. This  position  has  been well-established  ever  since  the decision  in  the case of Salomon v. Salomon & Co.  (1)  was pronounced in 1897; and indeed, it has always been the well- recognised principle of common law.  However, in the  course of time, the doctrine that the corporation or a company  has a legal and separate entity of its own has been subjected to certain  exceptions by the application of the  fiction  that the  veil  of  the corporation can be lifted  and  its  face examined  in substance.  The doctrine of the lifting of  the veil  thus  marks  a change in the  attitude  that  law  had originally  adopted  towards  the concept  of  the  separate entity  or personality of the corporation.  As a  result  of the  impact of the complexity of economic factors,  juidical decisions  have sometimes recognised exceptions to the  rule about  the juristic personality of the corporation.  It  may be  that  in  course of time these exceptions  may  grow  in number  and to meet the requirements of  different  economic problems,   the   theory  about  the  personality   of   the corporation may be confined more and more. But the question which we have to consider is whether in the circumstances   of  the  present  petitions,  we  would   be justified  in acceding to the argument that the veil of  the petitioning  corporations should be lifted and it should  be held that their shareholders who are Indian citizens  should be  permitted  to invoke the protection of Art. 19,  and  on that  basis, move this Court under Art. 32 to challenge  the validity  of the orders passed by the Sales-tax Officers  in respect  of  transactions  which, it  is  alleged,  are  not taxable. (1)  [1897] A. C. 22.  H.L.  899 Mr. Palkhivala has very strongly urged before us that having regard to the fact that the controversy between the  parties relates to the fundamental rights of citizens, we should not hesitate  to  look  at  the  substance  of  the  matter  and disregard  the  doctrinaire approach  which  recognises  the existence  of  companies  as  separate  juristic  or   legal persons.   If  all  the  shareholders  of  the   petitioning companies are Indian citizens, why should not the Court look at the substance of the matter and give the shareholders the right   to  challenge  that  the  contravention   of   their fundamental rights should be prevented.  He does not dispute that the shareholders cannot claim that the property of  the companies is their own and cannot plead that the business of the  companies is their business in the strict legal  sense. The doctrine of lifting of the veil postulates the existence of  dualism  between the corporation or company on  the  one hand  and its members or shareholders on the other.  So,  it

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is  no good emphasising that technical aspect of the  matter in  dealing with the question as to whether the veil  should be  lifted or not.  In support of his plea, he  has  invited our  attention to the decision of the Privy Council  in  The English  and Scottish Joint Co-operative  Wholesale  Society Ltd.  v. Commissioner of Agricultural Income-tax,  Assam(1), as  well  as the decision of the House of Lords  in  Daimler Company  Ltd. v. Continental Tyre and Rubber Company  (Great Britain) Ltd.(2). It  is unnecessary to refer to the facts in these two  cases and  the  principles enunciated by them, because it  is  not disputed  by the respondents that some exceptions have  been recognised to the rule that a corporation or a company has a juristic  or  legal separate entity.  The  doctrine  of  the lifting of the veil has been applied in the words of  Palmer in  five  categories of cases : where companies are  in  the relationship  of holding and subsidiary (or  sub-subsidiary) companies;  where  a shareholder has lost the  privilege  of limited liability and has become directly liable to  certain creditors  of  the  company on the  ground  that,  with  his knowledge,  the company continued to carry on  business  six months after the number of its members was reduced (1) [1948] I.T.R. 270.      (2) [1916] A.C. 307. 900 below  the legal minimum; in certain matters  pertaining  to the  law  of taxes, death duties  and  stamps,  particularly where  the  question  of the "controlling  interest"  is  in issue;  in the law relating to exchange control; and in  the law  relating  to trading with the enemy where the  test  of control  is  adopted(1).  In some of these  cases,  judicial decisions  have no doubt lifted the veil and considered  the substance of the matter. Gower  has  similarly  summarised  this  position  with  the observation  that  in a number of  important  respects,  the legislature  has  rent the veil woven by the  Salomon  case. Particularly  is  this  so, ’says Gower, in  the  sphere  of taxation and in the steps which have been taken towards  the recognition  of  enterprise-entity  rather  than  corporate- entity.   It  is  significant, however,  that  according  to Gower, the courts have only construed statutes as  "cracking open  the  corporate shell" when compelled to do so  by  the clear  words of the statute; indeed they have gone’  out  of their  way  to avoid this  construction  whenever  possible. Thus, at present, the judicial approach in cracking open the corporate shell is somewhat cautious and circumspect.  It is only where the legislative provision justifies the  adoption of  such  a  course  that the  veil  has  been  lifted.   In exceptional cases where courts have felt "themselves able to ignore  the  corporate entity and to  treat  the  individual shareholders as liable for its acts",(2) the same course has been  adopted.   Summarising  his  conclusions,  Gower   has classified  seven  categories of cases where the veil  of  a corporate  body  has  been  lifted.  But  it  would  not  be possible  to  evolve a rational, consistent  and  inflexible principle  which can be invoked in determining the  question as  to whether the veil of the corporation should be  lifted or  not.   Broadly  stated, where fraud is  intended  to  be prevented,  or  trading  with  an  enemy  is  sought  to  be defeated,  the veil of a corporation is lifted  by  judicial decisions  and the shareholders are held to be  the  persons who actually work for the corporation. That  being the position with regard to the doctrine of  the veil of a corporation and the principle that the said (1)  Palmer’s Company Law 20th Ed. p. 136. (2)  Gower" Modern Company Law, 2nd Ed. pp. 193 & 195.

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901 veil can be lifted in some cases, the question which  arises for our decision is; can we lift the veil of the petitioners and  say that it is the shareholders who are  really  moving the Court under Art. 32, and so, the existence of the  legal and  juristic  separate  entity  of  the  petitioners  as  a corporation  or as a company should not make  the  petitions filed by them under Art. 32 incompetent?  We do not think we can answer this question in the affirmative.  No doubt,  the complaint made by the petitioners is that their  fundamental rights  are  infringed and it is a truism to say  that  this Court  as  the  guardian of the fundamental  rights  of  the citizens   will  always  attempt  to  safeguard   the   said fundamental  rights;  but having regard to the  decision  of this Court in State Trading Corporation of India Ltd. (1) we do   not   see  how  we  can  legitimately   entertain   the petitioners’ plea in the present petitions, because if their plea  was  upheld,  it  would  really  mean  that  what  the corporations  or the companies cannot achieve directly,  can be achieved by them indirectly by relying upon the  doctrine of lifting the veil.  If the corporations and companies  are not  citizens, it means that the Constitution intended  that they should not get the benefit of Art. 19.  It is no  doubt suggested by the petitioners that though Art. 19 is confined to  citizens, the Constitution-makers may have thought  that in  dealing  with the claims of corporations to  invoke  the provisions of Art. 19, courts would act upon the doctrine of lifting  the  veil and would not treat the attempts  of  the corporations in that behalf as falling outside Art. 19.   We do  not think this argument is well-founded.  The effect  of confining Art. 19 to citizens as distinguished from  persons to  whom other Articles like 14 apply, clearly must be  that it  is  only citizens to whom the rights under Art.  19  are guaranteed.  If the legislature intends that the benefit  of Art.  19  should be made available to the  corporations,  it would  not be difficult for it to adopt a proper measure  in that  behalf  by  enlarging  the  definition  of   ’citizen’ prescribed  by the Citizenship Act passed by the  Parliament by  virtue of the powers conferred on it by Articles 10  and 11. On the other hand, the fact that the Parliament has  not chosen to make any such provision indicates that it was  not the intention of the (1)  A.I.R. 1963 S.C. 1811. 902 Parliament to treat corporations as citizens.  Therefore, it seems  to us that in view of the decision of this  Court  in the  case of the State Trading Corporation of India  Ltd.(1) the   petitioners  cannot  be  heard  to  say   that   their shareholders should be allowed to file the present petitions on  the  ground  that, in substance,  the  corporations  and companies are nothing more than associations of shareholders and  members  thereof.   In  our  opinion,  therefore,   the argument that in the present petitions we would be justified in lifting the veil cannot be sustained. Mr.  Palkhivala  sought to draw a  distinction  between  the right  of a citizen to carry on trade or business  which  is contemplated  by  Art.  19(1)(g)  from  his  right  to  form associations or unions contemplated by Art. 19 (1) (c).   He argued  that  Art. 19(1)(c) enables the citizens  to  choose their  instruments  or agents for carrying on  the  business which  it  is  their  fundamental right  to  carry  on.   If citizens  decide  to set up a corporation or  a  company  as their  agent  for  the  purpose  of  carrying  on  trade  or business, that is a right which is guaranteed to them  under Art.  19(1)(c).  Basing himself on this distinction  between

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the   two  rights  guaranteed  by  Art.  19(1)(g)  and   (c) respectively, Mr. Palkhivala somewhat ingeniously  contended that  we  should not hesitate to lift the veil,  because  by looking  at the substance of the matter, we would really  be giving  effect to the two fundamental rights  guaranteed  by Art.  19(1).  We are not impressed by this argument  either. The fundamental right to form an association cannot in  this manner be coupled with the fundamental right to carry on any trade  or business.  As has been held by this Court  in  All India  Bank  Employees’ Association v.  National  Industrial Tribunal   and  Others(2),  the  argument  which   is   thus attractively  presented  before us overlooks the  fact  that Art.  19,  as contrasted with certain  other  articles  like Arts.  26, 29 and 30, guarantees rights to the  citizens  as such,  and associations cannot lay claim to the  fundamental rights  guaranteed  by that Article solely on the  basis  of their being an aggregation of citizens, that is to say,  the right  of the citizens composing the body.   The  respective rights guaranteed by Art. 19(1) (1)   A.I.R. 1963 S.C. 1811. (2)   [1962] 3 S.C.R. 269. 903 Cannot be combined as suggested by Mr. Palkhivala, but  must be  asserted each in its own way and within its own  limits; the  sweep of the several rights is no doubt wide,  but  the combination  of any of those two rights would not justify  a claim  such  as  is made by Mr. Palkhivala  in  the  present petitions.   As soon as citizens form a company,  the  right guaranteed  to them by Art. 19(1)(c) has been exercised  and no   restraint  has  been  placed  on  that  right  and   no infringement  of  that right is made.  Once a company  or  a corporation  is formed, the business which is carried on  by the  said  company  or corporation is the  business  of  the company  or  corporation  and is not  the  business  of  the ,citizens  who  get  the company or  corporation  formed  or incorporated,  and the rights of the incorporated body  must be  judged  on  that footing and cannot  be  judged  on  the assumption  that  they are the rights  attributable  to  the business   of  individual  citizens.   Therefore,   we   are satisfied that the argument based on the distinction between the  two rights guaranteed by Art. 19(1)(c) and (g) and  the effect  of  their combination cannot take  the  petitioners’ case very far when they seek to invoke the doctrine that the veil  of the corporation should be lifted.  That is  why  we have come to the conclusion that the petitions filed by  the petitioners  are incompetent under Art. 32, even  though  in each  of these petitions one or two of the  shareholders  of the petitioning companies or corporation have joined. The  result is, the second preliminary objection  raised  by the  respondents  is  upheld  and  the  writ  petitions  are dismissed  as  being  incompetent  under  Art.  32  of   the Constitution.  There would be no order as to costs. Petitions dismissed.