Introduction:
The Indian Corporate law has been in existence since the enactment of the Joint Stock Companies Act.[1] Corporates themselves, are an institution of ancient date, they have evolved and perfected over since first guilds. However, like all other institutional entities, they too are guided by laws and are subject to the Constitution of India. Our paper aims to delve into the idea of corporate personality and its non-citizen status under India’s Constitution. We will also analyze the concept of Juristic and natural personality.
While the concept of juristic and natural person has been in debate since Roman times, it also means that it has undergone several developments by the time our country incorporated the concept in our statutes and Constitution. Indeed, a corporation is not considered a citizen under Indian law, the company thus does not enjoy certain rights which come from having the status of citizen. We must peer through the past to understand the evolution of Indian law as it is today on the matter of corporate personality.
Further, we will examine the landmark case of State Trading Corporation of India v. Commercial Tax Officer which concluded the debate of corporate as a juristic person and not a citizen in Indian Law.
Evolution of Personality under Law
The common interpretation of the word “person” naturally indicates a living human being. Yet in the legal field, it also includes artificial entities such as corporations and organizations. In common law, the case of Pharmaceutical Society v. London and Provincial Supply Association Ltd.[2] observed that the word “person” could include natural beings i.e., humans, and an artificial person.
The corporate is considered as a juristic personality under the law. There are majorly four theories of personality originating from one common concept of corpus juris, which divided the personality into four categories: the communes, the voluntary associations, the charitable and religious associations, and the treasury, this was when we only had an initial understanding. The first of these theories contend that corporations are a creation of fiction. This Fiction theory elaborates that in the eye of law certain ideal person is regarded as existing and hence has legal consequence attached to them. Therefore, an unnatural person could be individualized by law, making them a creation of law. However, to be recognized as a juristic person it is necessary to obtain state recognition, which is the summum bonum of this theory.
The second theory purports something much more complex. It believes that there is a slew of rights and responsibilities that do not belong to any one person but are intrinsically tied to the goals for which businesses, temples, churches, hospitals, and other institutions were established. According to this theory, the state is the ultimate ruler.
The third theory, that of Ihering’s views the members of companies and their beneficiaries to be the genuine subjects for vesting rights, and so considers corporations to have the capacity to be recognized as persons. This approach has been criticized on the grounds that all individuals of a corporation are neither masters nor owners of the venture.
The fourth theory, the organism hypothesis, claims that the subjects of rights do not have to be human beings. Rights pertain to all beings with a will and a life of their own, and nations and corporations are just as alive and capable of having a will as individuals. According to the hypothesis, they are social organisms, just as humans are physical organisms. This concept is crucial in determining corporate liability in both civil and criminal cases. To be much more artful in our understanding, the summation of this theory by Lord Haldane in Lennards Carrying Co. v. Asiatic Petroleum[3], states:
“[A] corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego, and centre of the personality of the corporation.”
Arguments in India Law
The above theories, in truth, are that of common law and could not be applied to the India scenario unless the law of the land and its interpreter, the courts, suggests or give an indication of doing so. There has been a long debate on whether corporations are just a satellite of state personality. However, this is a particularly misconceived notion in the minds of many. The public corporations, except for the purpose of art. 12[4], under no circumstance, can be held to be the state.
In the case of Madan Mohan Lal v. Om Prakash[5], it was argued profusely before the court that the public corporation could be considered an agent of the state if it carries the departmental functionalities, because of being in subjection of the state’s control. It was also argued that the government could carry out its functions either through the agency of a department run by individual officers or through the agency of a statutory corporation and that the state could, and had, entered the business world through the formation of a corporation. However, the court rejected these arguments for any apparent reason. The court in Daudyal v. Gulabchand[6], while clearing the position of a corporation as the department of state, completely discarded the “control test” as an intelligent one. Further observing that, while the central government has certain powers of control over the corporation in matters of policy, it cannot intrude in its day-to-day functions, and that the corporation is a body corporate with perpetual succession and a common seal and cannot be regarded to as a department of government form any angle.
The courts had also rejected the agent theory, contending it to be flawed in the manner that a corporation could not be considered a statutory body if the substance of its functions i.e. its core purpose, does not give an indication of governmental functions.[7] The only personality theory which is somewhat accepted by the courts is the Fiction theory of corporate personality. Here the theory converts a nonentity to reality for legal purposes. In Braithwaite & Co. v. ESI Corpn.[8] The court observes that: “A legal fiction is adopted in law for a limited and definite purpose only and there is no justification for extending it beyond the purpose for which the legislature adopted it.”. Hence, the purpose of creation is as important as the creation itself, the misuse of which was warned against by Bhagwati J.[9]
In the case of Shiromani Gurdwara Prabandhak Committee, Amritsar v Som Nath Dass[10]P. Misra J. observed that: “The very constitution of a State, municipal corporation, company etc. are all creations of the law and these ―juristic persons‖ arose out of necessities in the human development. In other words, they were dressed in a cloak to be recognised in law to be a legal unit.” Further, on the matter of whether the municipal is a “citizen” or not, the court in case of Municipal Committee, Amritsar & Ors. V. State of Punjab & Ors.,[11]that municipal corporation are not a citizen under the meaning of Article 19.
Ergo, the corporation is after all a juristic personality under Indian Law.
Debate in State Trading Corporation of India v. Commercial Tax Officer
The purpose of the paper is to study the corporation as a non-citizen entity. But what is “citizen”? It is a question that is not answered in Part III of the Constitution of India[12], where it is mentioned. The question was answered in the landmark case of State Trading Corporation of India v. Commercial Tax Officer[13], where Sinha, C.J., observed that the word “citizen” is intended to refer only to a natural person and thus it excludes juristic body like corporate. The corporate does not have any claim under the status of “citizen” in part II of the Constitution. His Lordship reasoned that Part II of the Constitution expressly states that juristic persons are exempt from its restrictions. The Indian Citizenship Act of 1955, which governs citizenship after the establishment of the Constitution, expressly excludes juristic people from its purview.[14] Both the Indian Citizenship Act of 1955 and Part XII of the Constitution cover the subject of citizenship in India and state that only natural persons can be citizens. This position is reinforced by another factor, that, Part III of the Constitution grants certain fundamental rights only to citizens,[15] while others are guaranteed to everyone.[16] The definition of “person” has been broadened to include business entities.[17] This led the learned Chief Justice to conclude that the framers of the Constitution were careful to use the word “citizen ” whenever they felt a particular right should be enjoyed exclusively by Indian citizens, as opposed to rights intended to be enjoyed by all persons, whether Indian or foreign, natural, or legal. Hidayatullah, J., supported the same position with some additional rationale in his concurring opinion. His lordship examined that, there were twenty-nine and six instances where the terms “citizen” and “citizenship” were used, respectively, with caveats that only a natural person could fit in all of them. As a result, he argued that the term “citizen” in art. 19 should only refer to natural persons. Therefore, the case held that where the State government of Andhra Pradesh and Bihar had levied sales tax on the petitioner, the State Trading Corporation, for its commercial activities. The corporation was created under the Companies Act, 1956, and had moved to SC on grounds that the notices were violative of Article 19(1)(f) of the Indian Constitution. The States raised the question of whether the State Trading Corporation could claim the protection of fundamental rights i.e., whether it is “a citizen” at all.
Keeping in mind all the above explanation we can securely say that the corporate, in the eyes of law is a juristic personality, and neither the provisions of Constitution’s Part II, nor that of Citizenship Act, either confer the right of citizenship on or recognizes as a citizen, any person other than a natural person. In somewhat sarcastic words of Hidayatullah J.: if all of them (Company members) are citizens of India the Company does not become a citizen of India any more than if all are married the company would be a married person. [18]
Hence, in finality the corporate personality, under Indian law, could be considered a juristic and legal person but would not be a “citizen”.
The position was developed and changed throughout later cases. In Bennett Coleman & Co. v, Union of India[19] it was held that the right of shareholders was protected under Article 19 (1) (a) of the constitution, and manifested by the newspapers owned and controlled by the shareholders through the medium of the corporation. Further, in the case of D.C. & G.M. V Union of India,[20] the court held that the denial of rights under Article 19 to a company formed by shareholders would be the same as denial of the other fundamental rights.
Conclusion
The paper has exhaustively considered the debate of corporate personality as a non-citizen and the concept of juristic personality and natural personality. We have examined the landmark case and other cases concerning the position of corporate personality. However, I believe that the landmark case had too many differences in opinion and all the four learned judges struck different notes of the concert, which explains the innate complexity of this problem. Perhaps the judges were too hasty in their decision or still unsatisfied. Whatever the case may be the concluding judgment reflected what the judges echoed. The consequence of this judgment was that the corporations no longer avail the protection of certain fundamental rights leaving them unprotected. However, the corporate themselves are not human beings but echo human likeness. They are a juristic personality who is a creation of the state.
References:
[1] Join Stock Companies Act, 1850.
[2] Pharmaceutical Society v. London and Provincial Supply Association Ltd., 1880 5 AC 857.
[3] Lennards Carrying Co. v. Asiatic Petroleum, 1915 AC 705, at 713.
[4] India Const. art. 12.
[5] Madan Mohan Lal v. Om Prakash, AIR 1957 All 384.
[6] Daudyal v. Gulabchand, AIR 1962 MP 47.
[7] University of Madras v. Shantha Bai, AIR 1954 Mad. 67.
[8] Braithwaite & Co. v. ESI Corpn., AIR 1968 SC 413.
[9] Bengal Immunity Co. v. State of Bihar, AIR 1955 SC 661.
[10] Shiromani Gurdwara Prabandhak Committee, Amritsar v Som Nath Dass, (2000) 4 SCC 146.
[11] Municipal Committee, Amritsar & Ors. V. State of Punjab & Ors., 1969 AIR 1100.
[12] India Const. pt. III.
[13] State Trading Corporation of India v. Commercial Tax Officer, AIR 1963 SC 1811.
[14] Indian Citizenship Act, 1955, § 2 cl. f.
[15] India Const. art. 15, 16, 19 & 29.
[16] India Const. art. 14, 20, 21, 22, 25, 27 & 31.
[17] The General Clauses Act, 1897.
[18] Avtar Singh, Company Law 33-34 (Eastern Book Company 2021).
[19] Bennett Coleman & Co. v. Union of India, AIR 1973 SC 106.
[20] D.C. & G.M. V Union of India, AIR 1983 SC 937.
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