# Tata Engineering v. Stace 01 Biha1·

- **Citation:** [1964] 6 S.C.R. 885
- **Court:** Supreme Court of India
- **Decided:** 1964-02-25
- **Bench:** P. B. Gajendragadkar, C.J .. K. N. Wanchoo, J. c. SHAH, N. Rajagopala Ayyangar Ands. M. S!Kri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tata-engineering-v-stace-01-biha1-3228
- **Pages:** 19

## Headnote

Corporation-Position of-Whether
citizen-Whether
petition
under
Art. 32 by Corporation claiminR a fundamental right
guarante1d
under Art. 19 competent-Doctrine of piercing the corporate veil
-Exceptions to rule that Corpor.;J,',_-';i has a separate legal ~ntity
Levy of Sales Tax challenged-Constitution of India, Arts. 19. 32
and 286(1} (a).
The petitioners were ordered to pay salC!·tu. on account of certain
transactions made by them in the State of Bihar. Their contention wu
that th~ sales in question took place outside the state and hence the1
were entitled to the protection of Art. 286(l)(a). Their plea was rejected by the Sale3-tax authoritie3 and it was held that Art. 286(1 )(a)
di'd not apply to them. The peti1ioners
challenged the orders of tho
sales-tax authorities by writ petitions filed by them under Art. 32 of tho
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 u corporations were not citizens. Dismissing the writ petitions.
H </J.-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 ri&hts to
citizens as such and associations cannot Jay claim to the fundamental
rights guaranteed by that Article solely on the basis of their bein& rm
aggregation of citizens. Once a company or a corporation is formed.
the business which is carrictl on by the said company or corporation
is the business of the company or corporation and is not the busin ..
of the citizens ·who got th: 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 right&
attributable to the business of individual citizens. The petitioners cannot
be heard to say that their share-holders should be allowed to file tho
present petitions on the grountt that in substance. the corporatiom and
companies arc nothing more
than association of
shue-holOen
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 "feil.
If the corporations and companies are not citizens, (t means diat the
Constitution intended that they should not aet tho l;cneftt of Art. 1'.
'
1,64
l'druary
2J
1961
Tata Engineering
v.
Stace 01 Biha1·
886
SUPREME COURT REPORTS
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 sueCI exclusively for its own
purpose.
Its creditors cannot obtain satisfaction from the assets of its members.
The liability of the m~mbers or share holders is limited to the capital
invested by them. The creditors of the members have no right to tho
assets of the corporation. HoWever. there are some exceptions to the
rule that the corporation or a company has a juristic or legal entity and
the doctrine of lifting the veil of a corporation and examining its faco
in substance has been applied in many cases but the same docs not apply
in the present case.
State of Trading Corporation of India Ltd. v. The Commercial TaE
Officer & Ors. A.l.R. 1963 S.C. 1811, Smt. Ujjam Bui v. Stule of Uttar
Pradesh.
[1963] I S.C.R. 778, Inda-China Steam Navigation Co. Ltd. v.
Additional Collector of Customr.
[1964]
6 S.C.R.
594, Kailash
Nath v. State of UP. A.1.R. 1951 S.C. 790, Thakur .Amar .Singhji v.
State of Rajasthan, fl955l 2 S.C.R. 303. Mis. Mohanlal HarROVind v.
State of Madhya Pradesh. [1955] 2 S.C.R. 509. Y. Mahahoob ShuiO v.
Mysore State Transport Authority. [1960] 2 S.C.R. 146, J. V.

## Text

_Characters 0–39,873 of 44,924. This is a partial read: ask again with offset=39873 for what follows._

'j
6 S.C.R.
SUPREME COURT REPORTS
885
TATA ENGINEERING AND LOCOMOTIVE CO. LTD.
.,,
STATE OF BIHAR AND OTHERS
(P. B. GAJENDRAGADKAR, C.J .. K. N. WANCHOO, J. c.
SHAH, N. RAJAGOPALA AYYANGAR ANDS. M. S!KRI JJ.)
Corporation-Position of-Whether
citizen-Whether
petition
under
Art. 32 by Corporation claiminR a fundamental right
guarante1d
under Art. 19 competent-Doctrine of piercing the corporate veil
-Exceptions to rule that Corpor.;J,',_-';i has a separate legal ~ntity
Levy of Sales Tax challenged-Constitution of India, Arts. 19. 32
and 286(1} (a).
The petitioners were ordered to pay salC!·tu. on account of certain
transactions made by them in the State of Bihar. Their contention wu
that th~ sales in question took place outside the state and hence the1
were entitled to the protection of Art. 286(l)(a). Their plea was rejected by the Sale3-tax authoritie3 and it was held that Art. 286(1 )(a)
di'd not apply to them. The peti1ioners
challenged the orders of tho
sales-tax authorities by writ petitions filed by them under Art. 32 of tho
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 u corporations were not citizens. Dismissing the writ petitions.
H </J.-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 ri&hts to
citizens as such and associations cannot Jay claim to the fundamental
rights guaranteed by that Article solely on the basis of their bein& rm
aggregation of citizens. Once a company or a corporation is formed.
the business which is carrictl on by the said company or corporation
is the business of the company or corporation and is not the busin ..
of the citizens ·who got th: 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 right&
attributable to the business of individual citizens. The petitioners cannot
be heard to say that their share-holders should be allowed to file tho
present petitions on the grountt that in substance. the corporatiom and
companies arc nothing more
than association of
shue-holOen
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 "feil.
If the corporations and companies are not citizens, (t means diat the
Constitution intended that they should not aet tho l;cneftt of Art. 1'.
'
1,64
l'druary
2J
1961
Tata Engineering
v.
Stace 01 Biha1·
886
SUPREME COURT REPORTS
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 sueCI exclusively for its own
purpose.
Its creditors cannot obtain satisfaction from the assets of its members.
The liability of the m~mbers or share holders is limited to the capital
invested by them. The creditors of the members have no right to tho
assets of the corporation. HoWever. there are some exceptions to the
rule that the corporation or a company has a juristic or legal entity and
the doctrine of lifting the veil of a corporation and examining its faco
in substance has been applied in many cases but the same docs not apply
in the present case.
State of Trading Corporation of India Ltd. v. The Commercial TaE
Officer & Ors. A.l.R. 1963 S.C. 1811, Smt. Ujjam Bui v. Stule of Uttar
Pradesh.
[1963] I S.C.R. 778, Inda-China Steam Navigation Co. Ltd. v.
Additional Collector of Customr.
[1964]
6 S.C.R.
594, Kailash
Nath v. State of UP. A.1.R. 1951 S.C. 790, Thakur .Amar .Singhji v.
State of Rajasthan, fl955l 2 S.C.R. 303. Mis. Mohanlal HarROVind v.
State of Madhya Pradesh. [1955] 2 S.C.R. 509. Y. Mahahoob ShuiO v.
Mysore State Transport Authority. [1960] 2 S.C.R. 146, J. V. Gokar &
Co. (f) Ltd. v. Assistant Colle.ctor of Salts-tax (inspection), [1960] 2
S.C.R. 852, Universal Imports Agency v. Chit/ Controller of Imports
&: Exports [1960] 1 S.C.R. 305. Stalt Trading Corporarion of India Ltd.
v. State of Jt.fysore, 14 S.T.C. 188, Statt 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 Whole·
1alt Society Ltd. v. Commlssiontr of Agricultural Income-tax
Assam.
1948 I.T.R. 270, Daimler Company Ltd. v. Continental Tyre and Ru?bcr
Co. (Great Britain) Ltd. [1916] A. C. 307 and All India Ba11k Employed
Association v. National Industrial Tribunal & Ors. [1962] 3 S.C.R. 269,
rcfcrreCi to.
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. Palkhiva/a, J. B. Dadachan;i, 0. C. Mathur and
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. IC.
Garg and S. C. Agarwal, for the respondents (in W.P.
Nos. 112 and 113 of 1961).
·~·
6 S.C.R.
SUPREME COURT REPORTS
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, 0. 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, CJ .-These writ petitions have been
placed for hearing before us in a group, because they raise
a common question of Jaw 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' grievallllO
1961
Tata Eng1_,,,,
v.
Stat• ~t Bl/uir
Gaf•ndragadlar
c. J.
Tata Enginee1;ng
v.
Slilu ~1 Bihar
Gajendragadkar
c. J.
888
SUPREME COURT REPORTS
is that by cJming to this erroneous conclusion, a tax is
being levied against them in respect of transactions protected by Art. 286(l)(a) and that constitutes a breach of
their fundamental rights under Art. 31 ( 1 ) . It is this alleged
infringement of their fundamental rights that they seek to
bring before this Court under Art. 32 (I).
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,
1t is not necessary to set out the facts in respect of each one
of them.
For convenience we will refer lo the facts set out
by
1the Tata En'gineering & Locomotive Co. Ltd., !he
pe\itloner in W1Ps. Nos. 112 and 113 of 1961. The petitioner is a company registered under the Indian Companies
Act: 1913 and carries on the business of manufacturing,
inter alia, Diesel Truck and Bus chassis and the spare part~
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 Stat~
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 Agreements 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 contend!
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 held that the sales had taken place
within the State of Bihar and were intra-State sales and as
1uch, were liable to assessment under the Bihar Sales Tax
6 S.C.R.
SUPREME COURT REPORTS
889
Act.
In accordance with this conclusion, further steps are
1961
threatened against the petitioner in the matter of recovery Tata Engineering
of the sales-tax calculated by the appropriate authorities.
Stot• ;; Bilw
The petitioner is a company and a majority of its shareholders are Indian citizens, two of whom have joined the
Gaiendragadkor
c. /.
present petitions.
The petitioners in W.Ps. Nos. 79 and 80/1962 are the
Auwmob1Je Products of India Ltd. and Another. The
majority of the share-holders of this company are also
citizens of lnd;a 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 arc 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
Corporat:on 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 rpetitioner
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 llldia 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
shareho:ders and as such, it should be open to the petitioners
either acting themselves as companies or acting through
(I) A.l.R. 1963 S.C 181 l.
890
SUPREME COURT REPORTS
1951
their. shareholders to claim the relief for which the present
Tata Engineering petitions have been filed under Art. 32.
V.
Stai. of Bihnr
Gajtndragadkar
c. J.
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 pur·
porting 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-indicial 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('>.
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 sep'l!ate
(I) [1963] 1 S.r..R. 778.
(2) A.l.R. 1963 S.C. 1811.
6 S.C.R.
SUPREME COURT REPORTS
legal entity is not directly entitled to claim.
The respond1~
(:nts have urged that in dealing with the plea of the peti- Tata Engineering
tioners 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.(').
Basing themselves on this contention, the respondents have
also argued that if the f11nda111ental rights guaranteed by
Art. 19 are no: available to the tJet!tioners, then their plea
that the sales-tax is being collected from them contrary to
Art. 31 (I) must fail and in support of this contention
reliance is placed upon a recent decision of this Court in
the case of Inda-China Steam Navigation Co. Ltd. v. The
Additional Collector of Customs and Others(').
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
en 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 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. 28611 )(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
by both the parties in that behalf.
(I) A.l.R. 1963 S.C. 1811.
(2) [19641 6 s.c.R. 594.
v.
State of Bihar
Gajendragadkar
C. I.
196f
T41a Bngin~~ring
v.
Statt of Bihar
Gajendrogadkar
C. I.
SUPREME COURT REPORTS
[rg64]
The controversy between the parties as to the scope and
effect of the provision> contained in Art. 32 on which the
va,idity of the first preliminary objection rests, substantially
centres round the question as to what is the e!Iect of the
decision of this Court in Smt. Ujjam Bai's case(1).
The
petitioners argue that though the majo ity 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 fundament3l rights of a citizen are contravened, may
be by a quasi-judicial order, in pursuance of wh'ch a tax
is attempted to be recovered from a citizen, the erroneous
conclusion in regard to the 11ature of the transaction must
be held to contravene the fundamental right of the citizen,
and as such, would justify the petitioners in moving thi'l
Court under Art. 32.
On the other hand, the respondents urge that the effect
of the decision in Ujjam Rai's ca~e plainly tends to show
that if a quasi-judicial
d~cision 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 .iustify an application under Art. 32.
The argument
is that th~ intervention of a quasi-judicial order chan~es the
complexion of the dispute between the parties, and in cases
of that character, the only remedy available to an a.ggrieved
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-iudicial
orders passed by appropriate authorities purpoi:ting to
exercise their powers and iuriscjictions under the several
taxing statutes. It mav 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('), the first issue which was
referred to the Special Bench was whether an or<ler of
assessment made by an authoritv under a taxing statute
which is intra vires is open to challenge as repugnant to
(II [1963] I S.C.R. 778.
6 S.C.R.
SUPREME COURT REPORTS
Art. 19(l)(g), on the sole ground that it was based on a
m ;sconstruction of a provision of the Act or of a notification
iil.ued thereunder; and the second question was, can the
validity of such an order be questioned in a petition under
Att. 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 majority view
observed that where a quasi-judicial authority makes an
order in the undoubted exercise of its jurisdiction in pur1u ance of a provision of law which is intra vi res, 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
I.hat it is passed on a misconstruction of a provision of the
.~ct 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 auth0rity was acting
beyond its jurisdiction and in such a case, a petition under
Art.
32 may be justified.
Proceeding on this view, the
learned Jud<re held that the construction placed by the
taxing authority was not shown to be patently erroneous.
1961
T al• Bng1n,~1in1
..
St"'4 of Bilw
Gajendroradkar
C. I.
1964
Tata Engi11eering
v.
State of Bil1ar
SUPREME COURT REPORTS
an~ so, he. was not prepared to grant any relief to Ujjam
Bai: . That 1s how the learned Judge agreed with the majority
dec1s10n.
Gaiendragadkar
Mudholkar J., who also agreed with the majority
c. J.
decision, was disposed to make an exception in cases where
an erroneous construction of the Jaw 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, tbe
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 heller, even though in this latter
case, the wrong dec:sion 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 ri~hts
alleged to have been caused by a misconstruction of a
notification or a statute placed by an anpropriate 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 therebv brings in the breach of Art.
l
6 S.C.R.
SUPREME COURT REPORTS
31 ( 1 ) ; in the other case, the misconstruction as to the
taxable character of the transaction violates Art. 28 6 ( l ) (a)
and thereby brings in Art. 31 ( l). 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
agi;rieved 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
11n aggrie¥ed 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
Kai/ash 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
"''ithout jurisdiction"('). These decisions are: Thakur Amar
Singhji v. State of Rajasthan(3); M/s. Mohan/al Hargnvind
Dass v. The State of Madhya Pradesh('); Y. Mahaboob
Sheriff v. Mysore State Transport Authority('); J. V. Gokar
& Cn. (Private) Ltd. v. The Assistant Collector of Sales-tax
(Inspection)('); and Universal Imports Agency v. Chief
1<:ontrol/er of Imports and Exports('). To the same effect
is the observation made by Kapur J. when the learned Judge
fttated that in the case of M Is. Mohan/al Hargovind Dass(')
~.he dispute did not turn upon a misconstruction of any
~tatute by any quasi-judicial authority, but that was a case
----------
(1) A.l.R. 1957 S.C. 790.
(2) [1963] 1 S.C.R. at 842.
(3) [1955] 8 S.C.R. 303.
(4; [19551 2 S.C.R. 509.
(5) [1960] 2 S.C.R. 146.
(6) [1960] 2 S.C.R. 852.
(7) [1961] I S.C.R. 305.
1964
Tata Eng1neerl•t
v.
State of Bihar
Gajendragadkfll'
c. J.
JIM
7ata Engin~ering
•.
Stlll• of Bilw
SUPREME COURT REPORTS
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 .
Gai•ndragadkar
In support of the same argument, both Mr. Pathak and
c. J.
Mr. Palkhivaia strongly relied upon the two subsequent
decisions of this Court where writ petitions filed under
Art. 32 were entertained on grounds 1omrwh8t <imibr 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(') and The Srare
Trading Corporation of India Ltd. and Others v. The State
of Mysore and Another(').
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 Sa!es-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
challe"nged under Art. 32 of the Constitution if the said
decision impinges upon the citizen's right protected by Art.
286(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
tirxability 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.
•
6 S.C.R.
SUPREME COURT REPORTS
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 transaction 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(l)(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. 3 2 having regard to the decision of this Court
In the case of the State Tradlng Corporatlon 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 que~tion 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 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.l.R. 1%3 S.C. 1g11.
134-159 S.C.-57
1961
Tata Engineerillr
v.
Slall of BU.
Gajendra,,,,a,,r
C.J.
SUPREME COURT REPORTS
.
1961
a statutory authority, is not in doubt or dispute. The
T• B;ii"nurlng corporation in law is equal to a natural person and has a
"*' f Blhar
legal entity of its own.
The entity of the corporation is
•
0
~ntirely separate from that of its shareholders; it bears its
<h/lndragadkar own name and has a seal of its own; its assets are separate
c. ·I.
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 wellrecogni~ed 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 t·xceptions 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 deci·
sions 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 tbe
validity of the orders passed by the Sales-tax Officers in
respect of transactions which, it is alleged, are not taxable.
,
(I) [1897] A. C. 22. H.T.
'
6 S.C.R.
SUPREME COURT REPORTS
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 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 Lrd. v. Continental Tyre and Rubber Company
(Great Britain) Ltd.(').
It is unnecessary to refer to the facts in these two case&
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 C011pofation or a company
has a juristic or legal separate entity. The doctrine of the
lifting of the veil has bee.n 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
(I) [1948] l.T.R. 270.
(2) [1916] A.C. 307.
J!IM
Tata Eniinurina
...
Stai. of Bllw
Gajtndragadkar
C. I.
SUPREME COURT REPORTS
1961
below the legal minimum; in certain matters pertaining to
:rw ..-;;;;..,Ing the law of taxes, death duties and stamps, particularly where
,_ :; B,..
the question of the "controlling interest" is in issue; in the
\.
' '
law relating to exchange control; and in the law relating
""1-iragadkar to trading with the enemy where the test of control is
c. J.
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 tJxati 'n
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 rpresent,
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 lift
0 d
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, Modtrn Company Law, 2nd Ed. pp. 193 & 195.
, '
-\
.. '
' •
6 S.C.R.
SUPREME COURT REPORTS
901
veil can be lifted in some cases, the question which arise&
for our decision is; can we lift the veil of the petitioners
and say that it is the sareholders 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
attCIIl!l>t to safeguard the said fundamental rights; but having
regard to the decision of this Court in State Trading
Corporation of India Ltd.(') 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.