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Essay: Interpretation of the status of companies by the Indian Courts

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  • Published: 24 April 2023*
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  • Words: 923 (approx)
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A company is said to be an association of a group of two or more persons coming together to operate business. The common law recognizes a company to be a ‘legal entity’ or ‘legal person’ which implies that a corporation is capable survival as a separate body altogether. Over the years the Indian Courts have interpreted the status of companies under Part-III of the Constitution of India – whether a company is entitled to claim Fundamental Rights. There is a very fine line drawn by the Constitution in terms of Fundamental Rights that can be claimed by citizens and those which can be claimed by all ‘persons’.

In ‘State Trading Corporation of India Ltd. V. CTO’1 the company was of the view that sales tax proceedings shall be quashed by the State as it was invalid under Article 32 of the Constitution. The issues here was if the State Trading Corporation is a ‘citizen’ or not. It was held by the Supreme Court of India in a special judge bench that a company cannot be classified as a citizen of India. According to the provisions laid down in Part-III of the Constitution of India a corporation cannot give a company the privilege of being called a ‘citizen’ of India. A clear evaluation can be drawn from the kind of law framed as to the relationship between fundamental rights and companies that a company is regarded as an artificial person who may be allowed to enjoy the benefit of claiming the fundamental rights that are obtainable by natural persons of the country ignoring the fact of being a citizen or not. The interpretation made by the law clearly points out at a company being given the status of an artificial person. Fundamental rights solely guaranteeing rights to ‘all persons’ or ‘any person’ would be categorized as the fundamental rights available to a company or corporation.

In the case of ‘Mazdoor Union V. State of Bihar‘ and ‘Narasaropeta Electric Corporation Ltd. V. State of Madras’ had similar opinions on whether a company could be defined as a citizen. In the case of ‘Telco Ltd. V. State of Bihar’ it was held that even if a group of citizens jointly form a company or corporation it cannot claim the fundamental rights that are available to a citizen of India as defined under the Constitution of India and Citizenship Act, since once a company is formed it is merely regarded as an incorporated body.

Another path was observed by the Bombay High Court in the Pilai Central Bank petition where the court was of the opinion that rebuttal of fundamental rights to a company or corporation composed of citizens would in all but name point out towards rebuttal of the fundamental rights guaranteed by the Constitution of India to the actual citizens indirectly.

Now, Article 14 of the Constitution of India says that “state shall not deny to any person equality before law and equal protection of laws within the territory of India.” Focus on the words ‘any person’ clearly implies that equal protection is in the reach of any person inclusive of a company or corporation. It is not just bound to citizens and extends to all persons though they may be applied in a distinguished manner. In ‘Chiranjilal Chaudhary V. Union of India’ the petitioner approached the Supreme Court claiming his rights under Article 14 and 31. A mill was being run in the same name but had to be closed down soon due to the mismanagement of the company. This run down resulted in serious unemployment. Now this was further replaced by an Act which said that a new director could not be appointed, and no proceedings could be initiated towards closing the company. Here, the petitioner contended that this Act violated his rights under Article 14 of the Constitution and shall be declared unconstitutional. The Supreme Court held that the rules set in the Act are valid and do not go against any legislation. A law may be applicable to one section and not to another under certain circumstances but that does not amount to being invalid. Emphasis was laid on the fact that a corporation may be entitled to fundamental rights in reach of any natural person like right to freedom of speech, right to equality etc.

In another case ‘Tata Engineering v. State of Bihar’ Tata Engineering was a private company having maximum number of shareholders as citizens of India. Out of these citizens two of them filed a petition in the court saying that the corporate veil shall be broken to which the court held that the company’s legal entity is totally separate from the entity of the shareholders. This basically implied that the shareholders are not entitled to claim fundamental rights in the name of the company.

The case of ‘Bennett Coleman and Co. v. Union of India’ where there was an order from the Newspaper Control implying certain restrictions to which Bennet Coleman and Co. and several other newsprint companies filed a petition in the court claiming their Fundamental rights under Article 19(1) of The Constitution. Here the court extended the rule by saying that a person does not lose his availability of Fundamental Rights because of being associated with a company. In case their fundamental rights are impaired in any way by the state their rights are still protected as shareholders. The reason behind this was that if a company’s rights are being affected to a certain degree the shareholder’s rights are also affected in the same way.


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