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STATE TRADING CORPORATION V. CTO, AIR 1963 SC 811

STATE TRADING CORPORATION V. CTO, AIR 1963 SC 811

 

FACTS

  • May 18, 1956, the State Trading Corporation (STC) of India Ltd.-hereinafter called 'the Company' was incorporated as a Private Limited Company under the Indian Companies Act, 1956, with an authorised capital of Rs. 5 crores divided into five hundred thousand shares of Rs. 1.00 each. Ninety eight per cent of the subscribed capital which was contributed out of the funds of the Government of India, stood registered in the name of the President of India and the remaining two per cent in the names of two joint Secretaries in the Ministry of commerce & Industries.
  • On February 12 1961, the Commercial Tax Officer, Visakhapatnam assessed the Company in the sum of Rs. 5,79,198.17 nP. to sales tax in respect of certain transactions and issued a notice demanding payment of the amount.
  • State Trading Corporation of India and Mr. K B Lal, the then additional secretary, Ministry of Commerce and industries, moved to this court under Article 32 of the Constitution for quashing by a writ of certiorari or any other appropriate writ against the direction of the Commercial Tax Officer.
  • The State Trading Corporation of India Ltd. and K.B. Lal, who is no longer holding the office now, are the petitioners who seek relief against the State of Andhra Pradesh in two of the petitions and the State of Bihar in the third petition for quashing the orders of a Commercial Tax Officer (CTO) of the State concerned, assessing the Corporation to sales tax and also for quashing the notice of demand issued to them for payment of the sum assessed.
  • Petitioners claim to be Indian citizens and contended that their fundamental rights under Article 19 of the Constitution had been infringed as a result of the proceedings taken in and the demands for sales tax made by the appropriate authorities.

ISSUE

  • Whether the State Trading Corporation, a company registered under the Indian Companies Act, 1956, is a citizen within the meaning of Article 19 of the Constitution and can ask for the enforcement of fundamental rights granted to citizens under the said article?
  • Whether the State Trading Corporation is, notwithstanding the formality of incorporation under the Indian Companies Act, 1956, in substance a department and organ of the Government of India with the entirety of its capital contributed by Government; and can it claim to enforce fundamental rights under Part III of the Constitution against the State as defined in Article 12 thereof?

HELD

The court ruled that corporations are not citizens of India for the purposes of the constitution, even though they may be nationals of the country for international law purposes.

  • The STC was established to undertake trade with East European countries and to supplement the efforts of private trade and industry in developing exports from the country. It is functioning under the administrative control of the Ministry of Commerce & Industry.
  • The Supreme Court ruled that the STC is not a citizen, either by itself or as the aggregate of Indian citizens. The court stated that the word "citizen" in Article 19(1) (f) and (g) can refer to no other than natural persons. The court also stated that the STC is a department of the Government, and cannot claim protection against an action of the State under Article 19.
  • From the provision of part 3 of the Constitution, there is a clear distinction between fundamental rights available to any person and those guaranteed to all citizens. In other words, all citizens are persons but all persons are not citizens, under the constitution.
  • Part 2 of the Constitution deals with citizenship and they are clearly inapplicable to juristic persons. The Citizenship Act is absolutely clear in reference to the provisions of the statute that a juristic person is outside the purview of the act, this is for providing acquisition and termination of Indian citizenship.
  • In other words, citizens are those persons who have full political rights as distinguished from nationals, who may not enjoy full political rights and are still domiciled in that country.
  • The court did not accept the argument that there can be citizens of this country who are neither to be found within the four-corners of Part II of the Constitution or within the four-corners of the Citizenship Act.
  • The court was of the opinion that these two provisions must be exhaustive of the citizens of this country, Part II dealing with citizens on the date the Constitution came into force and the Citizenship Act dealing with citizens thereafter. We must, therefore, hold that these two provisions are completely exhaustive of the citizens of this country and these citizens can only be natural persons.
  • The fact that corporations may be nationals of the country for purposes of international law will not make them citizens of this country for purposes of municipal law or the Constitution. Nor do we think that the word “citizen” used in Article 19 of the Constitution was used in a different sense from that in which it was used in Part II of the Constitution. The first question, therefore, must be answered in the negative.


COMMENTARY

"neither the provisions of the Constitution, Part 11, nor of the Citizenship Act, either confer the right of citizenship on, or recognise as a citizen, any person other than a natural person". In the striking words of Hidayatullah J (afterwards CJ):

“.. if all of them (the 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." A company is, however, a person in the eyes of law and it can claim the protection of such fundamental rights as are guaranteed to all persons whether citizens or not. A company cannot claim the protection of such fundamental rights as are expressly guaranteed to citizens only. But even so there is no "cause for anxiety about corporations in general and companies in which States hold all or the majority of the shares in particular. They are amply protected under our Constitution. There can be no discrimination, no taxation without authority of law, no curbs involving freedom of trade, commerce or intercourse, and no compulsory acquisition of property.    The hardship caused by this pronouncement has, however, been subsequently modified (though not by conceding in so many words that a company may be a citizen for certain purposes) by holding that a citizen shareholder may petition, proceeding on behalf of the company, against violation of his company's fundamental rights.                                                                

A company incorporated in a particular country has the nationality of that country, though, unlike a natural person, it cannot change its nationality. The same principles apply to the determination of the residence of a company. Lord Loreburn stated in a case before the House of Lords that in applying the concept of residence to a company we ought to proceed as nearly as we can upon the analogy of an individual.

"A company cannot eat or sleep, but it can keep house and do business. We ought, therefore, to see where it really keeps house and does business. An individual may be of a foreign nationality and yet reside in the United Kingdom, so may a company. Otherwise it might have its chief seat of management and its centre of trading in England under the protection of English laws, and yet escape the appropriate taxation by the simple expedient of being registered abroad and distributing its dividends abroad. A company resides for purposes of income tax where its real business is carried on. The real business is carried on where the central management and control actually resides.”