Tata Engineering And Locomotive … vs State Of Bihar And Others on 25 February, 1964 – Case Summary

In the case of Tata Engineering and Locomotive Co. Ltd. vs. State of Bihar and Others, decided on 25th February 1964, the Supreme Court of India was called upon to adjudicate on a matter of significant constitutional and commercial importance. The case revolved around the interpretation of the Constitution of India, particularly Articles 19, 32, and 286(1)(a), and the rights of corporations in relation to these provisions.

Facts of the Case

The petitioner, Tata Engineering and Locomotive Co. Ltd., a company registered under the Indian Companies Act, 1913, was engaged in the business of manufacturing diesel truck and bus chassis, spare parts, and accessories at Jamshedpur in the State of Bihar. The company sold these products to dealers, State Transport Organisations, and others doing business in various states of India. The petitioner was ordered to pay sales tax on 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 Article 286(1)(a) of the Constitution of India. This plea was rejected by the Sales-tax authorities and it was held that Article 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 Article 32 of the Constitution.

Issues Raised

A preliminary objection was taken on behalf of the respondents that the petitions were not competent as those were filed by corporations or companies and the provisions of Article 19 did not apply to them as corporations were not citizens. The respondents argued that the petitions under Article 32 were incompetent although in each of them one or two of the shareholders 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.

Court’s Observations

The Supreme Court held that 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 got the company or corporation formed or incorporated. 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. 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 an association of shareholders and members thereof.

The Court further observed that 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 shareholders is limited to the capital invested by them. The creditors of the members have no right to the assets of the corporation.

Conclusion

In conclusion, the Supreme Court dismissed the writ petitions, holding that the petitions under Article 32 were incompetent. The Court ruled that corporations or companies are not citizens and therefore, cannot claim the fundamental rights guaranteed under Article 19 of the Constitution. The Court emphasized that the Constitution intended that corporations or companies should not get the benefit of Article 19.