Introduction
The Constitution on India is considered to be the “mother document”, or the “law of the land” as some might say, It is one of the most essential documents to our country as it defines the rights of its citizens and the people who reside inside it. A constitution is essential in ensuring the democracy of our country as it ensures that the rights of the people are not violated and the duties of the Government are carried out, among other things.
Companies are believed to be “separate legal entities” from their owners from the time of incorporation and registration. Once companies are formed under the Companies Act, 2013 they are believed to be independent individuals. The concept was first introduced in 1896 by the landmark decision to identify companies as separate legal entities was first spoken about in the case of Solomon & Solomon Co [1] to uphold the doctrine of “Corporate personality” under the companies act 1862. This meant the owners would now have limited liability and could not be subjected or held accountable for the actions of the company.
But since then we have come a long way, legislators soon realised that is the owners or BoD would not be held accountable there was no accountable for the actions of a company & would carry out illegal activities and get away with white-collar crime. Therefore, the concept of removal of “corporate veil” was introduced and adopted by the Judiciary, to protect the interests of the shareholders and other related entities against the actions of the company.
Ever since corporate bodies have been considered as separate entities, there have been several new questions arising with regards to applicability of other laws which protect natural entities to artificial entities such as companies. Corporate bodies are independent legal organizations with the ability to possess property, make agreements, file lawsuits, or be sued. In general, it may be observed that certain rights are granted to people exclusively in cases covered by Articles 15, 16, 19, and other provisions of the Indian Constitution. Therefore, understanding why some rights are denied to corporations under the Indian Constitution requires us to delve into the concepts of citizenship and nationality.
Who do the Fundamental rights apply to?
One of the key aspects while reading and interpreting the Indian Constitution is the difference between a “Person” & a “Citizen”. A Person is reffered to any person regardless of their citizenship residing in India while a citizen refers to a person born in the Indian sub-continent or having acquired citizenship in India through other means, a Person a much wider definition than a citizen.
Although there are several fundamental rights granted under the Indian Constitution, only a few are applicable to companies this is because companies are not natural persons but rather only juristic or artificial persons. The Constitution specifically states in Article 15, 16 & 19 that these provisions are only applicable to Citizens and not persons. Therefore, it is evident that companies cannot directly approach the court for the violation of any of these fundamental rights, but they do have the protection under Art. 14 & 21.
Until 1960, different courts had issued contradictory observations and conclusions regarding the question of whether corporations could challenge state measures on the grounds of violating their rights under Article 19(1)(g) of the Constitution. The Madras High Court held in Narasaraopeta Electric Corporation Ltd. v. State of Madras[2] that Article 19(1)(f) applies only to citizens and that a company incorporated under the Companies Act does not satisfy the requirements of the definition of “citizen” as per the Constitution, while the Bombay High Court in State of Bombay v. R.M.D. Chamarbaugwala[3] expressly held that a company was a “citizen” of India for the purposes of raising a challenge under Article 19(1)(g).
Does that mean companies cannot claim any protection under Article 19?
No, companies prior to the case of RC Cooper could not take any action against the state for any violation of fundamental rights, neither can they now directly but indirectly through its shareholders who are natural persons by the removal of the “Corporate Veil” now BoD or Shareholders can take action against the state for the violation of any fundamental right under Art. 19.
A shareholder who also serves as a director of a banking company may contest the law nationalizing banks by filing a writ petition under Article 32, according to the Supreme Court’s ruling in Rustom Cavasjee Cooper v. Union of India (Bank Nationalization case).[4] In this regard, the Supreme Court noted that in the case of Godhra Electricity Co. Ltd. v. State of Gujarat, “if the State action impairs the right of the shareholders as well as to the Company, the Court will not, concentrating merely upon the technical operation of the action, deny itself jurisdiction to grant relief.”[5] On the merits, the Court determined that the contested statute violated several constitutional provisions, including Article 19(1)(g).
However, the employee’s and directors are not yet entitled to maintain a challenge against the state for the violation of the fundamental rights under Art. 19 1 (g) by the state. In the case of Fertilizer Corporation Kamgar Union v. Union of India A union of workers filed a writ suit, claiming that the sale of those assets had infringed their right to occupation under Article 19(1)(g). The Court dismissed this argument, concluding that the freedom to follow one’s passion or vocation differs from the right to work in a certain position under a contract.[6]
It is essential to recognize the ability to maintain a challenge by the employees as it may be more difficult for employees and directors of businesses to defend their rights under Article 19(1)(g) of the Constitution if there isn’t a governing decision that permits them to file a challenge against State action against the business in which they work. For example, if all of a company’s shareholders are corporate entities, it might not be allowed to file a complaint under Art. 19(1)(g) because none of them are “Indian citizens.”
Conclusion:
It is evident from the Judicial Precedents that the Indian courts are moving towards a more liberal stance on the ability to maintain a challenge by the way of natural persons associated with the company against the state for the violation of fundamental rights of the company. In conclusion we can say that No, a company is not a citizen therefore the company can maintain a challenge by itself but rather through its shareholders, since they are citizens of India wherein any violation of the fundamental rights of the company under Art. 19 by the state directly violates the shareholders rights as well.
In this sense, the status of employees and directors has not been definitively defined, despite the fact that it is well-known that a company’s shareholders may assert their fundamental right to conduct business. Corporate entities’ rights and interests should be safeguarded if they are to carry out their legal obligations in the best interests of others. Given that other countries, such as the United States and Europe, have safeguarded the fundamental rights of corporate bodies, India ought to do the same.
The development of society depends on the protection of corporate entities’ fundamental rights. Therefore, in order for these manufactured people to be granted these fundamental rights, they ought to be treated like citizens. While the distinction between artificial and natural persons cannot be entirely eliminated, these corporate bodies should at least be accorded the fundamental rights necessary for their growth and development.
Author : K. N. Rahul Prasad, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at IIPRD
[1] [1896] 11 WLUK 76.
[2] AIR (1951) Mad 979.
[3] ILR (1955) Bom 680.
[4] (1970) 1 SCC 248.
[5] (1975) 1 SCC 199 [28].
[6] (1981) 1 SCC 568.
