DR. NEVILLE FERNANDO AND OTHERS V, LIYANAGE AND OTHERS

020-SLLR-SLLR-1983-2-DR.-NEVILLE-FERNANDO-AND-OTHERS-V-LIYANAGE-AND-OTHERS.pdf


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DR. NEVILLE FERNANDO AND OTHERSV.
LIYANAGE AND OTHERS
SUPREME COURT
SHARVANANDA. J„ WANASUNDERA, J. AND VICTOR PERERA. J.
S.C. APPLICATION NO. 134/1982JANUARY 10. 1983.
Fundamental Rights — Application under Article 126 of the Constitution —Shareholders in a company cannot complain of indirect violation of fundamentalrights.
The 6th petitioner, a private limited liability company of which the 1st to 5thpetitioners were shareholders, was running a printing establishment. The 1strespondent, in the exercise of powers vested in him under regulation 14(7) ofthe Emergency (Miscellaneous Provisions and Powers) Regulations. No. 2 of1 982 directed that the 6th petitioner's printing establishment be not used forany purpose whatsoever and authorized the 2nd respondent to take such stepsas may be necessary for securing compliance with that order. The 2ndrespondent, through his officers took possession of and sealed the premises.Thereupon the petitioners alleged that their fundamental rights of engaging inany lawful occupation, profession or trade guaranteed to them under Article14(7) (g) and other Articles of the Constitution, had been violated.
Held –
The 1st to 5th petitioners had not been directly affected by the act of theRespondents as their injury stems from their shareholding in the 6th petitionercompany and therefore they are entitled to complain to the court of theinfringement of their fundamental rights under Article 126 of the Constitution.
Cases referred to:
Bennet Coleman Case AIR 1973 SC 106.
R.C. Cooper V. Union of India AIR 1970 S.C. 564.
APPLICATION under Article 126 of the Constitution.
Nihal Jayawickrema with Faiz Mustapha and D. J. C. Boange. instructed by J. C.T. Kotelawala for Petitioners.
Cur. adv. vult
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February 7. 1983SHARVANANDA, J.
The Petitioners in the present application No. 134/82 werethe very petitioners in petition, S. C. Application No. 116/82.The Petitioners are (1) Dr. Neville Arthur Fernando, (2)Swarnamali Fernando, (3) Naomal Fernando, (4) SharmaliFernando, (5) Devaka Fernando and (6) Janatha Finance andInvestments Ltd., (a limited liability Company incorporated underthe provisions of the Companies Ordinance).
In the earlier application No. 116/82, filed on 25th November1982, the Petitioners stated that the 1st and 2nd Petitioners forthe purpose and with the object inter alia of engaging in thebusiness of printers etc., formed themselves into a private limitedliability Company under the name of Janatha Finance andInvestment Ltd., (6th Petitioner) and that in pursuance of theobject, 6th Petitioner Company established in 1978 a businesscalled and known as "J.F & I Printers", and that "J F & I Printers"was one of the most modern and sophisticated commercialprinting establishments in Sri Lanka, having equipment to thevalue of over six million rupees and with a staff of over 50persons and that the 6th petitioner Company had, for thepurpose of establishing the business, raised loans approximatelyaggregating to three million rupees from commercial banks. Theyfurther stated that the present shareholders of the 6th petitioner-company are the 1 st, 2nd, 3rd, 4th. and 5th petitioners and thePanadura Clinic Ltd., whose shareholders are the 1st. and 2ndPetitioners. In that petition they complained that by orders dated3rd November 1982 and 20th November 1982. the 1strespondent, who is the Secretary to the Ministry of State andCompetent Authority, in the exercise of powers vested in himunder regulations 14(7) of the Emergency (MiscellaneousProvisions and Powers) Regulations No. 2/82, directed that J F& I Printers be not used for any purpose whatsoever andauthorised the 2nd Respondent who is the Inspector-General ofPolice to take such steps as appear to be necessary for securingcompliance of the said order and that the 2nd Respondent,
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accordingly through his officers and agents took possession ofand sealed up the premises of the business. They stated that theyhad been thus prevented from engaging in the business ofcommercial printing and that the 6th petitioner company hadsuffered loss and damage in a sum of Rs. 30,000/- on each daythat the Company had been prevented from engaging in thebusiness, since 3rd November 1982. They alleged thatconsequently, the fundamental freedom of each petitioner toengage in any lawful occupation, profession or trade by himselfor in association with others guaranteed by Article 14(1) (g) ofthe Constitution, had been infringed.
By its judgment dated 14.12.1982, this Court dismissed thePetitioners' application No. 116/82 on the ground that the 6thpetitioner company, not being a citizen, was not entitled to claimthe fundamental right to engage in any trade or business referredto in Article 14 of the Constitution, and that 1 -5th petitioners asshareholders of the 6th petitioner company could not maintainthe application on the basis that their freedom to engage bythemselves or in association with others in any lawful trade orbusiness, as warranted by Article 14(1) (g), was infringed by theimpugned action of the Respondents as the business that wastaken possession of in pursuance of the impugned orders wasthe business of the 6th petitioner company and not that of theshareholders of the company.
The Petitioners have since then filed the present applicationNo. 134/82 on the 19th December 1982. complaining againstthe very same orders dated 3rd November 1982 and 20thNovember 1982 and the consequent action on the ground thatthey infringed their fundamental rights guaranteed by Articles1 2(1). 1 2(2). 13(2), 13(5), 14(1 )(a). 14(1 )(c) and 14(1 )(b) of theConstitution.
In the present application the Petitioners state that they werecarrying on the business of commercial printing, "J F & I PrintersLtd.. "Rajagiriya. They further state that J F & I Printers is aprinting establishment with equipment to the value of six millionrupees and a working staff of over 50 persons and that toestablish the business they raised money by way of a loan
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approximately aggregating to 3 million rupees from commercialbanks and that they have suffered loss and damage in a sum ofrupees 45.000/- on each day that they had been prevented fromengaging in their business, since 20th November 1982. Thedivergence in the statement of facts by the petitioners isapparent. Intfhe earlier application No. 116/82, the Petitionershad stated that the 6th petitioner company was the owner of thebusiness and of the printing establishment and that the companyhad borrowed sums of money aggregating to 3 million rupeesand that the:company. by the seizure of the Press, in pursuanceof the orders of the Respondent had suffered loss and damage ina sum of Rs. 30,000/- on each day the company was preventedfrom engaging in the business since 3rd November 1982. It is tobe noted that the affidavit in support of both applications havebeen deposed to by the same person, Dr. Neville Fernando. It isstrange how this deponent came to affirm to two inconsistentversions.
When the attention of Petitioners' Counsel was drawn to thisfactual inconsistency or contradictions as to the ownership ofthe business of J F & I Printers and of the ownership of the Press.Counsel was constrained to abandon the position taken up in thepresent petition that the first five Petitioners and the 6thPetitioner were the owners of the business, and of the Press thatwas taken’ipossession in pursuance of the' impugned ordersdated 3.11.82 and 20.11.82. He admitted that the business of "JF & I Printers" and the said Press belong to the 6th petitioner-company and that the other petitioners did not have any interestin the said business or the Press other than whatever interest,they, as shareholders had in law in the company which ownedthe said business and the Press. It is on the basis of theseadmitted facts that the validity of the allegation of the 1 st-5thpetitioners that their fundamental rights have been violated hasto be examined.
Counsel submitted that the 1 st-5th Petitioners are not seekingin this application to vindicate the 6th petitioner company'srights, but are complaining that the fundamental rightsguaranteed to them by Article 14.(1)(g) and other Articles
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have been infringed by the impugned orders dated 3rdNovember and 20th November 1982, marked P1 & P2. Thoughthis contention was held to be untenable by this Court in itsorder dated 14.12.1982, in application No. 116/82, Counselhowever alleged that the said order "had been made perincuriam inasmuch as the said order had failed inter alia to takeinto account the nature, scope and effect of the declaration offundamental rights contained in Chap. 3 of the Constitution andof the special remedy which the petitioners are entitled to availthemselves of in terms of Articles 17 and 126 of theConstitution."
In my view there is no foundation for this allegation. This Courthad in its earlier order dated 14.12.82 considered the interestsof the 1st-5th petitioners in the company's business and assetsand had rejected the contention that the 6th petitioner Companywas the means by which the 1st-5th Petitioners carried theirprinting business and that there was no infraction of theirfundamental rights by reason of the impugned action of the 1 stand 2nd Respondents in taking possession of the business of J F& I Printers.
Counsel in his submission in application No. 116/82 hadrelied heavily on the judgment of Ray, J., in Bennet Colemancase*1’. I had in my judgment in that case, with regret, disagreedwith the proposition of law enunciated therein "that ashareholder carries on business through the agency of theCompany and that the shareholders’ right to carry on businessare affected if the company's rights to carry on business areaffected." and had held that the freedom of each of the 1 -5thPetitioners to engage by himself or in association with others inany lawful trade or business (Article 14(1 )(g)) was not impairedor impugned by the action of the 1st and 2nd respondentsagainst the 6th petitioner-company.
Counsel in the present case fell back on the majority judgmentpronounced by Shah, J., in R. C. Cooper v. Union of India. (2>which was the authority quoted by Ray, J., for his above ruling inBennet Coleman’s case – 1973 S.C. 106 with which I haddisagreed.
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In Cooper's case, which is known as the Bank NationalisationCase, the petitioner had held shares in the Central Bank of IndiaLtd., and was also a Director of the Bank. He was a shareholderalso of three other nationalised banks and had current and fixeddeposit accounts with all the four banks that have beennationalised. By his petition he complained that the BankingCompanies (Acquisition and Transfer Undertakings) OrdinanceNo. 8 of 1969 and the Indian Companies (Acquisition Transfer)of Undertakings Act No. 22 of 1969. impaired his fundamentalrights guaranteed by Articles 14. 19 and 31 of the IndianConstitution and were on that account invalid. He challenged thevalidity of the Act on the ground inter alia that by the enactmentof that Act. the fundamental rights of petitioner, guaranteed byArticles 14. 19 (1) (f) and (g) and 31 (2) are impaired.
Article 14 provided that "the State shall not deny to anyperson, equality before the law or the equal protection ofthe laws within the territory of India."
Article 19(1) provided "all citizens shall have the right:—
to acquire, hold and dispose of property, and
to practise any profession or to carry on anyoccupation, trade or business.
Article 31 (2) provided: "no property shall be compulsorilyacquired, save for a public purpose and save by authority ofa law."
The Attorney-General in that case contended that the petitionof the petitioner Cooper was not tenable because nofundamental right of the petitioner was directly impaired by theenactment of the Act or by any action taken thereunder. Hesubmitted that the petitioner who claimed to be a shareholder.Director and holder of deposit and current accounts with thebanks was not the owner of the property of the undertaking takenover and was on that account incompetent to maintain thepetition. In countering this contention of the Attorney-General.Shah. J., who delivered the majority judgment stated the IndianLaw —
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"a company, registered under the Companies Act is a legalperson, separate and distinct from its individual members.Property of the company is not the property of theshareholders. A shareholder has merely an interest in thecompany arising under its Articles of Association, measuredby a sum of money for the purpose of liability, and by ashare in the profit. Again a Director of a Company is merelyits agent for the purpose of its management. The holder of adeposit account in a company is its creditor; he is not theowner of any specific fund lying with the company. Ashareholder, a depositor, a Director may not therefore beentitled to move a petition for infringement of the rights ofthe company unless by the act impugned by him his rightsare also infringed. By a petition praying for a Writ againstinfringement of fundamental rights, except in a case wherethe petition is for a Writ of Habeas Corpus and probably forthe infringement of guarantees under Articles 17. 23 and24, the petitioner may seek relief in respect of his ownrights and not of others. The shareholder of a company, it istrue is not the owner of its assets; he has merely a right toparticipate in the profits of the company subject to thecontract contained in the Articles of Association. But on thataccount the petitions will not fail. A measure executive orlegislative may impair the rights of a company alone and notof its shareholders; it may impair the rights of theshareholders and not of the company: it may impair therights of the shareholders as well as the company.Jurisdiction of the Court to grant relief cannot be deniedwhen by State action the rights of an individual shareholderare impaired, if that action impaired the rights of thecompany as well. The test in determining whether theshareholder's right is impaired is not formal; it is essentiallyqualitative; if the State action impairs the rights of theshareholders, as well as the company, the Court will not.concentrating 'merely upon the technical operation of theaction deny itself jurisdiction to grant relief."
The above statement represents our law too. subject to thesignificant proviso that the fundamental rights of an Indianshareholder are larger than those of his local counterpart. Our
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Constitution has not elevated the right to acquire and disposeproperty (Article 19(1 )(f) of the Indian Constitution) and the rightof freedom from acquisition of property save by authority of lawand the right to payment of adequate compensation (Article31(1) & (2) of the Indian Constitution) into fundamental rights;these rights have not have been incorporated into ourConstitution. This important qualification has a material bearingon the question in issue in the present case, namely, whether anyfundamental right, guaranteed under Chap 3 of our Constitution,of the 1 -5th Petitioners has been infringed by the action of the1 st and 2nd Respondents in taking possession of the company'sbusiness and assets.
This point of difference has to be borne in mind in appreciatingthe Indian Supreme Court's holding that Cooper, the shareholderhad locus standi to challenge the nationalisation of the Banks, ofwhich he was a shareholder. According to Shah, J„ the claims ofthe petitioner Cooper were as follows:
"The petitioner claims that by the Act and the Ordinance,the rights guaranteed to him under Articles 14, 19 and 31of the Constitution are impaired. He says that the Act andthe Ordinance are without legislative competence, in thatthey interfere with the guarantee of freedom of trade andwere not made in the public interest; that the Parliamenthad no legislative competence to enact the Act and thePresident has no power to promulgate the Ordinance,because …. He says that in consequence of the hostilediscrimination practised by the State, the value of hisinvestments in the shares is substantially reduced, his rightto receive dividends from his investments has ceased andhe has suffered great financial loss, he is deprived of hisrights as a shareholder to carry on business through theagency of the company, and that in respect of the depositsthe obligation of the corresponding new banks, not of hischoice, are substituted without his consent."
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At the end of his judgment. Shah, J.. stated hisconclusions:-
"Accordingly we hold that (a) the Act is within thelegislative competence of the Parliament; but (b) it makeshostile discrimination against the named banks fromcarrying on banking business, whereas other banks – Indianand Foreign – are permitted to carry on banking business,and even new banks may be formed which may engage inbanking business; (c) it in reality restricts the named banksfrom carrying on business other than banking as defined inSection 5(b) of the Banking Regulation Act. 1949; and (d)that the Act violates the guarantee of compensation underAct 31 (2), in that it provides for giving certain amountsdetermined according to principles, which are not relevantin the determination of compensation of the undertaking ofthe named banks and by the method prescribed amounts sodeclared cannot be regarded as compensation."
Finding (a) is not relevant here. Finding (b) is a finding that theBank's right to equality under Article 14 was violated. Finding (c)read with the discussion in the judgment under Article 19 is afinding that the Bank's rights under Article 19 were violated.Finding (d) read with the discussion in the judgment on Article31 (2) is a finding that the compensation payable to the Banksfor the acquisition of their undertakings violated rights conferredon the Banks by Article 31 (2).
It is relevant to note that though the petitioner Cooper claimedrelief on the ground that his own fundamental rights had beenviolated and the Court countenanced his locus standi on the baisof such claim the ultimate finding of the Court was that theNationalisation Act and the Regulations violated the bank'sfundamental rights under Articles 14. 19 and 31. The judgmentof Shah. J.. does not contain any discussion or findingrespecting the validity of the petitioning shareholder's claim thathis fundamental rights under Article 14 and 19(1) (g) had beenimpaired. His observation:
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"By reason of the transfer of the undertaking of thenamed Banks, the interest of the Banks and theshareholders are virtually affected. Investments in banks -shares is regarded in India, especially the shares of thelarger banks, as safe investments on attractive terms with a
steady return and fluidity of conversion Since the
taking over of the undertaking, there has resulted a steepfall in the ruling market quotation of the shares of a majorityof the named banks. The market quotations have slumped toless than 50% in the case of the Bank of India, Central Bank
Dividends may no longer be distributed, for the
banks have no liquid assets and they are not engaged in anycommercial activity” (Para 81).
tends to show that the Court regarded the Nationalisation Actand the Ordinance as having an adverse impact only on theshareholder's right to property, which is protected by Article19(1)(f) of the Indian Constitution. This Article enunciates thebasic right to property of a citizen. The judgment is not anauthority for the proposition that when the business of theCompany is taken over the shareholder's rights of equality and offreedom "to engage by themselves or in association with othersin any lawful trade or business" as guaranteed to any individualunder our Articles 1 2 and 14( 1 )(g) got consequently impaired. It"certainly does not lend any support for the misconceivedcontention that a shareholder is deprived of the right to carry onbusiness through the agency of the Company."
In my view the 1 -5th Petitioners, namely, shareholders, cannotfound any complaint of violation of their own fundamental rightsas recognised by our Constitution, the action of the Respondentsin taking possession .of and sealing the Press of the 6thRespondent Company. No injury to the shareholders, distinct andseparate from the injury, if any, to the Company has beeninflicted.
The right to complain to this Court of the infringement offundamental rights, under Article 126 of the Constitution is
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available only for the violation of one's own fundamental rights.One cannot claim standing in this Court to vindicate theconstitutional rights of some third party, however much one maybe interested in that party. The 1 -5th Petitioners' injury stemsfrom their shareholding in the 6th petitioner Company. They havenot been injured directly by the action of the Respondents andhence are not entitled to challenge its constitutionality, byway ofapplication under Article 126.
I see no reason to depart from or to modify the view of the lawexpressed by this Court in its judgment in S.C. 11 6/82 (S. C. M.of 14.12.1982) that a company, not being a citizen, cannot'complain of infringement of the fundamental rights specified inArticle 14 of our Constitution, and that its shareholders toocannot complain of violation of any of their fundamental rightsby the impugned action of the Respondents, since they have notsuffered any distinct and separate injury such as to entitle themto allege infringement of their fundamental rights.
The 6th petitioner Company has preferred another applicationNo. 1 27/1 982 to this Court complaining of infringement of itsrights under Articles 12 & 13 of the Constitution. Withoutprejudice to the Company's said application, the presentapplication of the Petitioner is dismissed.
WANASUNDERA, J.
I am in agreement with the above order that the applicationshould be dismissed as this matter has already been decided andconcluded by the decision in S.C. 11 6/82
VICTOR PERERA. J. — I agree.
Application dismissed.