Study with the several resources on Docsity
Earn points by helping other students or get them with a premium plan
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Community
Ask the community for help and clear up your study doubts
Discover the best universities in your country according to Docsity users
Free resources
Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors
case of interference of government in judiciary
Typology: Essays (university)
1 / 27
This page cannot be seen from the preview
Don't miss anything!
The researcher hereby declares that this research paper is prepared by the researcher with the help of only those sources which are mentioned in the bibliography part of this paper, foot notes on the last of each page. This research paper is not a copy of any one’s research paper as per the knowledge of the researcher. This research paper is firstly presented to Dr .Ali Sir , the faculty of Administrative Law in The Chanakya National Law University, Patna. Before this, this paper has never been submitted to any other teacher/professor or any other school/college/university. RAJEEV RANJAN 20/04/
Aims and Objectives: The aim of this research paper is to present a detailed study on public corporation and corporation aggregate. Scope and Limitations: The researcher has used the doctrinal method and has relied on the secondary sources for the content of the research paper. Owing to the large number of topics that could be included in the project, the scope of this research paper is exceedingly vast. However in the interest of brevity, this paper has been limited to the real impact of both the concerned subjects. .Research Questions: The two research questions are as follows:
(vii) Service Motive: The main objective of a public corporation is service-motive; though it is expected to the self- supporting and earn reasonable profits. (viii) Public Accountability: A public corporation has to submit its annual report on its working. Its accounts are audited by the Comptroller and Auditor General of India. Annual report and audited accounts of a public corporation are presented to the Parliament or State Legislatures, which is entitled to discuss these. Advantages of Public Corporation: Following are the advantages of a public corporation: (i) Bold Management due to Operational Autonomy: A public corporation enjoys internal operational autonomy; as it is free from Governmental control. It can, therefore, run in a business like manner. Management can take bold decisions involving experimentation in its lines of activities, taking advantage of business situations. (ii) Legislative Control: Affairs of a public corporation are subject to scrutiny by Committees of Parliament or State Legislature. The Press also keeps a watchful eye on the working of a public corporation. This keeps a check on the unhealthy practices on the part of the management of the public corporation. (iii) Qualified and Contented Staff: Public corporation offers attractive service conditions to its staff. As such it is able to attract qualified staff. Because of qualified and contented staff, industrial relations problems are not much severe. Staff has a motivation to work hard for the corporation. (iv) Tailor-Made Statute: The special Act, by which a public corporation is created, can be tailor-made to meet the specific needs of the public corporation; so that the corporation can function in the best manner to achieve its objectives. (v) Not Affected by Political Changes: Being a distinct legal entity, a public corporation is not much affected by political changes. It can maintain continuity of policy and operations. (vi) Lesser Likelihood of Exploitation: The Board of Directors of a public corporation consists of representatives of various interest groups like labour, consumers etc. nominated by the Government. As such, there is lesser likelihood of exploitation of any class of society, by the public corporation.
(vii) Reasonable Pricing Policy: A public corporation follows a reasonable pricing policy, based on cost-benefit analysis. Hence, public are generally satisfied with the provision of goods and services, by the public corporation. Limitations Public Corporation: A public corporation suffers from the following limitations: (i) Autonomy and Flexibility, Only in Theory: Autonomy and flexibility advantages of a public corporation exist only in theory. In practice, there is a lot of interference in the working of a public corporation by ministers, government officers and other politicians. (ii) Misuse of Monopolistic Power: Public corporations often enjoy monopoly in their field of operation. As such, on the one hand they are indifferent to consumer needs and problems; and on the other hand, often do not hesitate to exploit consumers. (iii) Rigid Constitution: The constitution of a public corporation is very rigid. It cannot be changed, without amending the Statute of its formation. Hence, a public corporation could not be flexible in its operations. (iv) Low Managerial Efficiency: Quite often civil servants, who do not possess management knowledge and skills, are appointed by the government on the Board of Directors, of a public corporation. As such, managerial efficiency of public corporation is not as much as found in private business enterprises. (v) Problem of Passing a Special Act: A public corporation cannot be formed without passing a special Act; which is a time consuming and difficult process. Hence, the scope for setting up public corporations is very restricted. (vi) Clash of Divergent Interests: In the Board of Directors of public corporation, conflicts may arise among representatives of different groups. Such clashes tell upon the efficient functioning of the corporation and may hamper its growth.
The legal use of the word ‘person' has attracted an assortment of theories which is probably second to none in volume. ‘Person' in law, is both the recognition of an entity as well as the acknowledgement of such an entity's rights and interests. Granting of ‘personhood' states then enables an entity to undertake acts and relations that are recognized in the law. In the realm of law, the term ‘person' is nothing more than an abstraction - a representation through the form of an entity either real or artificial, of certain attributes. These attributes come to form what is known as ‘personality' in the law. The effort in this paper has been to provide a description of this conception of corporate personality. In doing so, at first the researcher has attempted to introduce the subject by speaking of personality in the widest possible terms and locating its existence even outside the boundaries of law. The researcher has then outlined the concept of legal personality, its nature, types and implications and while doing so, summarily dealt with the notion of the corporation sole and the corporation aggregate. Next, the researcher has dealt with part of the subject-matter itself by elaborating on the meaning and theoretical underpinnings of the concept of dual personality and the attributes of corporate personality along with a jurisprudential understanding of the same. Persons in law are seen to be of only two kinds: real/natural and artificial. Human beings are considered ‘real' or ‘natural' persons because they are ipso facto persons. The other kind of person is the artificial person, which is a fiction of law invested with limited legal capacity. At this juncture, it is necessary to clarify the meaning of the term ‘capacity' in law. Capacity is the primary attribute of personality and denotes the ability to commit acts and undertake relations that are recognised in the law. Capacity is what enables a person to have a ‘standing' in law, be it in the person's ability to claim-possess-exercise rights, property, enter into contracts, sue and be sued, commit legal injury or be the victim thereof. In other words, capacity in law is the medium through which personality expresses itself.^2 As mentioned earlier, the law in recognizing artificial persons infuses such entities with limited legal capacity. The limitation exists in the sense that artificial persons do not possess personalities in the fullest sense of the term. Their ability to commit legally recognizable acts is limited to the extent that law allows for, nothing more. To provide an example, a body corporate such as a joint stock company is undoubtedly a ‘person' but cannot be likened to a human person anymore than an apple can be compared to an orange. While human beings as natural persons are capable of every act and relation possible in fact, an artificial person is only capable of those acts and relations allowed in law; the doctrine of ultra vires with respect to joint stock companies prevents such artificial persons from committing acts/undertaking relations that are outside their scope of activities as specified in the Memorandum and Articles of Association. The familiar theoretical classification of artificial persons follows likewise -
**1. Corporation Sole.
has chanced to observe on this aspect, “legal persons, being the arbitrary creations of the law, may be of as many kinds as the law pleases.” However, for our present purposes, a discussion on the concept of a ‘body corporate' will suffice in helping understanding the nature of artificial personality. The corporation sole is nothing more than a tool meant to ensure continuity of an office. Any office that is created in law also by implication, creates a legal personality to such office which occupies it in perpetuity till the law itself extinguishes it. This legal personality is the Corporation Sole. Examples of it are predominantly found in Offices of the State discharging sovereign functions, which are always creations of the law. The proverbial example of the Corporation Sole is the English Crown. However, the Corporation Sole is also manifest in various other instances such as the Offices of the President, Prime Minister, Chief Justice of India, Attorney-General of India all of which are creations of the Indian Constitution. Likewise, even localised examples where there is a need for permanent Office implies the existence of a Corporation Sole: e.g. the Vice- Chancellor of a University, the Postmaster General, both of which are statutorily created Offices. The researcher has pointed out in the preceding paragraphs that human beings, ipso facto are persons enjoying all the attributes of legal personality. Each human being then is vested with an independent personality in the law. However, if the same notion were to be applied as a general rule, concerted and unified human action can have no place in law for the simple reason that such action can only be recognised as several acts of several persons as opposed to a single act of a group of several persons. The former perception would lead to many difficulties including unlimited liability of such several persons towards third parties. It is for this reason that a partnership, though an association of persons acting in concert, renders each of those persons jointly and severally liable for acts of any partner. This approach also has the effect of apportioning liability disproportionately in the sense a partner who is insolvent cannot be proceeded against while a solvent partner is satisfy the entire liability or debt that subsists between the partnership and the third party. It is to obviate this difficulty, the law recognises certain groups of several persons as a ‘body corporate' and thus holds the several acts of such several persons in fact, attributable to a single person in law. In doing so what the law also does is create a veil of incorporation as between the constituting members and the legal personality of the constituted body: the corporation. The veil of incorporation implies the existence of a personality in the corporation as distinct from its members. In the joint stock company, the veil of incorporation is what separates the acts of the company from those of its shareholders and the individual acts of its shareholders from that of the company. The result of adopting this approach is also that there is limited liability of the shareholders (members of the group) which renders them liable only to the extent of their holding in the group or company.^3 Going by the above description of corporations aggregate, it would logically follow that every form of concerted activity of willing individuals aimed at a particular end, would lead to their acts coming to known through the glass of incorporation which realises their combined operations as one single act, performed by a single personality. However, it is in this regard that the real limits of artificial personality are discernible. The law deems only certain forms of concerted action as eligible for recognition through incorporation; thus while joint stock companies are recognised as incorporated bodies, associations such as partnerships, trade unions and other organizations are not recognised as incorporated bodies for various reasons. These groups have come to assume the term ‘unincorporated associations'. However the effect of such thinking has been somewhat mitigated by statutory devices and judicial interpretation which in certain respects have enabled (^3) P.J.Fitzgerland, “Salmond on jurisprudence”,Ed. 12.universal law publishing co.pvt.ltd.pg 66
as a physical organism. A corporation from the realist perspective is a social organism while a human is regarded as a physical organism. From the discussion on jurisprudence theories of corporate personality, it is observed that main arguments lie between the fiction and realist theories. The fiction theory claimed that the entity of corporation as a legal person is merely fictitious and only exist with the intendment of the law. On the other hand, from the realist point of view, the entity of the corporation as a legal person is not artificial or fictitious but real and natural. Dual personality is different from dual capacity in the sense that whenever a person is said to possess dual capacity, the law only recognises one person performing more than one function. In the eyes of the law, all these functions are attributable to a single person. However, with dual personality, the law recognises these functions as attributable to different personalities. The difference between the two can be amplified by a simple illustration: a person possessing double capacity cannot contract with himself or sue himself; a person possessing dual personality can. To illustrate the working of the above-stated principles, the decision of the House of Lords in Salomon v. Salomon & Co. may be perused. The decision of House of Lords in the abovementioned case has had a lasting influence in corporate law. It is often credited with the principle of separate legal entity of the corporation distinct from the members. Though there is no doubt that the Salomon case had play a significant role in company law, the court's decision in this case was hardly the origin of the separate legal entity principle. The legal entity of beings other than the human has long been recognized prior to 1897, in which the Salomon case was decided. The jurisprudence theories on juristic person had been established since the early Roman law to justify the existence of legal person other than the human. The State, ecclesiastical bodies and education institutions had long been recognized as having legal entity distinct from the members Mr. Salomon ran a boot-shoe business and sold the business to Salomon and Company, Ltd which paid him through 21,000 shares and a secured debenture. Six shares were also sold to Mr. Salomon's family, one to each of five his children and one to his wife. The company during its course of business acquired many liabilities in the form of unsecured credit from third parties. It subsequently went into liquidation on which all the creditors of Salomon & Co. lined up to collect their dues. As a principle of insolvency law, the rule was that the assets of the insolvent (in this case, Salomon & Co.) are distributed according to the pre-insolvency entitlement of the creditors. At the top of the queue then was the debenture-holder with the charge which meant that Mr. Salomon holding the secured debenture sold by himself as agent of Salomon & Co. to himself would acquire precedence over all other creditors. Since unsecured creditors do not belong to the same class as secured creditors, Mr. Salomon was again under no requirement to share the proceeds with the other creditors of Salomon & Co. who did not hold charge over the assets. Though the Trial Court and the Court of Appeal held that Mr. Salomon was personally liable to the creditors on the basis that the corporation (Salomon & Co.) was just an agent of Salomon, the House of Lords held otherwise. According to the Court, with the incorporation of the company, Mr. Salomon achieved dual personalities in the law - one as the shareholder of Salomon & Co., two, as the secured creditor to the company. Since in the eyes of the law there existed a veil of incorporation between the company (Salomon & Co.) and its shareholder (Mr. Salomon), he was not liable for
any of the company's debts. Similarly, because of the veil of incorporation, Mr. Salomon as the secured creditor of Salomon & Co. enjoyed a different personality from Mr. Salomon as the shareholder. To provide another illustration, reference may be made to Lee v Lee's Air Farming. In this case, Mr Lee incorporated a company, Lee's Air Farming Limited, in August 1954 in which he owned all the shares. Mr Lee was also the sole ‘Governing Director' for life. Thus, as with Mr Salomon, he was in essence a sole trader who now operated through a corporation. Mr Lee was also employed as chief pilot of the company. In March, 1956, while Mr Lee was working, the company plane he was flying stalled and crashed. Mr Lee was killed in the crash leaving a widow and four infant children. The company as part of its statutory obligations had been paying an insurance policy to cover claims brought under the Workers' Compensation Act. The widow claimed she was entitled to compensation under the Act as the widow of a ‘worker'. The issue went first to the New Zealand Court of Appeal who found that he was not a ‘worker' within the meaning of the Act and so no compensation was payable. The case was appealed to the Privy Council which held that the widow was entitled to compensation on the basis that:
The main object of Law is to regulate the relationship between individuals in the society. The validity of the acts and omissions of persons is determined on the basis of their reasonableness. All those acts which do not adversely affect the interest of others are held to be lawful whereas the acts which interfere with the rights of others are called unlawful. Therefore law enforces certain duties on individuals for the protection of interest of mankind. Therefore rights and duties form the basis of judging the legality of mans act. The law imposes liability for unreasonable and unlawful acts, the enforcement of which is ensured through legal sanctions. The law being concerned with regulating the human conduct the concept of legal sanctions. The law being concerned with regulating the human conduct, the concept of legal personality constitutes an important subject matter of jurisprudence because there cannot be rights and duties without a person. The separate legal entity concept, as it applied to large joint stock companies, evolved throughout much of the nineteenth century, and in particular, during the period between 1840 and 1880. This evolution was gradual and involved subtle changes that occurred on a number of fronts. Common law developments included the changing nature of shares and the refinement of the internal relationships within a company which served to separate a company from its shareholders and thereby differentiated companies from partnerships. At the same time, companies adapted their capital structures and the ways in which they raised capital so as to make themselves more attractive to investors. These practices also reflected the distinction drawn by the investment sector between joint stock enterprises and partnerships. The separate legal entity concept then, was largely developed by the late nineteenth century insofar as it applied to joint stock companies. This project work along with different theories of corporations also examines the well-known case of Salomon v Salomon & Co Ltd and its effect on the evolution of the separate legal entity concept. It is important to consider the role of Salomon’s case in this evolutionary process because the legal principle derived from the case has been the legal basis of the subsequent application of the separate legal entity concept to corporate groups. Salomon’s case is usually regarded as a landmark case which finally established the fundamental principle that a company is a separate legal entity distinct from its members. This core principle of company law has come to be so closely associated with the case that it is widely known as ‗the principle in Salomon’s case‘. According to this widely accepted narrative, Salomon’s case represented a belated but inevitable advance of the law towards clarifying the separate nature of the relationship of shareholders and their company and thereby better serving the needs of business by establishing a more efficient company law that recognised the commercial expectations of the business community. ORIGINS The word “person” is derived from the latin word persona which meant a mask worn by actors playing different roles in a drama. Until sixth century the word was used to denote the part played by a man in life. Thereafter it began to be used in the sense of a living capable of having rights and duties. Generally there are two types of person which the law recognises namely natural and artificial. The former refers to human beings while latter to other human beings which law recognised as having duties and rights. One of the most recognised artificial person is a corporation. In the opinion of many writers the word” personality” has been restricted to human beings because of
the sole reason that they only are subjected to rights and obligations, but in law the scope of word “personality” is wide enough to cover gods, angels, idols, corporation etc. despite of the fact that they are not human beings. Conversely there may be living persons such as slaves who were not treated as person in law because they were not capable of having rights and duties. Likewise, in Hindu ascetic who has renounced the world ceases to have any proprietary rights and his entire estate is passed on to his heirs and successors and his legal personality is completely lost. Human beings are no doubt units of society and were in existence prior to evolution of both law and society. Since laws were made by individuals and for them, jural relations between them came to be recognised for legal purposes. Human beings as a legal person, therefore implies a multitude of claims, duties liberties, liabilities etc. However no sooner than later it was realised that treating only human beings as persons in law would lead to good deal of needless perplexity, which could be avoided by conferring legal personality on certain jural relations applicable to others than human beings for the purposes of law. Definition of legal person:- Jurists have defined legal persons in different ways, The German jurist Zitelmana considers “will” as the essence of the legal personality to quote him “personality is the legal capacity of will, the bodylines of men for their personality a wholly irrelevant attribute” Salmond defines a person as “any being to whom the law regards as capable of rights and duties. Any being that is so capable is a person whether human being or not and nothing that is not so capable is a person even though he be a man” Gray defines “person” as entity to which rights and duties may be attributed” any being that is capable of holding a right or duty, whether it being a human or not is person in law. According to Paton, legal personality is a medium through which some such units are created in whom right can be vested. Therefore persons in juristic terms are of two kinds: natural and legal .the former are human beings while the latter may be real or imaginary, in whom law vests rights and imposes duties and thus attributes personality by way of fiction_._ A natural person is a living human being. But all human beings need not necessarily be recognised as persons in law. For example slavery, before abolition of slavery the slaves were considered to be devoid of any legal personality for they could not have any rights and duties. Also persons such as children have restricted rights for they do not have right to vote. Legal persons on the other hand is a person any subject – matter in which the law attributes legal personality. Legal personality being the creation of law can be conferred on entities other than human beings_. As Salmond rightly observed that “law in creating legal persons always does so by personifying some real things”._ He further pointed out that all though all legal personality involves personification the converse is not always true_._^5 Legal persons are therefore artificial beings to which law attributes personality by way of fiction where it does not exist in fact. They are capable of rights and duties like natural persons. Hibbert classified legal persons into three different categories:
are found only when the successive holders of some public office are incorporated so as to constitute a single, permanent, and legal persons.^6 Evolution of the notion of corporate personality In mature systems of law the doctrine of corporate personality is fully developed and a clear – cut distinction is made between the individual who compose a corporation and the corporation itself. If we postulate that the company may have a distinct persona separate from that of is shareholders or directors, it is difficult to attack the logic of this distinction. Whatever may be said of its practical effect? Conversely the acts of two separate departments of a company are in law the act of the same person. If a group of miners wish to co-operate to secure cheap delivery of coal from the colliery at which they work, they must be careful as to the legal forms they use. if they create an incorporated company to organise the transport a carriers licence must be secured, since the company is carrying goods for hire or reward .but if they merely form an association then each member is regarded as the part owner of the vehicles and the co-owners do not carry their own goods for hire or reward merely because they contribute to the running expenses. The formation of a company introduces a new legal persona which owns vehicles and receives money for coal that does not belong to it In modern law therefore there is a clear cut distinction between the personality of a company and the personality of its members. The company may engage in juristic acts, sue, and be sued .though all the members change overnight, indeed even if they all die the company remains the same legal persona. But this conception of corporate personality is achieved but slowly. The first step to evolve is based on family, but no doctrine of group personality is necessary at home the family retained a very strong organisation but no theoretical difficulty arose as its powers were vested in human pater families. Religious and ecclesistical grouping provides another unifying element and we also have the manifold agencies of government such as government such as the counties, hundreds and boroughs of English law. Economic associations such as the merchant guilds create another organisation of the community. But it is futile to expect to find answers to problems phrased in modern language concerning corporate personality, for they were not asked earlier by the lawyers. We have already seen that the state in England reached a high degree of organisation on the very inadequate theory that the state was the king and the king the corporation sole.[10]Duff’s analysis on rule of Roman law reveals how long the road to a fully developed conception of human personality is. Persona was not always used in the sense of legal personality, and there are hundreds of passages where homo could be substituted for persona without any apparent change in the sense. If we find lack of analysis where the individual is concerned it is not surprising to say that “the republican lawyers did not get beyond the first rudiments of that very abstract and artificial conception, corporate personality”. In the English law there were in thirteenth and fourteenth centuries numerous active groups of whom some were dissolved into their component parts before they became corporations others followed a gradual development to legal personality. When Bracton wrote the notion of corporate personality .it not clearly understood and the evolution was comparatively slow. The inimitable touch of Maitland has enlivened the story of the corporation sole and we see there the great difficulty that exist in securing a clear distinction between the rights of natural man and the rights of corporation sole which it represents. The corporation sole was a useful device for holding of title to church land, but, although logic would require us to recognise that the artificial corporation sole can survive the death of natural person, the medieval lawyers however thought that the (^6) P.J.Fitzgerland, “Salmond on jurisprudence”,Ed. 12.universal law publishing co.pvt.ltd.pg 66.
artificial corporation was in abeyance if the benefice was as vacant. A statute of limitation speaks of a corporation sole or his predecessor.^7 Later in the fifteenth century it was felt that the corporation could not sue one of its members, for this was really a case of a man suing himself. By the time coke, it was laid down that the corporation could be created either by a common law, by authority of parliament, by royal charter or by prescription – but there must be some lawful authority of incorporation there must be. Corporation played a large part in development of British empire .as a result of which there were 65000 registered companies in England, but within forty years the number increased to 3, 31,000. In 1897 Salomon v Salomon & Co Ltd, a case concerning the legitimacy of limited liability of a single beneficially owned company according to the companies legislation, created the concept of the separate legal personality of a company. This idea, often described as a fundamental principle of Company Law by our judges, exists both as a powerful metaphor and a judicial reality The interaction of these two aspects has in a sense caused the concept to assume a life of its own as a persuasive metaphor which has dictated the course of law focussed around its fulfilment rather than the specific regulative aims of the law in each discrete area. The principle’s application in so many different situations each with utterly different consequences, indicate a sense in which the courts have often merely mapped out the logical consequences of ‘separate legal personality’ with inadequate examinations as to its specific ramifications. The concept of the corporation as a separate legal personality is, as Farrar describes “essentially a metaphorical use of language, clothing the formal group with a single separate legal entity by analogy with a natural person’] while obviously a fiction, the choice of metaphor or analogy is not entirely arbitrary, and must respond to organisational realities of the corporation as well as conforming with and making intelligible the treatment of organisations as legal actors In this sense the conception of a corporation is both analytical and ideological, descriptive and prescriptive, It is not enough to dismiss the debate over the nature of corporate personality as Dewey did in 1920 by emphasising that corporate rights and Liabilities were the product of the law and that the legal implications or meanings of the corporation was “whatever the law makes it mean”. The law’s conception that the “company is at law a different person” in some ways seems proper and satisfying, as Dan-Cohen writes, °it at once provides a unifying familiar image of The organisation and expresses those features in virtue of which treating the organisation as a legal actor makes sense .The corporation as a complex organisation requiring regulation in many different situations presents a special problem as Dan Cohen writes: “The cognitive need for ’epistemic access’ thorough a Unifying metaphor is felt most urgently with respect to organisations because of their ’ontological elusiveness’: hovering between the abstract and the concrete, they evade our grasp by constantly invoking the opposing fears of reductionism and Rectification.” The metaphor of personality is useful in conceptually facilitating and describing many of the corporation’s traditional and modem corporate attributes. The metaphor was used in Salomon to express the fact that Salomon’s incorporation was legitimate according to legislation and therefore he should be a11owed to benefit from limited liability. The creation of the separate legal person analogy/metaphor was useful in particular to assert this point against the first instance judge mad court of appeal who held respectively that the company was Salomon’s agent and that Salomon was trustee for the company.The language used however, does not add anything to our understanding of the real issues involved and in particular, the analogy with, or metaphor of, person (^7) G.W. PATON.,”A TEXTBOOK ON JURISPRUDENCE”,ED.4TH (^) ,oxford university press.
