This article has been written by Suryansh Singh and further updated by Mudit Gupta. This article discusses all the necessary details about the doctrine of territorial nexus and all other intricacies related to it.

Introduction

In 1949, when the Constitution was being drafted, the framers of our Constitution structured the Indian democracy on the legislative, executive, and judiciary. The legislative pillar of our democracy has a quasi-federal structure. Schedule VII of the Indian Constitution provides three lists, namely the Union list, the State list, and the concurrent list. These lists divide the powers of legislators at both the central and state levels and entitle them the power to formulate legislation. Though it is a very complex mechanism, but, it is the very purpose for which a federal state is formed and includes the distribution of powers between the Union and the states. The separation of powers is maintained by the Constitution so that both the Union and states have independence over the subject-matter of their legislative competence. As our Constitution is quasi-federal in structure, it establishes a dual-polity relationship between the Union and the State. They are conferred with sovereign powers, which are to be used in a manner directed by the Constitution. 

Although the lists clearly demarcate the operational territory of the legislation made by both the Union and the State, some of the legislative provisions are applicable beyond the operational territory of that particular legislation. The Parliament has specifically been bestowed with the power to formulate laws for extraterritorial implementation, but the state legislature has not been conferred with any such power by the Constitution of India. The doctrine of territorial nexus, however, allows even the state laws to have extraterritorial operation. This article is an attempt to discuss all the intricacies of the doctrine of territorial nexus.

Division of powers under the Indian Constitution

The Constitution of India provides for two types of jurisdictions namely territorial jurisdiction and subject-matter jurisdiction. Article 245(1) of the Indian Constitution provides for territorial jurisdiction. Both the Parliament and the State Legislature have the power to formulate and enforce laws in their territories. Article 245(2) of the Indian Constitution enables the Parliament to have extra-territorial operation of any federal law. This empowers them to enforce their legislation in the foreign territory as well. However, the same has not been provided to the State by the Indian Constitution.

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Subject-Matter jurisdiction 

The power to formulate legislation has been divided at two levels in the federal structure of Indian democracy. One is the Central Government and the other is the State Government. Both levels have been provided with different scope of subjects on which the legislation can be formulated. These subject matters are provided in the three lists provided under Schedule VII of the Indian Constitution.Under Article 246, it has been stated,

  1. Parliament has the explicit power to make laws for the subject matters enumerated in the Union list (List I of Schedule VII).
  2. The State has the power to make laws for the subject matter enumerated in the State list (List II of Schedule VII).
  3. Both the State and the Union have the power to make laws for the subject matter enumerated in the Concurrent list (List III of Schedule VII). 

Detailed overview of all these 3 lists are as follows:

Central List (List I)

This list contains the subject matters on which the laws can be made only by the Union and are applicable in whole or in any part as decided by the Union while formulating the legislation. This list includes 97 subject matters like defence, foreign affairs etc., among many others. Apart from these 97 subject matters, if there is any matter which has not been listed in any of the three lists provided under Schedule VII of the Indian Constitution, then in that case, Article 248 of the Indian Constitution provides the power to formulate legislations on such a matter to the Parliament. 

State List (List II)

This list contains the subject matters on which the laws can only be made by the State for their respective jurisdictions. This list contains 66 subject matters like agriculture, pilgrimages, libraries etc., among many other subject matters.

Concurrent List (List III)

This list contains subject matters on which the laws can be made by both the State and the Union, but in case of a conflict, the laws made by the Union shall prevail over the legislation made by the state. This list includes 47 subject matters like contracts, administration of justice etc., among other subject matters.

Concept of doctrine of territorial nexus

The concept of the doctrine of territorial nexus finds its place in Article 245(2) of the Indian Constitution. The doctrine gives the Parliament the power to formulate legislation that is operative in extra-territorial jurisdiction if necessary. This power is only provided to the Parliament and not to the State legislature. Under Article 245(1) of the Indian Constitution, it has been stated that:

  1. Parliament has the jurisdiction to make laws for extraterritorial operation or laws for the whole or any part of the country.
  2. The State legislature has the jurisdiction to make laws for the whole or any part of the state.

Thus, it can be said that both the Union and the states have their own territorial jurisdiction to make laws.

As per Article 245(2) of the Indian Constitution, Parliament has the power to make legislation having extra-territorial operation. Thus the validity of a legislation cannot be questioned on the sole ground that it has extra-territorial operation. In such a case, the courts cannot interfere with the laws having extra-territorial operations and the legislation cannot be invalidated or struck down on this ground alone. However, such a power has not been granted to the state legislatures. But if sufficient nexus is established between the subject matter and the legislation, then the legislation formulated by the state legislature may also have extraterritorial operation. This is known as the doctrine of territorial nexus. This view has been upheld by the courts in a plethora of cases, as discussed in the latter section.

Theory of doctrine of territorial nexus

As has already been discussed above, as per Article 245(1) of the Indian Constitution, the Centre and the State have the power to formulate laws for their respective jurisdictions. The Constitution provides the power of extraterritorial operation to the Centre, but the same is not provided to the State. 

In Wallace Bros. And Co. Ltd. v The Commissioner Of Income Tax (1948), a company incorporated in the United Kingdom also carried out its business in India through a sleeping partner. The firm made a staggering profit in that accounting year. The income tax authorities sought to levy a tax upon the respondent company. This order of the Income Tax Authority was challenged by the respondent before the Bombay High Court, but it was held that the doctrine of territorial nexus is operative in this case and hence the levying of such tax is valid. It was also mentioned in the judgement that a major part of the income which was taxed was extracted from British India and it was considered as a sufficient ground to establish a territorial nexus.

This case is one of the very first cases which clearly define what an extraterritorial operation is and what conditions are required to be satisfied in order to enforce a legislation in extraterritorial jurisdictions. 

Example of the doctrine of territorial nexus

One of the most commonly acknowledged examples of the doctrine of territorial nexus are various taxation laws imposed by the states. These tax legislations are sometimes operative in extraterritorial jurisdictions in addition to their operation in the territorial jurisdiction of the states. This is one example that clearly demonstrates that the state governments can implement the laws formulated by them in extraterritorial jurisdictions if the doctrine of territorial nexus is applicable.

Salient features of doctrine of territorial nexus

The doctrine of territorial nexus is a unique power given to the Parliament and state legislatures in India. Some of the salient features of the said doctrine are discussed below:

  1. Only the Parliament can make laws for extraterritorial jurisdiction. This power has not been conferred on the state legislature by the Constitution of India. The doctrine of territorial nexus is an exception to this, as it provides the same power to the state legislature to implement laws made by them in extraterritorial jurisdictions.
  2. The doctrine of territorial nexus is primarily based on the nexus between the state and the subject matter. If there is a nexus between the two, then the state legislature has the power to implement the legislation formulated by them in extraterritorial jurisdictions.
  3. Any legislation formed by the state shall be deemed invalid merely on the ground that it has extraterritorial operation unless the second point mentioned above is fulfilled.

When is doctrine of territorial nexus invoked

The doctrine of territorial nexus is an exception to the general legislation which does not provide any power to the State to formulate to enforce legislation formulated by them in extraterritorial jurisdiction. But in some cases, states can enforce their legislations in extraterritorial jurisdictions as well. This can happen if the following two conditions are fulfilled:

  1. The nexus must be real and not illusory in nature.
  2. The liability sought to be imposed by the State must be directly related to that connection.

If these two conditions are fulfilled, the doctrine of territorial nexus can be used by the State for the enforcement of legislation in extraterritorial jurisdiction.

Landmark judgements on doctrine of territorial nexus

The powers conferred by the Parliament are not absolute. Laws made by the Parliament for extraterritorial operations are for the purpose of operating outside the geographical limits of India. The State legislature does not have the power to make laws for extraterritorial operations. However, if it is established that there is sufficient connection with the object, the laws enacted by the State legislature will have an effect outside the territorial limits of the state. This position of law has been affirmed by the higher courts in various cases, as discussed hereafter.

State of Bombay v. R.M.D. Chamarbaugwala (1957)

Facts Of the case

In this case, the respondent, who was not a resident of Bombay, conducted a prize competition of a crossword puzzle through a newspaper that was printed and published in Bangalore. This paper was widely published in Bombay too. For this competition, depots were established so that the forms and fees could be collected. It attracted a lot of buyers for the tickets to that competition.

The State government then taxed the respondents’ company for contesting a prize competition in the state. The respondent challenged the same in the Supreme Court on the point that the State cannot tax the company as it does not fall in the territorial nexus of the state. 

Issue before the Court

Whether the tax can be levied on a person who resides outside the territorial limits of the state?

Arguments

The petitioner side based their arguments on the point that the company was running the competition within their territorial jurisdiction and the citizens residing in the state were participating in the competition and hence, the state had a nexus with the subject matter which was the company in this case. On the contrary, the respondents argued that the competition was run by a company situated in Bangalore which is outside the jurisdiction of the state.

Judgement

After hearing all the arguments of both the sides, the Supreme Court was of the view that since the news was published in the territory of the State and the depots were also set up by the respondent, there was a sufficient territorial nexus between the state and the competition and hence, the state legislature had the authority to tax the respondent for the revenue earned by his company through the prize competition.

State of Bihar v. Charusila Dasi (1959)

Facts of the case

In this case, a legislation was passed by the state of Bihar which dealt with the motive to safeguard the properties relating to Hindu religious trusts. This Act was applicable on all the trusts within the territorial limits of Bihar. So the respondent trust deeded several of its properties in Bihar and Calcutta, while the trust was situated, institutionalised and within the territorial limits of Bihar. 

Issue before the Court

Whether the scope of the Act passed by the State of Bihar could be extended beyond the geographical limits of the state?

Arguments of the parties

The trust argued that as the properties were outside the territorial jurisdiction of the State, the laws made by Bihar cannot be enforced upon those properties. The state government argued that since the managing body of the trust is within the territorial jurisdiction of Bihar and the trust has complete control over any affairs related to those properties, the legislation made by the State legislature of Bihar was enforceable on those properties as well. 

Judgement

In the judgement pronounced by the Hon’ble Supreme Court of India, it was held that the Act passed by the state of Bihar could have an effect on property situated outside the territorial limits of Bihar as the management body of the trust was there in the territory of Bihar and all those properties were belonging to the trust itself, therefore, drawing a direct nexus between the subject matter and the legislation as the relation between the trust and those properties was held to be real and not illusory in nature. 

Other relevant cases on the doctrine

All these judgements clearly emphasise on the point that if there is a nexus between the legislation made by the State government and the subject matter, the enforcement of such legislation by the State is not ultra-vires in nature as it is covered by the doctrine of territorial nexus.

In the case of State of Bihar v. Shankar Wire Products Industries (1994), the State Legislature of Bihar formulated a legislation named the Bihar Weight and Measures (Enforcement) Act, 1959 which mandated the verification and stamping of weights for sale and delivery in other states. Regarding the validity of this legislation, the High Court ruled that this requirement is irrelevant, as it applies to weights manufactured in Bihar and not where they are sold. The Act aimed to protect consumers’ interests, requiring weights to be verified and stamped at the manufacturing site. The Hon’ble SC in its judgement upheld the State Legislature’s territorial legislative competence in verifying and stamping weights. 

In the case of Shrikant Bhalchandra Karulkar v. State of Gujarat (1994), the Hon’ble Supreme Court held  that the state legislature is conferred with the power to enact legislation for extra-territorial operations complying with the provisions enshrined under Articles 245 and 246. The laws made by the state legislature are applicable to a person, and his acts within the territorial limits of a state are not considered as extra-territorial.

In the case of Tata Iron and Steel Company v. Bihar State Tax Act (1958), the state of Bihar passed a sales tax Act for levying a tax on the sale of goods, whether it took place within the territorial limits of the state or outside of that limit. It was also stated that the goods should be manufactured in the state. In the instant case, it was held that there was an established nexus between the object that was to be taxed and the law. These are the two essential elements that constitute the doctrine of territorial nexus and since the same was fulfilled, the extra-territorial operation would be valid.

Conclusion

The doctrine of territorial nexus in India holds a significant importance in the Indian legal system. It enables the legislature to extend the operation of laws even outside the territorial limits in cases where the link between the subject matter and the legislation is real and not illusory in nature. Though the doctrine finds its roots in the Constitution of India, the Indian judiciary has played a crucial role in the development of this doctrine in Indian jurisprudence. The same is evident from various landmark decisions of various courts as discussed in this article. Before concluding, it is imperative to note that the doctrine addresses the complex relationships between the Centre and states and between two or more states. Hence, it becomes crucial that while analysing the law formulated by the Centre or state, the doctrine is applied with much caution to not encroach upon the jurisdiction of other.

Frequently Asked Questions (FAQs) 

What is the doctrine of territorial nexus?

This doctrine empowers the Parliament and state legislatures to enforce their legislation in extraterritorial jurisdictions where there is a nexus between the subject matter and the legislation.

Does the Constitution of India give any explicit power to the state government to implement laws for extraterritorial operation?

No. The state government has not been provided any such power explicitly by the Constitution of India, but the doctrine of territorial nexus, as developed by the judicial precedents, enables them the same.

Does the Constitution of India give the central government power to formulate laws for extraterritorial jurisdictions?

Yes. Article 245(2) of the Indian Constitution explicitly provides this power to the central government.

References

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