THE ECOSYSTEM OF LAW

How to read the ecosystem of law is the basic question all practitioners of procedural laws raise time to time. This is not the same question students of law raise in schools or lawyers in courts. This is not all about interpretation and cracking of a law code hidden behind words. Here, I am trying to reply with reference to my bread and butter – the Companies Act, 2013 and The Insolvency and Bankruptcy Code, 2016.

The first thing to do before reading further is – well understand the rule of interpretation of statutes and keep good law lexicon with you in your laptop or Kindle. This is a fundamental rule no one could and should ignore.

Any Procedural Law including the companies Act, 2013 and the Insolvency and Bankruptcy Act, 2016 are not a standalone piece of laws. These procedural laws are complete ecosystems with partial overlapping with other ecosystems – like securities law, personal laws, Law of Contract and commerce etc. We should know the boundaries and overlapping of these ecosystems. For examples, a question – who will inherit a share after the death of a shareholder of a company is not a question of company law ecosystem but an overlapping and combined reading of two legal ecosystems.

Now we need to understand these legal ecosystems.

Whenever interpret the law for a particular question of law applicable on a particular set of facts, we could not ignore any of these elements of the ecosystem. However, for a correct interpretation, we should value the hierarchy of these elements.

The Act is a superior authority in law as it is passed by the Legislature. Notifications and Rules are notified by the Executive under the powers derived from the Act itself.

Commencement Notification sets the date of enforcement of a particular set of law or a particular section of an Act. A law before commencement notification is just a piece of non-fiction with no literary and legal value.

The Central Government may issue Removal of Difficulties Orders (RODs) under powers provided for the purpose of giving the correct meaning of the words of the legislature in case of any practical difficulty arisen due to incorrect selection words by the legislature. This is like small amendments just to remove difficulties due to interpretation and practical implementation of the large intent of the law, without impacting the large intent. RODs could not give a new meaning to the law but correct words to the intended meaning.

Exemption Notifications exempt certain companies from the applicable provision of the Act. A the time of reading a Section mentioned under an Exemption Notification dealing with a certain class of companies, one must read such Section in respect of that class of companies as amended by the Exemption Notification for that class. Exemption notifications effectively amend these Sections for the purpose of the class of companies with which the Exemption Notification deals. In the case of other laws, such exemption notifications may deal with class or classes on which it is applicable.

The Government may amend schedules of an Act. Schedules must be read with the main Section. Schedule may or may not be amendable by Executive depending upon the power bestowed upon Executive by the Legislature in the Act.

Wherever a Section of an Act uses words “as may be prescribed” or something like that, it is an indication the Legislature has delegated powers to the Executive on that particular point. The Government may also make rules for Sections which do not delegate such powers to the Central Government subject to the presence of a Section empowering the government generally.

While provisions of the Act along with Removal of Difficulties Orders (RoDs), Exemption Notifications and Schedules, deals with the policy framework of the law; rules deal with the procedures. Rules cannot change policy framework in any manner cannot override the substantial provision of the Section empowering the Rules.

The Circulars are issued by the Department interpreting a particular provision of the Act or the Rule in certain circumstances.  The Companies Act, 2013 does not empower the Department to issue circular.

Standards prepared by statutory bodies like the Institute of Company Secretaries of India to standardise secretarial practices under the Companies Act and other areas related to Secretarial Practices. By virtue of Explanation to Section 205(1), secretarial standards issued by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and approved by the Central Government are part of the law itself. Further Section 118(10) mandates that every company shall observe secretarial standards with respect to general and Board meetings.

There are standards like Secretarial Standards (SS-1 and SS-2) or certain Accounting Standards which has the power of formal law. However, there may be certain standards which drive legal power by public acceptance these may have some formal legal backing of statutory bodies or just by market practices.

Presently, there are two types of statutory regulatory bodies governing corporate law scenario: one set working as self-regulatory bodies of professionals like Institute of Company Secretaries of India (democratic in nature due to election of governing bodies) and another Set is like Securities and Exchange Board of India or Insolvency and Bankruptcy Board of India which is pure extension of Executive of the State.

These bodies may issue various regulations notifications and circulars subject to the provisions of the governing statute.

Sometimes some agreements may have strong legal powers derived from the private contract. For example, before the SEBI (Listing Obligation and Disclosure Requirements) Regulations, the Listing Agreement between the Stock Exchange and Listed entities was a private but powerful contract enforced strongly by the Market Regulator.

While reading and coming to a conclusion on law, we should read whole ecosystems.

Aishwarya Mohan Gahrana

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