Carte blanche to notify law requires reform

The provocative abuse of the power to choose when to put into effect a law passed by Parliament has reached a point where judicial intervention is warranted

By Somasekhar Sundaresan

It is a year since the Reserve Bank of India (RBI) picked specific cases of borrowers for action to be taken by banks to invoke the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC). Much ink will be spilled about the year gone by. This column will not add to it.

However, the workings of the IBC and its impact on other laws, presents a good opportunity to note an important aspect of law making in India — the practice of government arming itself with legislation made by Parliament, with full liberty given to the government to decide when any provision of the law may actually be brought into effect. The legacy of legislation preceding the IBC underlines the extreme limits to which this can be stretched.

Originally, insolvency proceedings for “sick industrial companies” was governed by the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). In January 2003, the Companies Act, 1956 was amended to insert a Part VI-A titled “Revival and Rehabilitation of Sick Industrial Companies”. The government got Parliament to arm it with the power to notify such provision on such date as the government willed. Apart from provisions relating to setting up of tribunals, none of the provisions introduced into the 1956 company law to bring in an insolvency regime was notified into effect by the government.

In January 2004, a law to repeal the SICA was passed by Parliament, but this too empowered the government to notify the law as it chose and when it chose. Nothing happened for a decade. In 2013, new company law was introduced in the form of the Companies Act, 2013, again empowering the government to notify into effect various provisions on various dates as the government deemed fit. This law too contained provisions akin to Part VI-A of the 1956 Companies Act. Therefore, at this stage, two legislation governing company law, governing the same subject of insolvency was in existence but neither legislation was brought into effect. Finally, in May 2016, the IBC was passed by Parliament, again empowering the government to notify such provisions as it chose at such times as it chose.

The IBC contained provisions that would amend the law that had been passed to repeal the SICA — in other words, a law that had not been brought into effect was amended in its still-born state. The IBC also had provisions to delete the provisions introduced in the 2013 company law, but left out the provisions of the 1956 company law that is still on the statute book but not notified. Eventually, on November 1, 2016, through notifications, the provisions in the IBC that would amend the un-notified SICA repeal law were notified. On November 15, 2016, the government notified the provisions in the IBC that would delete the corresponding provisions in the 2013 company law (the 1956 law remained without notification). On November 25, 2016, the law repealing the SICA was notified to give it effect from December 1, 2016 — over 12 years after it was passed by Parliament. On November 30, 2016, the provisions of the IBC were notified with effect from December 1, 2016, to take over from the SICA.

Now, this tortuous journey of the law has other implications. A number of other legislation contained references to the SICA and its provisions — purely for example, exemptions from open offers in the Takeover Regulations and exemptions from delisting procedures under the Delisting Regulations. Not everyone is aware that the General Clauses Act provides that when a legislation is repealed and replaced, all references to the repealed legislation would automatically stand replaced in the eyes of the law by the newly introduced legislation. Therefore, the other regulatory authorities who are the authors of these legislation conduct a lot of activity proposing to amend their regulations to bring them in line with references to the new law; conducting debates over whether they should change the law; and handle voluminous unproductive work of dealing with procedures for making these changes.

The 2013 Companies Act in itself presented a piquant situation with the power given to the government to notify into effect such provisions as the government chose whenever it chose. When empowering itself with such a power, the government forgot to get Parliament to also empower the government with the power to notify the partial repeal of corresponding provisions of the 1956 Companies Act. Till date, enormous time, energy and monetary expense have been expended on litigation about how, in the absence of an explicit repeal of the old law, two provisions can or cannot co-exist and whether a provision can be said to have been “repealed by implication”.

Empowering the government to take its time to notify a law passed by Parliament is a practical feature, but equally, it is time those running Parliament gave thought to how they are abdicating their responsibility without seeking account of why a law has not been notified into effect despite being passed. The social conditions for which a law is introduced remain unaddressed when the notification is not effected — rendering the administration of the law completely arbitrary. Serious consequences have followed in welfare legislation due to this approach — cases in point being the law on domestic violence and the law prohibiting testing the gender of an unborn foetus.

The provocative abuse of the power to choose when to bring into effect a law passed by Parliament has reached a point where judicial intervention by a Constitutional Bench is warranted. In the past, the abuse of the promulgation of Ordinances by a state government had led to a limit of two times being imposed by the Supreme Court. The abuse of sticking the “money bill” label is another example of the courts being seized of such an issue. It is time to take a close hard look at how governments get Parliament to give them a “carte blanche” on use of this power.

This column was published under the title Without Contempt in all editions of Business Standard dated June 7, 2018

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