The Ministry of Corporate Affairs (“MCA”) is entrusted with the responsibility of administering the Companies Act, 2013 (“2013 Act”). To this end, it has issued many a circulars to clarify the provisions of the 2013 Act and the rules made thereunder from time to time. On important matters like CSR, the ministry has issued detailed FAQs in the form of clarificatory circulars. Till date, the MCA has issued more than 210 clarificatory circulars under the 2013 Act.
There are provisions in several legislations that specifically empower the relevant ministry/ statutory authority to issue circulars for effective administration of the said statute. For instance, Section 119(1) of the Income Tax Act, 1961, empowers the Central Board of Direct Taxes to issue orders, instructions, and circulars. SEBI issues circulars vide its powers conferred inter alia under Section 11(1) and Section 11A of the Securities and Exchange Board of India Act, 1992, and the enabling provision is specifically mentioned in the text of most of the SEBI circulars.
However, no such express provision exists in the 2013 Act, which empowers the MCA to issue clarificatory circulars. Further, there is no mention of any specific provision in the circulars issued by the MCA, which establishes its statutory power/ enabling provision to issue such circulars. It is relevant to note that no such specific provision existed even under the Companies Act, 1956, which established the statutory power of MCA for issuing circulars.
In this article, the authors have examined the constitutionality of those powers and the limitations of such executive circulars.
Analysis of the Constitutional provisions
a. The Executive power of the Union under the Constitution:
Article 53 of the Constitution lays down the constitutional framework dealing with the executive power of the Union. Article 53(1) of the Constitution provides that “the executive power of the Union shall be vested in the President, and shall be exercised by him either directly or through officers subordinate to him, in accordance with this Constitution”. The executive functions comprise the whole corpus of authority to govern and connotes the residue of government functions that are not either legislative or judicial. While exercising the executive powers for and on behalf of the President under Article 53(1) of the Constitution, the subordinate officials are strictly bound by the limits imposed by the Constitution. Therefore, one may take the view that MCA officials are subordinate to the President, and would be regarded as performing their functions for and on behalf of the President, within the meaning of Article 53(1) of the Constitution.
Further, Article 73(1)(a) of the Constitution lays down the cardinal principle that the Union Government’s executive powers are coextensive with the Parliament’s legislative powers, and extends to all matters on which Parliament is empowered to make laws. The Union Government’s exclusive executive power accordingly extends to the fields of legislation provided in List I of the Seventh Schedule (“Union List”) of the Constitution, enacted pursuant to Articles 245 and 246 of the Constitution, providing for the scheme for distribution of legislative powers between the Union and the State Governments.
In Ram Jawaya Kapur v. State of Punjab, the Supreme Court of India (“SC”) held that “Ordinarily the executive power connotes the residue of governmental functions that remain after legislative and judicial functions are taken away… The executive Government, however, can never go against the provisions of the Constitution or of any law…The executive function comprises both the determination of the policy as well as carrying it into execution.”
In J&K Public Service Commission v. Narinder Mohan, the SC observed that executive power could be exercised only to “fill in the gaps”, and executive instructions “cannot and should not supplant the law, but would only supplement the law”.
Accordingly, the exercise of executive power cannot be in contravention of the Constitution, or any other law. While executive power is circumscribed by the limits imposed by the Constitution, and by any other law, this does not imply that executive power can be exercised only when there is a law already in existence. The executive’s powers are not restricted solely to carrying out the laws passed by Parliament. It includes other functions such as supervising general administration, formulation, and execution of policy, etc.
Furthermore, in a series of judicial decisions, the SC has consistently held that such clarificatory circulars cannot amend or substitute principal legislation. But if the principal legislation made thereunder is silent, then the Government can issue clarifications to supplement principal legislation by issuing instructions.
b. Source of MCA’s power to issue circular:
Entries 43 and 44 of the Union List (List I of the Seventh Schedule of the Indian Constitution) confer exclusive power to Parliament, to legislate on the following matters:
“incorporation, regulation and winding up of trading corporations, including banking, insurance and financial corporations but not including cooperative societies” [Entry 43]
“incorporation, regulation and winding up of trading corporations, whether trading or not, with objects not confined to one State, but not including universities” [Entry 44]
Given that Article 73(1)(a) provides that the Union’s executive power is co-extensive with Parliament’s legislative power, one may take a view that the Union has exclusive executive power for ‘regulating’ trading and non-trading corporations. In this context, Article 77(3) of the Constitution of India, provides that “The President shall make rules for the more convenient transaction of the business of the Government of India, and for the allocation among Ministers of the said business.”
Pursuant to the powers conferred by Article 77(3), the Government of India (“GoI”) has notified the GoI (Allocation of Business) Rules, 1961 (“Allocation of Business Rules”), which provides that the business of the GoI shall be transacted by the Ministries, Departments, Secretariats, and Offices specified in Paragraph 8B of the Second Schedule of the Allocation of Business Rules.
Entry 1 and Entry 21 of the business items allocated to the MCA deal with “Administration of the Companies Act, 1956” and “Administration of the Companies Act, 2013”. Further, under the powers conferred by Article 77(3), the GoI has also notified the GoI (Transaction of Business) Rules, 1961 (“Transaction of Business Rules”), which provides that all business allotted to a department under the Allocation of Business Rules shall be disposed of by, or under the general or special directions of the Minister-in-charge.
Therefore, Articles 53(1), 73(1), 77(3), 245 and 246 of the Constitution, read with Entries 43 and 44 of the Union List and the Allocation of Business Rules confirm that the MCA is the appropriate ministry (also called the concerned administrative ministry in government parlance) for the purpose of exercising executive functions relating to the ‘administration’ of the 1956 Act and the 2013 Act – and all business in relation to the same have been allocated to the MCA.
The SC in Jamal Uddin Ahmad v. Abu Saleh Najmuddin held that the “conferment of power implies authority to do everything which could be fairly and reasonably regarded as incidental or consequential to the power conferred”.
Further, in ITO Cannanore v. M.K. Mohammed Kunhi, it was observed that “an express grant of statutory power carries with it by necessary implication the authority to use all reasonable means to make such grant effective”.
Therefore, one may take the view that the MCA’s executive power with regard to regulation of trading and non-trading corporations implies an authority to do everything that could fairly and reasonably be regarded as incidental or consequential to the power conferred. According to the authors, the authority to issue circulars (for the purpose of administering the provisions of the statute, or giving directions to subordinate authorities such as the RoC) can be regarded as incidental and consequential to the MCA’s executive power to regulate trading and non-trading corporations – pursuant to Articles 53, 73, 77(3), 245 and 246 of the Constitution, read with Entries 43 and 44 of the Union List.
Ambiguity relating to the binding nature of circulars
There is conflicting judicial opinion on the binding nature of such executive circulars. This assumes prevalence when parties rely on the circulars that have been later repealed by the ministry/ department. The Gujarat High Court in the case of Neeraj Kumarpal Shah v. C2R Projects LLP and the Delhi High Court in the case of S.K. Bhattacharya v. Union of India have held that the instructions/ guidelines prescribed in circulars issued by the MCA are binding on the RoC, and have to be mandatorily followed. However, in Bhagwati Developers v. Peerless General Finance and Investment Company (“Bhagwati Developers”) , the SC, with reference to a circular issued by the erstwhile Department of Company Affairs on September 6, 1994, held that the said circular does not have any mandatory effect, and observed that “these circulars are merely advisory in character”. In the view of the authors, since the decision in the Bhagwati Developers case was rendered in a specific context to a particular MCA circular, it does not lay down any general rule relating to the nature and scope of circulars issued by the MCA.
Are the circulars issued under the 1956 Act still valid?
Given the drafting lacunae in the 2013 Act, on many occasions, it is helpful to rely on circulars issued under the 1956 Act, for the purpose of interpretative guidance. However, are the circulars issued under the 1956 Act still valid? The legal position is analysed below.
The ‘repeal and savings’ clause of the 2013 Act is contained in Section 465. Section 465 of the Act provides for the “repeal of certain enactments and savings”, and was notified by the MCA on January 30, 2019. Section 465(1), inter alia, provides that the 1956 Act shall stand repealed.
Section 465(2)(a) of the 2013 Act provides that:
“Notwithstanding the repeal under sub-section (1) of the repealed enactments,—
anything done or any action taken or purported to have been done or taken, including any rule, notification, inspection, order or notice made or issued or any appointment or declaration made or any operation undertaken or any direction given or any proceeding taken or any penalty, punishment, forfeiture or fine imposed under the repealed enactments shall, insofar as it is not inconsistent with the provisions of this Act, be deemed to have been done or taken under the corresponding provisions of this Act”
Further, Section 465(2)(b) of the 2013 Act provides that:
“subject to the provisions of clause (a), any order, rule, notification, regulation, appointment, conveyance, mortgage, deed, document or agreement made, fee directed, resolution passed, direction given, proceeding taken, instrument executed or issued, or thing done under or in pursuance of any repealed enactment shall, if in force at the commencement of this Act, continue to be in force, and shall have effect as if made, directed, passed, given, taken, executed, issued or done under or in pursuance of this Act;”
In accordance with Sections 465(2)(a) and 465(2)(b) of the 2013 Act, any direction given under the 1956 Act shall, insofar as it is not inconsistent with the provisions of the 2013 Act, be deemed to have been done or taken under the corresponding provisions of the 2013 Act, and shall have effect as if it were directed or issued in pursuance of the 2013 Act. The said provisions should be read in conjunction with Sections 6 and 24 of the General Clauses Act.
Section 6 of the General Clauses Act provides that where any Central Act or regulation repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not:
a. revive anything not in force or existing at the time at which the repeal takes effect; or
b. affect the previous operation of any enactment so repealed or any thing duly done or suffered thereunder; or
c. affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or
d. affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or
e. affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid;
and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed.”
Section 24 of the General Clauses Act provides that where any Central Act or Regulation is, after the commencement of this Act, repealed and re-enacted with or without modification, then, unless it is otherwise expressly provided, any appointment, notification, order, scheme, rule, form or bye-law, made or issued under the repealed Act or Regulation, shall, so far as it is not inconsistent with the provisions re-enacted, continue in force, and be deemed to have been made or issued under the provisions so re-enacted, unless and until it is superseded by any appointment, notification, order, scheme, rule, form or bye-law made or issued under the provisions so re-enacted.
The elements of the ‘repeal and savings clause’ contained in Sections 465(2)(a) and 465(2)(b) of the 2013 Act incorporate the principles prescribed under Sections 6 and 24 of the General Clauses Act, and provide that any “directions” given under the 1956 Act shall, insofar as they are not inconsistent with the provisions of the 2013 Act, continue to have effect under the 2013 Act.
In Sudheer C.B. v. State of Kerala, in the context of a communication issued by a Government Secretary for modifying an Executive Order issued in the name of the Governor, the Kerala High Court has held that “a circular is a letter, addressed to several persons simultaneously. So, a circular is also a letter issued by the Government/ Government Secretary, bringing a particular decision to the notice of several persons simultaneously”.
Given that even the circulars issued under the 1956 Act provide direct instructions to the RoC and the Regional Directors relating to a decision taken by the ministry in exercise of its executive power, the circulars issued under the 1956 Act may be construed as “directions” given by the MCA, for the purpose of Sections 465(2)(a) and 465(2)(b) of the 2013 Act. Hence, in accordance with Sections 465(2)(a) and 465(2)(b), the circulars issued under the 1956 Act will continue to have effect, if they are not repugnant to any provision of the 2013 Act.
The key test to be applied is whether a circular issued under the 1956 Act is repugnant/ inconsistent to any provision of the 2013 Act. In the absence of any repugnancy/ inconsistency, circulars issued under the 1956 Act will continue to be valid – and can be relied upon for assessing the legal position on a specific aspect.
It is pertinent to note that the Government’s power to issue such circulars is circumscribed by the 2013 Act and the Rules framed thereunder – and the MCA Circulars cannot be in conflict with the provisions of the 2013 Act and the rules framed thereunder. In the event of a conflict, the provisions of the 2013 Act and the rules framed thereunder will prevail, vis-vis the provisions of the executive circular. Hence, the MCA Circulars can only ‘supplement’ the provisions of the 2013 Act and the rules framed thereunder, and cannot ‘supplant’ the parent statute.
Circulars issued by MCA can “fill in the gaps” in the law passed by Parliament – but cannot be repugnant to the 2013 Act. In the case of Palaru Ramkrishnaiah v. Union of India, it was held that such circulars and clarifications cannot be contradictory to the principal legislation. If a circular issued by the MCA is repugnant to any provision of the 2013 Act or the rules framed thereunder, then such a circular shall not be enforceable, to the extent of such repugnancy.
In India, where the rule of law prevails, an administrative action must be judged by the standard of legality. Therefore, the meaning of a statutory provision can never be overridden by any circular. In effect, it is the function of the courts to interpret the law. Hence, no judicial authority can be bound by such executive circulars – and Courts can independently interpret the provisions of the 2013 Act and the rules framed thereunder, basis well-established principles of statutory construction.
Further, given the number of circulars issued by the MCA and the ambiguity related to the binding nature of such circulars, it would be safe to conclude that companies should be cautious while exclusively relying on such clarificatory circulars for any major decision-making, particularly when such circulars are not in conformity with the provisions of the 2013 Act or the rules framed thereunder.
 Madhav Rao Scindia v. Union of India, AIR 1971 SC 530.
 AIR 1955 SC 549.
 AIR 1994 SC 1808.
 Dr. Rajinder Singh v. State of Punjab, (201) 5 SCC 482. See also, Subhash Ramkumar Bind alias Vakil v. State of Maharashtra, (2003) 1 SCC 506; and Union of India v. Rakesh Kumar, (2001) 4 SCC 309.
 (2003) 4 SCC 257.
  71 ITR 815.
 AIR 2018 Guj 80.
  91 CompCas 37 (Delhi).
 (2005) 6 SCC 718.
 2010 KER LT 125.
 AIR 1990 SC 166. Also see: Comptroller and Auditor- General of India v. Mohan Lal Mehrotra, (1992) 1 SCC 20.