Foreign Direct Investment

Ministry of Corporate Affairs circular - Legal Enforceability

The Ministry of Corporate Affairs (MCA) has been entrusted with the responsibility of administering the Companies Act, 2013 (Act). The MCA, from time to time, issues circulars and clarifications to clarify the provisions of the Act and the rules made thereunder (Rules). For example, in the first year of operation of the Act, the MCA issued 89 clarificatory circulars. In 2015 and 2016 the number was 22 and 21 respectively. In this article, we assess whether such circulars and clarifications are legally enforceable and how far companies may rely on them.

Here, it is pertinent to note that unlike Section 119(1) of the Income Tax Act, 1961, which empowers the Central Board of Direct Taxes to issue orders, instructions and circulars, there is no corresponding provision in the Act that empowers the MCA to issue such circulars and clarifications. As explained in our earlier post, executive action reflects steps taken by the Government in its sovereign authority. Article 73 of the Indian Constitution states that, subject to the provisions of the Constitution, the executive power of the Union extends to matters on which the Parliament’s legislative power extends. However, this power cannot operate in matters of an ‘occupied fieldi.e., where prior legislation over the subject matter exists.
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On June 7th, 2018, the Reserve Bank of India (RBI) had introduced two new forms (namely Single Master Form and Entity Master Form) vide a circular[1] (RBI Circular), with the aim of simplifying reporting under the Foreign Exchange and Management Act, 1999 (FEMA). Our earlier blog post contained details of the two forms and our in-depth analysis of the same. On June 27th, 2018, RBI released a User Manual for Entity Master – FIRMS[2] (User Manual) which provides detailed instructions and the process for filing the Entity Master Form.
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