Friday, June 26, 2015


Prof. Irving Younger of the Cornell University suggested that Our Judges should evolve the doctrine that “no law is enacted unless legislators voting for it have read it.” By this test, predominant laws passed by the Indian parliament and the State legislatures would have to be invalidated. The Companies Act, 2013 is one such legislation.

Company is a dominant institution in our Society and the Company law governs such dominant institution. Company law is a well-recognised subject in the legal curriculum and a voluminous literature too.

In our Country, the Company law has been enacted for the 6th time with the title, ‘the Companies Act 2013’. This is the first time, a Fresh law for Corporate has been passed after the implementation of New Industrial Policy, 1991 i.e. Liberalisation, Privatisation and Globalisation. This Modern Companies Act, 2013 replaced the vintage Companies Act, 1956. Unlike Companies Act, 1956, this is a rule based law. Many provisions of this Act are determined by the Rules, which shows that delegation is the character of this legislation.

The Act carries certain appealing new concepts such as one person Company, Women Directors, Independent Directors, Prevention of Insider Trading, Corporate Social Responsibility, Class Action suits, Registered Valuer, rotation of Auditors, Dormant Company, Fast Track mergers, Serious Fraud Investigation office and Tribunals. However, the charm of the previous law was exceedingly appreciable than this modern law in regard with drafting.

A democratic State must make an unambiguous, precise and Comprehensive legislation. Law must be readily intelligible, because legal literacy is scarce in our country. However, this Act is often obscure and circumlocutious. Sentences are long, legally meaningless words and phrases, tortuous language, the preference of double negative over the single positive, abound.

The Legislative literature and language governs our activities in almost all spheres. It has considerable control over our lives. Such a language of this law is much poor. Many times, the Drafting is erroneous. A popular English jingle once published in London Times enlivens this criticism:
I am the Parliamentary draftsman;
I compose the country's laws.
Of half the litigation in the nation,
I am undoubtedly the cause.

The Cardinal fault of the new pattern of Company law is its absolute instability and uncertainty. Not a month passes- sometimes not even week – without some material changes in the Companies Act, 2013.If I could comment in the words and style of legal legend Nani Palkhivala, ‘Nowadays Companies Act is like a railway ticket – good only for one journey in a time, from the beginning of a week till the end of the same week and sometimes not even for the whole journey’. Such unsteadiness is defended by the cabinet as “Making the business ease in India”. Are we ceasing the law, for easing the business in India?

Foregoing critics are not cynical and it can be proved by following statistical supports with the actions of Ministry of Corporate Affairs. Within a span of 650 days from the date of enactment – 34 Amendments in Rules, 28 notifications were made, 56 Circulars were passed and 2 times Act itself was amended. Is it not showing the quality of drafting of this law?

With the precision of such lacuna in their own draftsmanship, they inserted section 470 in this Act namely “Removal of Difficulty Order”. Through this Section, if any difficulty arises in giving effect to provision of this Act, the Central Government may publish an Order in the Official gazette for removing such difficulty with ease. These Orders can be made for a period of FIVE years from the date of this enactment. This provision is a bonanza offer given by the draftsman to themselves, for rectifying their own obscure drafting. Again the terminology “difficulty” is ambiguous. Might be the Erroneous or ill drafting of the so called draftsman is termed as “Difficulty”. Already this provision has been triggered for 10 times. Much notable point, in the past such removal of difficult order were not there in five previous corporate law legislations.

Numerous instances where such poor drafting is evident. Usage of the word “OR” in the place of “AND”. A section uses antithesis in the same sentence such as “NOT EXCEEDING” and “HIGHER”, which paves way for absolute contradictions and creates redundancy of a word. There are cases where contradictions between the Act and Rules framed and some arbitrary numbers too.

Professor A.L. Diamond quoted once “The limited liability corporation is the greatest single discovery of modern times. Even steam and electricity are less important than the limited liability company”. Might be a thing which necessitates a grander admiration than such Limited liability Corporation is ‘legislation for Companies’. Is it not absolute responsibility of the draftsman to draft such laws with caveat?

Such a vital law of the economy was passed in the parliament in few minutes with no deliberations or discussions in the parliament. Is it not the obligation of the parliamentarians to pass such a bill with adequate debates and remove the flaws before the bill turns to be a law? Such an ill-drafted law which requires immense treatment before the learned parliamentarians, albeit it was passed without any considerations.

Of course, all measures are taken by the Government to amend the law and clarify the issues in nexus with implementation of Companies Act, 2013 including the Constitution of Expert Company law Committee. However, this is an indispensable treatment for curing the disease after the detection of ill in the law making process rather than preventive relief which was the prima facie requisite while drafting the law in the democratic nation. After all, these amendments restores the Companies Act, 2013 to the position of the Companies Act, 1956. Then, what is the requisite of this new law and few amendments in the Companies Act, 1956 would have done this trick.

Frankly speaking, there were no much flaws with Companies Act, 1956. It is a well drafted law that has stood the test of time. It was not such outdated law for replacement. It has ample provisions for the prosecutions. So, the fault not lies in our law but in their execution.
 A Corporate law takes a life of its own. It moves along under the guidance of its appointed functionaries who sometimes function well, but sometimes they also function badly. So, such a law develops its own ethos. It ultimately fulfills the destiny of the economic character of the country for which it is written – if it lasts! The lesson about written corporate legislation is that they do not function on their own. A special effort has to be made by the custodians – those entrusted with their functioning – to work them.

Confucius, a great Chinese Teacher, politician and philosopher said, “When the State of Zheng (Center of Ancient China) formulates a law, Pi Chen first makes a draft, and Shi Shu gives his comments. Then the draft will be edited by Zi Yu and finally the draft will be polished linguistically by Zi Chan. The documents of law formulated by these four wise officials seldom contain mistakes.” What a state of bliss!

When such an ecstasy shall happen in the legal atmosphere of our Country. Time has to come for a flawless and lawful Companies Act. If the experts are imbued with a spirit of dedication and wisdom were to be installed into the Cabinet and were to be allowed with requisite freedom of Action, the parliamentarians could transform this Country into one of the greatest economic powers.

1 comment:

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