Ministry Of Corporate Affairs Circulars – Are They Legally Enforceable?

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 field' i.e., where prior legislation over the subject matter exists.

Therefore, unlike Press Notes issued by the Department of Industrial Policy and Promotion (DIPP) to regulate foreign direct investment (FDI), circulars issued by the MCA stand on a different footing, since the Parliament has enacted the Act and the MCA has framed the Rules making company law an occupied field. Hence the Government's power to issue such circulates is circumscribed by the Act and the Rules. The logical question that arises then is whether the MCA is empowered to interpret the Act or the Rules by issuing such circulars and clarifications.

This question was answered by the Supreme Court (SC) in the case of Bhuwalka Steel Industries Ltd v. Bombay Iron and Steel Ltd.1 wherein it categorically stated that,

"It is not the task of the government to interpret the law; that is the task of the courts and even if the government understood the law in a particular manner, that cannot be a true and correct interpretation unless it is so held by the court. [...] these circulars are merely advisory in nature."

In this context, it would be appropriate to quote the former Secretary to the Government of India and Chairman, Company Law Board Mr. K.K. Ray, who had...