Professional Documents
Culture Documents
1. Write a short paragraph summarising the paper in your own words, highlighting the
following aspects [WL 150 words]:
- Context
- Possible areas of law
- Main argument/s and its relevance
- Methods used
The paper brings into forefront the ambiguity that exists vis a vis the enforceability of
circulars under the companies act 2013. It is the lack of legal value of the circulars issued by
the MCA under The Companies Act 2013, and the subsequent problems that provides the
context to this paper. It ventures into laws relating to companies and competition by
highlighting the lack of ‘statutory’ validation to circulars under companies act. It also draws
on from constitutional law to determine the enforceability of circulars as delegated
legislation. The main argument put forth by the paper is to highlight the need of judicial and
legislative action, providing legitimacy to circulars under the companies act. The begins by
providing a legal context about the unenforceability of circulars under the companies act. The
author then ‘fleshes out’ his argument by highlighting the problems that arise due to the said
unenforceability in the form of efficiency and transaction costs backed by ideas like ‘public
choice theory’, concluding by emphasizing the need for clarification of this ambiguity.
2. Identify the main argument of the paper. Is it made clearly? [WL 100 words]
The main argument of the paper is that the Ministry of Corporate Affairs lacks statutory
mandate to issue enforceable circulars under the 2013 companies act and there is a need to
provide this mandate via appropriate legislative and judicial intervention. Since there exists
an ambiguity in this form, the author argues for its clarification via legislative and judicial
action. Although this argument is clear after reading the whole paper and it can be seen in the
conclusion, it can be made more clearly in the beginning, where the roadmap is being given
so as to ensure lucidity of the paper.
3. Are the methods and sources used suited to the author’s research question? [WL 100
words]
The methods used by the author to bolster their argument lack in some ways. The author’s
methodology is more inclined toward presenting the status quo of the law. Instead, emphasis
should have been laid on the question of ‘why this condition should change?’ Although the
author has mentioned points regarding the same in the section describing public theory, the
ideas of ‘external costs’, ‘unnecessary litigation’ and ‘overburdening the judiciary’ could
have been more elaborately developed to bolster the main argument.
4. Is the article well structured? Comment at the level of title, sections, paragraphs. [WL 75
words]
The article is well structured, although some improvements can be incorporated. The author
could have covered the 2nd (Are the MCA Circulars Legally Enforceable? ) and 3rd
(Unenforceability of MCA Circulars vis-à-vis Exclusive Legal Positivism) sections under one
broad section concerning the enforceability of circulars enumerating the aforementioned two
sections as sub-sections in this one section. Additionally, some formatting changes could have
been made to the section headings and the title to make them clearer and easy to refer to.
7. Identify the paper’s weaknesses and suggest ways in which it could be strengthened. [WL
350 words]
Although the paper has brought an important legal ambiguity to the fore, there are some
issues in this paper. a) The paper does not provide a conspicuous argument in the beginning,
one has to read till the end to understand the author’s argument in totality. B) The writing in
the introduction is not very appealing, the reader might lose interest due to this lack of appeal.
c) The sources used, like India Kanoon to cite case laws might not be the best and
authoritative source to cite case laws. D) The roadmap, prima facie is very cryptic and
difficult to understand, and it lacks the main argument of the paper in totality. E) Theories and
Ideas like ‘Exclusive Legal Positivism’ and ‘Public Choice Theory’ should be explained
properly by the author so as to provide a proper understanding to the readers. F) The graph in
figure 1 has not been explained and its applicability to the argument remains cryptic.
This paper can be improved by incorporating the aforementioned changes. It can also be
improved by elucidating why the current ambiguity needs to be rectified. It has been
established by the author that an ambiguity exists, however, some emphasis needs to be laid
on the question of ‘why?’. Although the author has provided some reasons, but they need to
be elaborated. The idea of the ‘burden on the judicial system’ due to litigation can be
elaborated to underpin the author’s argument. Some lines in the text like “While the judges
never explicitly state that they are attributing these circulars as merely advisory since the
Ministry is not empowered under the 2013 Act and associated Rules to issue them in the first
place, it is perfectly clear that this reason is the driving factor behind the final verdict.” need
to be explained with some citation and the graph in figure 1 needs to be explained to create a
more ‘holistic argument’.
In accordance with its duty of implementing the 2013 Companies Act, the Union Ministry of
Corporate Affairs (‘MCA’) indulges in the issuance of orders, clarifications, notices, and most
importantly, circulars. This issuance is effectuated to shed light on the provisions of the
legislation and its associated rules, and thus clarify potential ambiguities. Since the Act’s
become operational, the number of circulars issued has greatly fluctuated, reaching the figure
of 89 in 2013 and then dipping to a modest 21 in 2016.
Through the course of this paper, the researcher aims to determine the legal enforceability of
the various circulars issued by the Ministry of Corporate Affairs, owing to their inevitable
impact on the conduct of companies or businesses. After ascertaining the answer to the
aforementioned question, the researcher will analyse the reasons behind the current legal
status of MCA circulars through the lens of ‘Exclusive Legal Positivism’ (‘ELP’), as adduced
by Andrei Marmor. The paper will also contain a juxtaposition of the legal enforceability of
circulars from other government authorities vis-à-vis MCA’s clarificatory circulars. To
facilitate a more holistic understanding of the topic at hand, the researcher will view the
reliance placed by companies on these circulars through the ‘Public Choice Theory’.
Under both the Companies Act of 1956 and its modern successor of 2013, no provisions were
incorporated so as to enable the MCA to issue circulars of any kind. Likewise, the multitude
of Rules drafted within the ambit of the parent statute of 2013 have not vested the Ministry
with the powers to issue clarificatory circulars. Since these circulars do not constitute
delegated legislation, they can be best characterized as ‘executive acts’ on the part of the
Central Government. However, despite the Constitution extrapolation of the Government’s
executive authority to matters on which the Union Parliament is empowered to legislate, this
authority cannot be exercised in instances wherein laws over the subject matter concerned
already exists.
Most importantly, over a decade ago, the Supreme Court of India, ruling on the legal
enforceability of the MCA circulars, postulated in unequivocal terms that these circulars are
not binding and only advisory in character. Upholding the Doctrine of Separation of Powers,
the Hon’ble judges opined that the interpreting the 2013 legislation and its subsidiary rules
was a task solely entrusted to the judiciary, precluding the Union Executive from construing
the laws via interpretative circulars or clarifications.
In his influential article, Professor Marmor adduces his characterization of what ELP
constitutes and discusses the ‘source thesis’ at length. It is one of the central tenets of ELP
that legal validity or enforceability is independent of moral or extra-legal considerations. A
close scrutiny of the Indian Courts’ approach towards MCA circulars reveals the embodiment
of this tenet, since they do not take into account the considerations of efficiency or high
transaction costs incurred by parties (companies) acting upon unenforceable MCA circulars
(explained in the next section via the Public Choice Theory).
While the judges never explicitly state that they are attributing these circulars as merely
advisory since the Ministry is not empowered under the 2013 Act and associated Rules to
issue them in the first place, it is perfectly clear that this reason is the driving factor behind
the final verdict. A comparison of the enforceability of the circulars issued by other Union
Ministries and Government Departments with the ones issued by MCA indicates that the
former have been adjudged as legally binding by courts of law owing to the specific
delegation of circular-issuing powers to the Executive agencies by the Legislature.
The circulars issued by the Union Ministry of Road Transport and Highways (‘MRTH’),
especially the ones in 2020, for extending reliefs towards all national highway projects due to
the onset of the COVID-19 Pandemic have been upheld as legally enforceable by courts of
law. The MRTH has been accorded the power to issue circulars and directions by the
Parliament itself under Section 33 of the National Highways Authority of India Act, 1988.
Likewise, the Central Board of Direct Taxes (‘CBDT’) and the Central Board of Indirect Tax
and Customs (‘CBIC’) possess the authority to issue circulars under Section 119 of the
Income Tax Act, 1961 and Section 168 of the Central Goods and Services Tax Act, 2017. The
Supreme Court has ruled in multiple decisions that circulars issued under these Acts will be
enforceable, albeit partially so as to be binding on the issuing Department and not on the
assessee or the court of law concerned.
Companies acting upon MCA Circulars: Through the Lens of the ‘Public Choice Theory’:
The consequence of a company acting upon an MCA circular in good faith, and then ending
up in court owing to its legal unenforceability can be characterized in terms of the ‘decision-
making costs’ incurred by the company and the ‘external costs’ which are borne by other
companies and businesses due to the original company having to traverse the route of
litigation for getting its action legally recognized.
These are concepts posited by renowned economists Buchanan and Tullocks in their ‘Public
Choice Theory’. While decision-making costs can be understood as the transactional costs
incurred in the implementation of a decision via the participation of two or more individuals,
external costs are borne by a party as a result of others’ decisions or actions. The authors
diagrammatically depict the rate at which decision-making costs surge as the number of
individuals necessary for agreement on a decision’s validity and subsequent implementation
rise. (See Figure I below)
Conclusion