Tuesday, July 20, 2010

Interpretive Guidance in Rule-Making

While reading the Supreme Court’s judgment in the Daiichi case, which Mihir has discussed here, I was particularly struck by certain observations of the court that appear at the end of the judgment. The case involved an intensive reading and close interpretation of the provisions of the SEBI Takeover Regulations. Here are the relevant observations:

57. Before parting with the records of the case we would like to say that in arriving at the correct meaning of the provisions of the Takeover Code specially regulation 14(4) and 20(12) we were greatly helped by the reports of the two Committees headed by Justice Bhagwati. We mention the fact especially because as per the legislative practice in this country, unlike an Act, a regulation or any amendments introduced in it are not preceded by the "Object and Purpose" clause. The absence of the object and purpose in the regulation or the later amendments introduced in it only adds to the difficulties of the court in properly construing the provisions of regulations dealing with complex issues. The court, so to say, has to work in complete darkness without so much as a glimpse into the mind of the maker of the regulation. In this case, it was quite apparent that the 1997 Takeover Code and the later amendments introduced in it were intended to give effect to the recommendations of the two Committees headed by Justice Bhagwati. We were, thus, in a position to refer to the relevant portions of the two reports that provided us with the raison d’être for the amendment(s) or the introduction of a new provision and thus helped us in understanding the correct import of certain provisions. But this is not the case with many other regulations framed under different Acts. Regulations are brought in and later subjected to amendments without being preceded by any reports of any expert committees. Now that we have more and more of the regulatory regime where highly important and complex and specialised spheres of human activity are governed by regulatory mechanisms framed under delegated legislation it is high time to change the old practice and to add at the beginning the "object and purpose" clause to the delegated legislations as in the case of the primary legislations.
It is even more interesting to find that the Takeover Regulations Advisory Committee (TRAC) has been quick to take the cue, and has observed in its report:

19. The Committee has also taken note of the observation of the Supreme Court of India in a recent judgment where a statement of objects and reasons for provisions of subordinate legislation has been recommended. The Committee has provided an initial draft of explanatory notes on clauses and has suggested that SEBI finalize the same along with the text of the Proposed Takeover Regulations.
Such efforts at instilling a culture that builds detailed and transparent processes for promulgating delegated legislation will not only provide greater clarity to persons subject to such legislation but will also help in judicial interpretation as observed in the Daiichi case.

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