Law-making is the flavour of the month. With the agitation to get a Lokpal Bill passed into law, never before has the nation been riveted on how law is made. However, the debate is so conditioned on a “with-us-or-against-us” principle by all sides concerned, that there will hardly be any debate on the language adopted in the competing bills.
While Parliament-made law is taking centre-stage in the daily theatre of reality television, everyday, the law that governs the conduct of business and commerce in India grows in size, complexity and nuance, with regulators notifying regulations using the powers delegated to them by Parliament. When Parliament delegates power to make law to regulators, it also requires the regulators to table the law they make using such power, in Parliament for review by Parliament.
At times the makers of the subordinate legislation consult “civil society” – the Takeover Regulations Advisory Committee or the Bhagwati Committee are examples. At times, while members of the society that would be subject to the law being framed may not participate in writing the law, their views are sought when the proposed draft law is published for public comments.
However, there are situations where the regulators simply do not care about either asking for inputs before thinking of making a new law, or by publishing proposed draft law and seeking comments on them. The formulation of the foreign direct investment policy in the past was a classic example (the current practice is to seek public comments on all material new policies), and so are almost all amendments effected by SEBI and the RBI to material regulations already notified and alive.
Regardless of the approach to the run-up to making such law, regulators tend to be quite nervous and fearful of the unknown when writing regulations. Their prime concern is that they may look silly if someone is able to plan, innovate and structure to circumvent something they legislate about. To address such a fear of circumvention, a popular approach is to throw in a prohibition on “direct or indirect” violation of the law.
For such fear to be legitimate, the regulator should itself have thought through what really it seeks to achieve, and clearly out the purpose for which it is making a certain piece of legislation. If this very foundation is absent, or worse, despite being present, if the regulator is too busy to think about every obvious implication of its measures, it would become impossible for society to deal with the law.
Even the semblance of tabling such law in Parliament is bypassed when the law takes the form of circulars and notifications that are technically not “regulations”.
For example, the RBI stipulates that for an investment company not to register itself as a non-banking finance company and instead be regarded as a core investment company (“CIC”) such company should not ‘directly or indirectly’ raise or hold “public funds” (a term that can be broadly be described as debt capital).
A liberal use of the phrase “direct or indirect” (it indeed finds mention in the Jan Lokpal Bill too) can place the subjects of the law at a loss to comprehend the real intent of the regulator. Take the case of the RBI’s prohibition on directly or indirectly holding or raising public funds as an eligibility condition for a CIC. If a company in which the CIC holds shares, say a subsidiary were to raise funds through commercial paper, would the CIC be violating an eligibility requirement? If the shareholder of the CIC were to have raised debt capital for its general businesses, would the CIC become ineligible? How many layers above and below a CIC would need to be analysed to determine a core eligibility requirement? It is impossible for any money to be purely self-evolved without any element of debt financing ever tainting it and making it “public funds”.
Simply throwing a rule into the rule-book, which can be thrown at a member of society is not fair at all. Consulting with civil society that does not “fast unto death or legislation” should not be such a tough task.
(The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own.) somasekhar@jsalaw.com
