WPMB/606/2002 of MANWAR SINGH RAWAT Vs UNION OF INDIA and ORS

IN THE HIGH COURT OF UTTARANCHAL AT NAINITAL

Court's order whether the case is or not approved for reporting (Chapter VIII, Rule 32(2) (b)) Description of case

WPMB 606 of 2002, decided on 17.10.2003 Manwar Singh Rawat Vs. Union of India & ors

A.F.R. (Approved for reporting)Not approved for reporting

Date 17-X-03

Initials of Judge

Note- Bench Reader will attach this at the top of the first page of the judgment when it is put up before the Judge for signature.

HIGH COURT OF UTTARANCHAL AT NAINITAL RESERVED

Civil Misc. Writ Petition No. 606 (M/B) of 2002

Manwar Singh Rawat S/o Sher Singh Rawat, R/o Village- Basai, Piru Madara, Nainital … Petitioner

Versus

(1) Union of India through Secretary, Ministry of Law, New Delhi, Secretary, Ministry of Law, New Delhi,

(2) The Secretary & Exchange Board of India, through the Secretary, Ministry of Finance, New Delhi. of India, through the Secretary, Ministry of Finance, New Delhi.

….. Respondents.

Hon’ble P.C. Verma, J. Hon'ble Irshad Hussain, J.

(Delivered by Hon’ble P.C. Verma J.)

This petition has been filed by the petitioner with the prayer to issue appropriate writ, direction or order declaring the Securities and Exchange Board of India (SEBI) (Stock-brokers and Sub-brokers) Regulations 1992 ultra vires to the Securities and Exchange Board of India Act, 1992.

In this writ petition short but important question, whether subordinate legislation required to be laid before Parliament for total period of thirty days which may be comprised in one session or in two or more successive sessions, laid in the first session in required to be re-laid in the second session and if not re-laid, the requirement of laying down for 30 days is not complete and the subordinate legislation is ultra vires?, falls for consideration. The aforesaid question has been raised for determination by the petitioner on the ground that

regulations known as Securities and Exchange Board of India (Stock-brokers and Sub-brokers) Regulations1992 (here-in-after referred to as the Regulations) framed under Section 30 of the Securities and Exchange Board of India Act, 1992 (here-in-after referred to as the SEBI Act, 1992) were required to be laid before Parliament as per provisions of Section 31 of the SEBI Act, 1992. The said notificationwas not laid in the house for complete 30 days as required under Section 31 of the SEBI Act, which is mandatory.The notification was neither laid in the Parliament nor was approved by the Parliament in accordance with the mandatory provisions of Section 31 of the SEBI Act. The notice for laying the notification was issued on 26.11.1992. On 27.11.1992 the State Finance Minister declared in the Lok Sabha to lay copy of the notification and on the same day i.e. 27.11.1992 declared in the Rajya Sabha to lay the copy of the notification. On 16.12.1992. Parliament was closed sine die. As per above details, the petitioner has stated that in Lok Sabha it was laid for 15 working days and in Rajya Sabha for 5 days only. The fifth successive Session began on 24.11.1992 and came to an end on 23.12.1992. There were only 18 actual sitting days of the House. Thereafter in February 1993, Budget Session (sixth Session) was started which was successive and these regulations were not re-laid in any session of the Parliament for its approval. Therefore, in view of the aforesaid facts, the requirement of laying down of the regulations for 30 days was not complete. Thus, the regulations were liable to be declared ultra vires.

Section 30 of the SEBI Act, 1992 empowers the Board of make regulations, which is reproduced as under:-

“30. Power to make regulations

(1) The Board may, by notification, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely:-

(a) the times and places of meetings of the Board and the procedure to be followed at such meetings under sub-section (1) of section 7 including quorum necessary for the transaction of business; Board and the procedure to be followed at such meetings under sub-section (1) of section 7 including quorum necessary for the transaction of business;

(b) the terms and other conditions of service of officers and employees of the Board under sub-section (2) of section 9; officers and employees of the Board under sub-section (2) of section 9;

(c) the matters relating to issue of capital transfer of securities and other matters incidental thereto and the manner in which such matters shall be disclosed by the companies under section 11 A; transfer of securities and other matters incidental thereto and the manner in which such matters shall be disclosed by the companies under section 11 A;

(d) the conditions subject to which certificate of registration is to be issued, the amount of fee to be paid for certificate of registration and the manner of suspension or cancellation of certificate of registration under section 12”. of registration is to be issued, the amount of fee to be paid for certificate of registration and the manner of suspension or cancellation of certificate of registration under section 12”.

In exercise of powers conferred under Section 30

of the SEBI Act, 1992 the Board made the Regulations.

Sub-section (1) of Section 30 of the aforesaid Act provides that the regulations shall be made by notification. Section 2 (f) defines “notifications” means notification published in the Official Gazette. Therefore, the regulations were made according to the provisions of the Act and came into force on 23 October, 1992 on the day of its publication in official gazette. In Union of India versus Ganesh Das Bhojraj, reported in A.I.R. 2000 Supreme Court, page 1102 equivalent to (2000) 9 SCC, 461, the Hon’ble Apex

Court held that when notification is required to be published in the gazette it will come into force on the day of its publication in the gazette.

Section 31 of the SEBI Act, 1992 requires rules and regulations to be laid before Parliament, which reads as under:-

“31. Rules and regulations to be laid before parliament

Every rule and every regulation made under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the sessions immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or regulation or both Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or regulation.”

Whether the provisions quoted aforesaid is mandatory or directory is to be examined in order to answer the question, the similar question came for consideration before the Hon’ble Apex Court in Jan

Mohammad Noor Mohammad Bagban versus the State

of Gujarat and another, reported in A.I.R. 1966 Supreme Court, page 385. In this case the validity of the rules framed under Gujarat Agricultural Products Markets Act (20 of 1964) were required to be laid before each of the Houses of the Provincial Legislature under Section 26 and was liable to be modified or rescinded by resolution in which both Houses concur and such rules shall, after

notification in the Official Gazette, be deemed to have been modified or rescinded accordingly. The Apex Court after examination held the provisions of Section 26 directory in nature. Para 18 of the judgment is reproduced as under:-

“Finally, the validity of the rules framed under the Bombay Act 22 of 1939 was canvassed. By Section 22 (1)of the Bombay Act the State Government was authorized to make rules for the purpose of carrying out the provisions of the Act. It was provided by Sub- s.(5) that the rules made under Section 26 shall be laid before each of the Houses of the Provincial Legislature at the session thereof next following and shall be liable to be modified or rescinded by resolution in which both Houses concur and such rules shall, after notification in the Official Gazette, be deemed to have been modified or rescinded accordingly. It was urged by the petitioner that the rules framed under the Bombay Act 22 of 1939 were not placed before the Legislative Assembly or the Legislative Council at the first session and therefore they had no legal validity. The rules under Act 22 of 1939 were framed by the Provincial Government of Bombay in 1941. At that time there was no Legislature in session, the Legislature having been suspended during the emergency arising out of World War II. The session of the Bombay Legislative Assembly was convened for the first time after 1941 on May 20, 1946 and that session was prorogued on May 24, 1946. The second session of the Bombay Legislative Assembly was convened on July 15, 1946 and that of the Bombay Legislative Council on September 3, 1946 and the rules were placed on the Assembly Table in the second session before the Legislative Assembly on September 2, 1946 and before the Legislative Council on September 13,1946. Section 26 (5) of Bombay Act 22 of 1939 does not prescribe that the rules acquired validity only from the date on which they were placed before the Houses of Legislature. The rules are valid from the date on which they are made under S. 26 (1). It is true that the Legislature has prescribed that the rules shall be placed before the Houses of Legislature, but failure to place the rules before the Houses of Legislature does not affect the validity of the rules, merely because they have not been placed before the Houses of the Legislature Granting that the provisions of Sub-s. (5)

of S. 26 by reason of the failure to place the rules before the Houses of Legislature were violated we are of the view that Sub-s. (5) of S.26 having regard to the purpose of which it is made, and in the context in which it occurs, cannot be regarded as mandatory. The rules have been in operation since the year 1941 and by virtue of S. 64 of the Gujarat Act 20 of 1964 they continue to remain in operation.”

The similar question again fell for consideration before the Hon’ble Apex Court in M/s Atlas Cycle Industries Ltd. And others versus the State of Haryana, reported in (1979) 2 Supreme Court Cases, Page 196. The Hon’ble Apex Court, after referring Hukam Chand versus Union of India ((1972) 2 S.C.C., 601) wherein the Craies on Statute Law 7th Edition, Pages 305 to 307 were referred, examined the matter in detail and scrutinised Sub-section (6) of Section 3 of the Essential Commodities Act and held that Section was directory. Paras 21 & 22 of the said judgment are reproduced as under :-

“21. Now, the policy and object underlying the provisions relating to laying the delegated legislation made by the subordinate law making authorities or orders passed by subordinate executive instrumentalities before both Houses of Parliament being to keep supervision and control over the aforesaid authorities and instrumentalities, the “laying clauses” assume different forms depending on the degree of control which the Legislature may like to exercise. As evident from the observations made at pages 305 to 307 of the 7[th] Edition of Craies on Statute Law and noticed with approval in Hukum Chand v. Union of India, ((1972) 2 S.C.C., 601) there are three kinds of laying which are generally used by the Legislature. These three kinds of laying are described and dealt with in Craies on Statute Law (supra) as under:

(i) Laying without further procedure,

(ii) Laying subject to negative resolution,

(iii) Laying subject to affirmative resolution.

(i)Simple laying.- The most obvious example is in Section 10(2) of the 1946 Act. In earlier days, before idea of laying rules, etc., for period during which time they were not in operation and could be thrown out without ever having come into operation (compare Merchant Shipping Act, 1884, Section 417; Inebriates Act, 1898, Section 21) but this is not used now.

(ii) Negative resolution.- Instruments so laid have immediate operative effect but are subject to annulment within forty days without prejudice to new instrument being made. The phraseology generally used is “subject to annulment in pursuance of resolution of either House of Parliament.” This is by far the commonest form of laying. It acts mostly as deterrent and sometimes forces Minister (in Sir Cecil Carr’s pharse) to “buy off opposition” by promising some modification.

(iii) Affirmative resolution .- The phraseology here is normally “no order shall be made unless draft has been laid before Parliament and has been approved by resolution of each House of Parliament. Normally, no time limit is fixed for obtaining approval – none is necessary because the Government will naturally take the earliest opportunity of bringing it up for approval – but Section 16 (3) of the Housing (Financial and Miscellaneous Provisions) Act 1946 did impose limit of forty days. An old form (not much used nowadays) provided for an order to be made but not to become operative until resolution of both Houses of Parliament had been obtained. This form was used in Section 10 (4) of the Road Traffic Act, 1930 [cf. Road Traffic Act 1960, Section 19 (3)]. . . . The affirmative resolution procedure necessitates debate in every case. This means that one object of delegation of legislation (viz saving the time of Parliament) is to some extent defeated. The procedure therefore is sparingly used and is more or less reserved to cases where the order almost amounts to an Act, by effecting changes which approximate to true legislation (e.g. where the order is the meat of the matter, the enabling Act merely outlining the

general purpose) or where the order replaces local Acts or provisional orders and, most important of all, where the spending, etc. of public money is affected.

22. Now at page 317 of the aforesaid Edition of Craies on Statute Law, the questions whether the direction to lay the rules before Parliament is mandatory or merely directory and whether laying is condition precedent to their operation or may be neglected without prejudice to the effect of the rules are answered by saying that “each case must depend on its own circumstances or the wording of the statute under which the rules are made”. In the instant case, it would be noticed that sub-section (6) of Section 3 of the Act merely provides that every order made under Section 3 by the Central Government or by any officer or authority of the Central Government shall be laid before both Houses of Parliament, as soon as may be, after it is made. It does not provide that it shall be subject to the negative or the affirmative resolution by either House of Parliament. It also does not provide that it shall be open to the Parliament to approve or disapprove the order made under Section 3 of the Act. It does not even say that it shall be subject to any modification which either House of Parliament may in its wisdom think it necessary to provide. It does not even specify the period for which the order is to be laid before both Houses of Parliament nor does it provide any penalty for non-observance or non-compliance with the direction as to the laying of the order before both Houses of Parliament. It would also be noticed that the requirement as to the laying of the order before both Houses of Parliament is not condition precedent but subsequent to the making of the order. In other words, there is no prohibition to the making of the orders without the approval of both Houses of Parliament. In these circumstances, we are clearly of the view that the requirement as to laying contained in sub- section (6) of Section 3 of the Act falls within the first category, i.e. “simple laying” and is directory not mandatory.”

The Hon’ble Supreme Court was again required to consider the nature of laying down provision of the act contained in the Mines & Minerals Act in the Quarry Owners Association versus the State of Bihar and others, reported in A.I.R. 2000 Supreme Court, page

2870. The Hon’ble Supreme Court referred the Administrative Law by HWR Wade and Forsyth, 7[th] Edition, page 898 and held that Sub-section (3) of Section 28 of the Act would not have any affect on the validity of the rules.

The Hon’ble Supreme Court was again burdened

to answer the question as to whether the laying down rule is merely directory or mandatory, in Bank of India and others versus O.P.Sawarnakar and others, reported in (2003) 2 Supreme Court Cases, Page 721 after referring Jan Mohammad Noor Mohammad Bagban and M/s Atlas Cycle Industries Ltd.’s cases (supra) relying on the rules held that lying-down rule is merely directory one and not mandatory (see Para 125 of the report).

As this Section requires the laying down of the regulations and further provides if both the Houses agree in making any amendment in the rule or regulation or agree that rule or regulations should not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or regulation. Therefore, this Section falls in the class of laying-down provisions subject to negative resolution that is subject to modification or annulment as per classification referred to Para 21 of the M/s Atlas Cycle Industries Ltd.’s case (supra). Here the present section falls in category – two i.e. laying subject to the negative resolution.Regulation shall continue to remain in force till it is modified or annulled as the case may be but its operation till such resolution is not affected as it protects anything previously done under the regulation. No consequence is provided in case the regulation is modified or annulled by resolution of Parliament.

Therefore, the provision also is directory in view

of the law laid down by the Apex Court in Jan Mohammad Noor Mohammad Bagban, the Quarry Owners Association’ and Bank of India and other’s cases (supra) as in all these cases the Hon’ble Supreme Court held that the rules framed were valid on the date on which they were made. The requirement of laying down and failure to place the rules before the Houses do not affect thevalidity of the rule. Therefore, Section 31 of the SEBI Act is held to be directory.

It was emphatically submitted by the learned counsel for the petitioner that the regulations were laid in the fifth session but were not re-laid in the sixth session as required to be re-laid. The submission of the learned counsel for the petitioner is misconceived.

Rule 234 of the Rules of Procedure and

Conduct of Business in Lok Sabha given in Parliamentary Procedure Vol.2, page 1700 prescribes procedure regarding laying of regulation, rule etc. on table, is reproduced as under:-

“RULE 234. Laying of regulation, rule etc. on Table- (1) Where regulation, rule sub-rule, bye-law etc. framed in pursuance of the Constitution or of the legislative functions delegated by Parliament to subordinate authority is laid before the House, the period specified in the Constitution or the relevant Act for which it is required to be laid shall be completed before the House is adjourned sine die and later prorogued, unless otherwise provided in theConstitution or the relevant Act.

(2) Where the specified period is not so completed, the regulation, rule, sub-rule, bye-law etc. shall be re-laid in the succeeding session or session until the said period is completed in one session”

The sub-rule (1) clearly provided that unless otherwise provided in the Constitution or the relevant Act. Under Sec. 31 of the SEBI Act, it has been provided that rule shall be laid before the each House of Parliament, while it is in session, for total period of 30 days which may be comprised in one session or in two or moresuccessive sessions.Thus, this section provides for continuity of notification laid in one session to second or third or more successive session till the 30 days are not complete. It is not required to be re-laid in the second and onward sessions. Therefore, Sub-rule (2) of Rule 234 of Subordinate Legislation is not attracted. Sri Subhash Kashyap in His Book Parliamentary Procedure, Vol-2, Page 1701, in Para 2.4 has explained this clearly, Para 2.4 of the aforesaid Book is reproduced as under:-

“2.4 Where statute provides that rules framed thereunder should be laid on the Table for certain period, which may be comprised in one session or in two or more sessions, it is not necessary for the rules to be formally re-laid in next session in order to complete the prescribed period.”

Thus, regulation which was laid in the fifth session, continued for discussion in the sixth session of the Parliament and during the period the regulation remained laid before both the Houses of the Parliament no suggestions or amendment or annulment came by any Member of the Parliament, therefore no day or days or part of the day was fixed by the Speaker of the Lok Sabha or Chairman of the Rajya Sabha for consideration and passing of the amendment or annulment to the regulation as

required to Rules 235 of Parliamentary Procedure and corresponding Rule applicable to Rajya Sabha.

counter affidavit has been filed in which it has been stated that the Parliamentary Secretariat issued notice known as list of business dated 26.11.1992 and circulated that list of business among the then Members of Parliament in 1992 declaring that contents of the Regulations 1992 in published in the notification No.GSR/780/(E) in extra ordinary Gazette in 1992 and would laid in the House for approval as on 27.11.1992. It has been admitted that on 27.11.1992 and on 16.12.1992 the Hon’ble State Finance Minister declared to lay copy of the notification number GSR/780/(E) of 92 purporting to be under the SEBI Act, 1992 in the Lok Sabha and Rajya Sabha respectively. In Para-15 of the counter affidavit, statement has been made as under:-

“That contents of Para 18 are accepted. It is accepted that there was no motion for either accepting or rejecting it in the house because it is not required.

As per the letter from the Ministry of Parliamentary Affairs the SEBI (Stock-brokers and Sub-brokers) Regulations, 1992 were laid in the Lok Sabha for 30 days and no motion for modification/rejection took place for the same in either House. It is deemed to be laid complete 30 days in both Houses.”

Thus, factually the notification was laid for 30 days and since there was no motion for amendment or annulment, it was sent back to the ministry and it is operative. Therefore, the petition is devoid of merits and writ prayed for is rejected. No order as to costs.

(Irshad Hussain, J.) (P.C. Verma,J.)