Substantive law is the ‘legislated law’ that defines the principles for a particular enactment. This is done by State Assemblies for states and Parliament for the Country. Procedural law is the "machinery" for enforcing the principles set under Substantive law. “Act” is the substantive law. “Rules” made there under is the procedural law.
Passing a new ‘Act’ or changing an existing ‘Act’ is a laborious process. However making Rules is an executive action by concerned department. Therefore it is relatively easy and less time consuming. While change in principles may be required rarely, change in the method of execution has to suit changing dynamic situations.
Appreciating this fact, while legislating FEMA, a small set of principles only were enacted in the form of Substantive Law and concerned departments were empowered to make rules as may be appropriate to implement the principles set under FEMA.
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This was highly appreciated and all stakeholders cherished such a move. Thereafter, many new Acts followed this route. Here and there some ill effects were observed where in the rules showed inconsistency with the substantive law. In some cases, concerned departments rectified the rules, while in some other cases rectification happened after courts ordered to do so.
Under much awaited Companies Act, 2013 also serious effort was made to define principles only in the Act and almost every section of the Companies Act has created an enabling sentence for executive action “as may be prescribed”. It was expected that MCA is now empowered to play much better and dynamic role in responding to the needs of the corporate world and its stakeholders.
But MCA using this power of making rules as a weapon of mass destruction was unexpected!
Unfortunately this power used against the professionals who are supposed to be the corporate advisors and facilitators in implementing the new Companies Act, 2013. Irony? Much worse than that…
Ensuring compliance with law is the fundamental duty of the executive wing of democracy. For this, ithas to make rules and put in the mechanism to oversee the Compliance across the territory.
Advising, monitoring, prosecuting and punishing deviation cannot be entirely done by the State, given with the huge number of businesses in the country.
That was the reason why professional bodies like ICSI, ICAI and ICAI (Cost Accountants) were established under the Acts of Parliament. These bodies were given with the mandate of creating professionals across the country for advising on legal, financial and cost norms and laws in force from time to time. Recognitions were given under various statutes for these bodies as a facilitation.
However the way new rules concerning KMPs are framed in complete deviation with the draft rules and the
deceitful implementation of these rules ‐ are giving an impression that the executive wing is set to defeat the legislative intentions of the substantive law i.e. the Companies Act 2013 by using the enormous power delegated by the Act to the executive wing.
ICSI is not a private institute. It was formed under an Act of Parliament for enhancing corporate governance in the country. With that intention the appointment of Company Secretary and certain certifications were made mandatory. It has got a complimentary role to play with MCA. Making ICSI ineffective is clearly going against the legislative intent.
Normally, like in case of Service Tax/compulsory e filing of tax returns, new requirements are made mandatory for a smaller group of assesses/entities to start with and slowly it will be broad based. However in case of corporate governance it is going other way round. Initially the applicability was for a large section of corporate and slowly the scope is reduced to just 3% of the companies!
Every government department is making compliance more and more stringent and efficient. The Companies Act, 2013 also intended it to be so. It is evident from the fact that many concessions which existed for Private Companies are removed, punishments for non compliance was made very stringent and executive wing is empowered enormously for the proper administration of the Act.However, in contradiction, impact of these rules is cutting off the requirement of compliance officers itself from the corporate houses.
It is said that some of the officers of MCA were quoting the poor quality of CS certification as a reason for removing of certification requirement and secretarial audit requirement. This is like cutting the nose off for avoiding cold. We have been experiencing lots of problems because of high instability in the MCA e‐filing system. More than half of last year was eclipsed with inefficient running of MCA e‐filing system. That could be a good reason for returning to physical filing mode. But, observe, no one demanded for that – everyone demanded restoring stability in MCA e‐filing system. Further it is matter of everyone’s knowledge that many corporate frauds go undiscovered because of audit inefficiencies.Whether anyone has demanded removing audit requirement itself because of this inefficiency? When a problem is observed in a system, measures for rectification must be called for, not the removal of the system itself.
MCA officials were heard saying that ‘they are not there to ensure job for anyone’. Who has asked for creation of ICSI? Who has asked for enhancement of corporate governance? Who mandated ICSI to propagate the course and develop Company Secretaries across the country? These are all in line with the legislative intent. A Government Department cannot go against the legislative intent and actions, jeopardizing the governance monitoring system as well as the lives of people who were developed for that purpose. If we see the statement with this context, we can only observe arrogance and not prudence.
There was also a rumour about the unrest between MCA officials and ICSI Council causing this overnight change in the notification. We trust that both MCA officials and ICSI Council members have got maturity enough not to play around with law in retaliation with each other. Wisdom shall prevail. Any kind of conflict can be resolved if common good is kept in focus always. This is the duty of everyone, including ICSI Council and MCA.
There are other kind of rumours blaming lobbyists in the sister profession. However, in today’s world everyone understands that any new weapon invented or abetted will boomerang one day or the other.
Four and a half lakh people – members and students of ICSI ‐ can find alternate ways for leading their life. In India no one is depending up on the Government. It’s just a matter of time. However, the cost of losing a great system developed and managed with enormous commitment and sacrifices of thousands of individuals will be too huge. Rebuilding this system is a herculean task and loss to the nation. Better everyone concerned realize this soon.
By ICSI Mysore Chapter