Preservation of Regulatory Mandates under the General Clauses Act: Art Nirman Ltd. v. NSE & SEBI: Securities Appellate Tribunal

Introduction

The case of Art Nirman Ltd. v. National Stock Exchange Of India Limited And Another adjudicated by the Securities Appellate Tribunal (SAT) in Mumbai on April 8, 2022, addresses critical issues concerning the applicability of regulatory frameworks following the repeal of statutes. This commentary explores the intricate arguments presented by the appellant, Art Nirman Ltd., the legal precedents cited, and the tribunal’s reasoning leading to the final decision.

Summary of the Judgment

Art Nirman Ltd., the appellant, challenged fines imposed by the National Stock Exchange of India Limited (NSE) and the Securities and Exchange Board of India (SEBI) for delayed listing applications of equity shares. The fines were based on non-compliance with Regulation 108(2) of the Securities and Exchange Board of India’s (SEBI) Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2009, as interpreted through a Circular dated June 15, 2017. The appellant contended that the 2009 Regulations had been repealed and replaced by the ICDR Regulations, 2018, making the fines unjustifiable. However, the Tribunal upheld the fines, stating that the Circulars under the repealed Regulations remained in force under Section 24 of the General Clauses Act, thereby validating the imposed penalties.

Analysis

Precedents Cited

The Tribunal referenced the Supreme Court decision in Shri Ram Prasad v. State of Punjab (1966) and State of Nagaland v. Ratan Singh (1967) to interpret the applicability of Circulars post-repeal of regulations. Further, the pivotal case of Poonjabhai Varmalidas v. Commissioner of Income Tax (1991) AIR 1991 SC 1 was instrumental in understanding the continuation of regulatory mandates under the General Clauses Act after statutory repeal.

In Poonjabhai Varmalidas, the Supreme Court held that orders made under a repealed statute could continue to have effect if the repealing statute did not explicitly revoke them, under Section 24 of the General Clauses Act. This precedent was crucial in affirming that the Circular from 2017 remained effective despite the repeal of the 2009 ICDR Regulations.

Legal Reasoning

The core legal dispute centered on whether the fines imposed under the repealed Regulation 108(2) of the ICDR Regulations, 2009, remained valid after the enactment of the ICDR Regulations, 2018. Art Nirman Ltd. argued that since the 2009 Regulations were repealed, any orders or fines based on them were nullified.

The Tribunal meticulously analyzed Section 24 of the General Clauses Act, which provides that orders, rules, or notifications made under a repealed statute shall remain in force unless expressly revoked. Applying this, the Tribunal concluded that the Circular issued on June 15, 2017, under the 2009 Regulations, was not expressly rescinded until the new Circular of August 19, 2019, rendered it obsolete.

Furthermore, the Tribunal interpreted the reference to Regulation 108(2) of the 2009 Regulations in the impugned orders as a misnomer, effectively equating it to Regulation 104 of the 2018 Regulations. This interpretation was bolstered by the Poonjabhai Varmalidas precedent, ensuring continuity in regulatory enforcement despite statutory changes.

Impact

This judgment underscores the enduring relevance of regulatory directives issued under repealed statutes, provided there is no explicit revocation. It reaffirms the applicability of Section 24 of the General Clauses Act in ensuring legal continuity, thereby preventing regulatory evasion through statutory amendments.

For issuers and regulatory bodies, this reinforces the importance of adhering to both current and transitional provisions, recognizing that compliance obligations may persist despite legislative changes. Future cases involving regulatory compliance post-repeal will likely reference this judgment to ascertain the validity of ongoing obligations and penalties.

Complex Concepts Simplified

Section 24 of the General Clauses Act: This section ensures that any rules, orders, or regulations made under a repealed law continue to have effect unless they are expressly revoked by the new law. It prevents abrupt discontinuity in legal obligations.
Repealed Regulations: When a regulatory framework is repealed, all its provisions cease to have legal effect. However, certain directives under it may continue if preserved by overarching legal provisions like the General Clauses Act.
Circulars: These are administrative directives issued by regulatory bodies to clarify or enforce existing laws and regulations. Their continuity post-repeal depends on whether they are explicitly rescinded or preserved under laws like the General Clauses Act.
Misnomer in Regulation Reference: Referring to a current regulation by its former designation can lead to confusion. The Tribunal clarified that the reference to Regulation 108(2) of the 2009 Regulations should be interpreted in light of the current regulatory framework.

Conclusion

The judgment in Art Nirman Ltd. v. NSE & SEBI serves as a pivotal reference for understanding the interplay between repealed statutes and the continuity of regulatory mandates under the General Clauses Act. By upholding the fines imposed for delayed listing applications, the Tribunal reinforced the principle that regulatory obligations may persist beyond the repeal of underlying statutes, ensuring that entities remain accountable for compliance consistency.

This decision not only clarifies the legal standing of administrative directives post-repeal but also emphasizes the judiciary's role in maintaining regulatory integrity. Stakeholders must thus remain vigilant in tracking both statutory changes and the survival of subordinate legislation to navigate the evolving legal landscape effectively.

Preservation of Regulatory Mandates under the General Clauses Act: Art Nirman Ltd. v. NSE & SEBI