Governance by disguised legislation

The tyranny of circulars must end to ensure democratic legitimacy of laws and ease of doing business

A judgment dated April 4 of the Bombay High Court struck down a few clauses of a circular issued by the Insolvency and Bankruptcy Board of India (IBBI) on the grounds that these clauses prescribed legal norms beyond the liquidation process regulations. It, however, observed that it would indeed be feasible for the IBBI, in its legislative wisdom, to propose the contents of those very clauses as an amendment to the regulations, following the due process of making regulations.

An order dated April 10, 2024, of the Karnataka High Court obliterated a circular issued by the Central government that imposed a blanket ban on "ferocious" breeds of dogs, as it travelled beyond the rules. It, however, observed that such obliteration would not come in the way of the Central government introducing an amendment to rules, following the due process of law. These two recent rulings reinforce that a circular cannot exceed the rules/regulations, which are the only instruments through which the executive can prescribe legal norms.

About a year ago, the Securities Appellate Tribunal set aside an order of the Securities and Exchange Board of India, inter alia, on the grounds that the circular relating to the pledge of securities, which was the basis of the order, did not apply to the appellants. It noted that a circular is issued to specific addressees, and therefore, applies only to them. Others have no obligations/ compliances under the circular even when they are dealing with the addressees or undertaking transactions covered by the circular. By implication, if the provisions of the circular were specified through regulations, the order could have been upheld.

The Apex Court has been alerting to the inherent limitations of circulars for prescribing legal norms.