{"id":314158,"date":"2024-02-15T11:00:56","date_gmt":"2024-02-15T05:30:56","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=314158"},"modified":"2024-02-15T11:04:35","modified_gmt":"2024-02-15T05:34:35","slug":"sc-summarises-principles-for-deciding-whether-subordinate-legislation-ultra-vires-to-parent-act-legal-news","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2024\/02\/15\/sc-summarises-principles-for-deciding-whether-subordinate-legislation-ultra-vires-to-parent-act-legal-news\/","title":{"rendered":"Subordinate legislation ultra vires to Parent Act? Supreme Court summarises principles for deciding cases"},"content":{"rendered":"
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Supreme Court:<\/span> In an appeal against the Delhi High Court’s decision, wherein the appellant’s challenge to Rule 9(3)(b) of the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007<\/span> as ultra vires of Section 21A (4) of the Chartered Accountants, 1949, the Division Bench of Pamidighantam Sri Narasimha and Aravind Kumar*<\/span>, JJ. summarised legal principles relevant in adjudicating cases where subordinate legislation is challenged on the ground of being ‘ultra vires’ to the Parent Act.<\/span><\/p>\n

Background<\/p>\n

The Bank of Rajasthan Limited, (‘Complainant-bank’) engaged the services of Ramesh C. Agrawal & Co. (‘service provider’) for the purpose of conducting audit work. On 27-09-2009, a series of circuitous transactions involving large sums of money took place in certain accounts of the branch, which were neither regular nor normal in nature. The Complainant Bank’s case was that in the audit report submitted to the Complainant Bank, these transactions were not flagged.<\/p>\n

Thereafter, the Complainant Bank registered a complaint against the service provider before the Director (Discipline) on 21-12-2009. The Director (Discipline) concluded that the Appellant was not guilty of any professional or other misconduct within the meaning of clause (7), (8) and (9) of Part 1 of the Second Schedule of the Chartered Accountants, 1949. The Institute of Chartered Accountants of India informed the Appellant that the Board of Discipline had disagreed with the prima facie opinion of the Director (Discipline) and had decided to refer the matter to the Disciplinary Committee for further action under Chapter V of the Chartered Accountants’ (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 (‘Rules, 2007’).<\/p>\n

The appellant challenged the Board’s action of disagreeing with the prima facie opinion of the Director (Discipline) and referring the matter for further action before the Disciplinary Committee before the Delhi High Court. It was also sought that Rule 9(3)(b) of the Rules, 2007 be declared invalid on the ground that the said rule was ultra vires to Section 21A (4) of the Act.<\/p>\n

Issue<\/p>\n

Whether Rule 9(3)(b) of the Rules, 2007 is inconsistent with and beyond the rule-making power of the Central Government under Section 29A of the Chartered Accountants, 1949?<\/p>\n

Analysis and Decision<\/p>\n

Principle of ‘Generality vs Enumeration’<\/p>\n

The Court said that a section of the statute grants the delegation of power to formulate rules in broad terms using phrases like ‘to carry out the provisions of this Act’ or ‘to carry out the purposes of this Act.’ The Court explained that another sub-section enumerates specific matters or areas for which the delegated power can be exercised, often employing language such as ‘in particular and without prejudice to the generality of the foregoing power.’<\/span> The Court also said that the judicial interpretation of such provisions underscores that the specific enumeration is illustrative and should not be construed as limiting the scope of the general power, allowing flexibility in rulemaking, enabling the authorities to address unforeseen circumstances. The Court stated that “even if the specific topics are not explicitly listed in the statute, the formulation of rules can be justified if it falls within the general power conferred, provided it stays within the overall scope of the Act<\/span>”. The Court added that the delicate balance between specificity and generality in legal delegation is crucial for effective governance and adaptability to evolving legal landscapes.<\/p>\n

The Court referred to State of J&K<\/span> v. Lakhwinder Kumar<\/span>, (2013) 6 SCC 333<\/a>, wherein it was held that when a general power to make regulations is followed by a specific power to make regulations, the latter does not limit the former. This is the principle of ‘generality vs enumeration’: a residuary provision can always be given voice.<\/span><\/p>\n

Legal Principles Summarised<\/p>\n

The Court summarised the following legal principles relevant in adjudicating cases where subordinate legislation is challenged on the ground of being ‘ultra vires’ to the parent Act:<\/p>\n

    \n
  1. \n

    The body making Rules or Regulations has no inherent power of its own to make rules, but derives such power only from the statute, it must necessarily function within the purview of the statute. Delegated legislation should not travel beyond the purview of the parent Act.<\/p>\n<\/li>\n

  2. \n

    Ultra vires may arise in several ways; there may be simple excess of power than what is conferred by the Parent Act; delegated legislation may be inconsistent with the provisions of the Parent Act; there may be non-compliance with the procedural requirement as laid down in the Parent Act.<\/p>\n<\/li>\n

  3. \n

    If a rule is challenged as being ultra vires, on the ground that it exceeds the power conferred by the Parent Act, the Court must, firstly, determine and consider the source of power related to the Rule, secondly, the meaning of the subordinate legislation, and that whether the subordinate legislation is consistent with and within the scope of the delegated power.<\/p>\n<\/li>\n

  4. \n

    In determining if the impugned rule is intra vires\/ultra vires the scope of delegated power, Courts have applied the ‘generality vs enumeration’ principle.<\/p>\n<\/li>\n

  5. \n

    The “generality vs enumeration” principle lays down that, where a statute confers particular powers without prejudice to the generality of a general power already conferred, the particular powers are only illustrative of the general power, and do not in any way restrict the general power. In that sense, even if the impugned rule does not fall within the enumerated heads, that by itself will not determine if the rule is ultra vires\/intra vires. It must be further examined if the impugned rule can be upheld by reference to the scope of the general power.<\/p>\n<\/li>\n

  6. \n

    The delegated power to legislate by making rules ‘for carrying out the purposes of the Act’ is a general delegation, without laying down any guidelines as such. When such a power is given, it may be permissible to find out the object of the enactment and then see if the rules framed satisfy the Act of having been so framed as to fall within the scope of such general power confirmed.<\/p>\n<\/li>\n

  7. \n

    However, such power delegated by an enactment does not enable the authority, by rules\/regulations, to extend the scope or general operation of the enactment but is strictly ancillary. It will authorize the provision of subsidiary means of carrying into effect what is enacted in the statute itself and will cover what is incidental to the execution of its specific provision. The general power cannot be so exercised as to bring into existence substantive rights or obligations or disabilities not contemplated by the provisions of the Act itself.<\/p>\n<\/li>\n

  8. \n

    If the rule making power is not expressed in such a usual general form but are specifically enumerated, then it shall have to be seen if the rules made are protected by the limits prescribed by the parent Act.<\/p>\n<\/li>\n<\/ol>\n

    Application of the Principles<\/p>\n

    The Court perused the relevant provisions and noted that Rule 9(3) of Rules, 2007 is made under in exercise of the power conferred under Section 29A(2)(c) of the Act. The Court noted that the power to make rules under Section 29A(2) is ‘without prejudice to the generality of the foregoing power’ provided for in Section 29A(1). The Court said that if the Board disagrees with the opinion of the Director (Discipline), Section 21A(4) of the Act provides that the Board may advise the Director to further investigate the matter. However, Rule 9(3) enables the Board to proceed straightaway to act by itself or refer the matter to the Disciplinary Committee, depending on whether the alleged misconduct relates to the First Schedule or Second Schedule. The Court noted that the present challenge was based on the ground that ‘the Rule exceeds the limits of authority conferred by the enabling Act’.<\/span><\/p>\n

    The Court also noted that Section 29A(2)(c) of the Act, enables the Central Government to make rules regarding ‘the procedure of investigation under Section 21(4)<\/span>’. The Court said that the heads set out in Section 29A(2) cannot be read as exhaustive since the legislature had inserted the expression ‘without prejudice to the generality of the foregoing provisions’<\/span>. Thus, the Court said that the power to make rules generally for carrying out the provisions of the Act is founded under Section 29A(1), whereas Section 29A (2) is only an illustrative list of subjects with respect to which the Central Government may make rules. The Court said that the illustrative list of subjects cannot limit the scope of general power available under the wider rule-making power under Section 29A(1).<\/p>\n

    In the matter, the Court said the general delegation of power is without specific guidelines. Regarding the object of the Act and the chapter on ‘Misconduct’, the Court said that the main objective is to set ethical guidelines, prevent actions that may compromise public interests, ensure accountability among chartered accountants, and preserve the profession’s reputation. It aims to uphold honesty, integrity, and professionalism in the practice of chartered accountancy and by addressing instances of misconduct, it establishes a framework for accountability, reinforcing the credibility of individual professionals and the reputation of the entire profession.<\/p>\n

    Thus, the Court held that Rule 9(3)(b) of the Rule 2007 is completely in sync with the object and purpose of framing the Chapter on ‘Misconduct’ under the Act and falls within the scope of the general delegation of power under Section 29A(1).<\/p>\n

    [Naresh Chandra Agrawal v. ICAI, 2024 SCC OnLine SC 114<\/a>, Decided on: 08-02-2024<\/span>]<\/p>\n

    Judgment Authored by: Justice Aravind Kumar<\/span><\/strong><\/p>\n

    Know Thy Judge | Supreme Court of India: Justice Aravind Kumar<\/a><\/p><\/blockquote>\n