Introduction
The ‘Draft Policy for Pre-Legislative consultation and comprehensive review of existing Rules and Regulations’, released by the Ministry of Corporate Affairs (“MCA”), became effective from January 1, 2024 (“MCA-PLCP”). This move complements the increased focus on improving the ‘ease of doing business’ across regulators in India[1] and will also help address the inherent non-uniformity in the consultative mechanisms and processes employed by various MCA-formed/governed regulatory bodies.
The MCA has recognised that public consultations can facilitate greater transparency and drive stakeholder involvement in co-building the regulatory environment that will govern them.[2] In light of increased regulatory scrutiny, to the extent that regulators have even started developing advanced technology and AI tools to identify non-compliances, it is likely that these tools will pick up technical non-compliances more than substantive non-compliances. Stakeholder consultations could help in understanding the reasons behind technical non-compliances and identifying necessary regulatory interventions that streamline or eliminate unnecessary regulatory requirements, thereby improving the efficacy of regulator’s compliance checks. Either way, this would facilitate the ‘ease of doing business’ in India, and consequently, push the ‘Make in India’ initiative.
Notably, the MCA-PLCP has also sought to kick-start the stakeholder consultation mechanism by requiring regulators nested under/governed by the MCA to complete a comprehensive review of all extant rules and regulations by March 31, 2025.[3]
Genesis of pre-legislative consultation in India
The concept of pre-legislative consultation received institutional push and recognition on February 5, 2014, when the Legislative Department of the Ministry of Law and Justice released a letter outlining the pre-legislative policy (“PLCP”)[4] and emphasising the importance of pre-legislative consultations for all government departments and ministries before introducing any amendments to the extant legal and regulatory regime. The PLCP was a visionary step, and a move towards building a stronger and participative democracy. It required for government departments and ministries (as the case may be) to release in the public domain “the draft legislation or at least the information that may inter alia include brief justification for such legislation, essential elements of the proposed legislation, its broad financial implications, and an estimated assessment of the impact of such legislation on environment, fundamental rights, lives and livelihoods of the concerned/affected people, etc.”[5] for a period of at least 30 (thirty) days[6]. While the PLCP was definitely a step in the right direction giving broad discretionary powers to the relevant government departments and ministries, it lacked enforceability and uniformity in its implementation. Perhaps influenced by the successes of previous consultations, , the MCA, after almost a decade, has taken charge towards institutionalising the PLCP.
Analysing the MCA-PLCP
Applicability and Enforceability
The MCA-PLCP would be applicable to the MCA and the legislations administered by it, including inter alia Companies Act, 2013, Limited Liability Partnership Act, 2008, Insolvency and Bankruptcy Code, 2016, and the Competition Act, 2002. In addition, regulatory bodies such as the Insolvency and Bankruptcy Board of India (IBBI), the Competition Commission of India (CCI), and the National Financial Reporting Authority (NFRA) as well as professional institutes such as the Institute of Chartered Accountants of India (ICAI), the Institute of Company Secretaries of India (ICSI) and the Institute of Cost Accountants of India (ICOAI) would also come under the regulatory ambit of MCA. Even though the MCA-PLCP is merely advisory[7] in nature and so has no real teeth, it nevertheless expresses the MCA’s intention to build friendly regulatory thresholds for the stakeholders and that it is committed to interacting with them to maximise their ease of doing business.
Consultative mechanisms for framing rules and regulations in the future
In an attempt to give a central push for pre-legislative consultations across the remit of the government departments and ministries governed by the MCA, the MCA likely released its own pre-legislative consultation policy to provide a templatised process for the same. The MCA-PLCP requirements stipulate that, the consultative process must allow for a 30-day window[8] (in line with the PLCP) and invite clause-by-clause feedback[9]. Further, to facilitate informed decision making by stakeholders the explanatory note, upon its release for such consultations, shall mention inter alia the issue/difficulty (or mischief) that the proposed amendment seeks to address, manner of implementation, list of standard practices on the subject matter (if any) and the specific consultative process being followed for receiving inputs from the public.[10]
Given its advisory nature, the policy provides the Ministry/Regulators with wide discretionary powers. With the help of these discretionary powers, the Ministry/Regulators can inter alia determine – i) when to conduct specific consultations as necessary, i.e., limiting consultation to specific identified stakeholders or experts instead of opening it to the general public, ii) whether a public consultation should be conducted before issuance of guidance notes and FAQs[11], iii) whether to reduce the time period for which they are open to stakeholders, and iv), the Ministry/Regulator can forego holding a public consultation if, upon its own assessment, the proposed rule/regulation is “of emergent nature or where in public interest it is expedient that they be issued earlier”[12].
Policy for undertaking a comprehensive review of extant rules and regulations
The MCA-PLCP stipulates that all regulators nested under/governed by the MCA will be required to undertake a comprehensive review of all extant rules and regulations and initiate necessary consultations using the underlying consultative mechanisms by March 31, 2025.[13] The review should focus on, among other things, understanding the objectives and outcomes that were sought from the rule/regulation, gaining from its experience with regards to enforcement and litigation, reviewing standard practice with regards to the rule/regulation and its relevance in the current economic environment.
While the review has an “objective of rationalisation and reduction in compliance burden”[14], which is indeed a very progressive step in the sense that it seeks to make extant rules and regulations stakeholder friendly, it is paramount to note the wide gamut of laws (including inter alia the Companies Act, 2013,Limited Liability Partnership Act, 2008, Insolvency and Bankruptcy Code, 2016 as well as the Competition Act, 2002, and the Securities Contracts (Regulation) Act, 1956, etc.) that this review would directly or indirectly impact in its short 14-month timeline. Even though the MCA-PLCP stipulates that stakeholders be given a minimum of 30 days to comply with the new regulation/rule[15], the fact that all of these regulatory revisions/amendments would be introduced in such a short timeline, regardless of their value to stakeholders and the possibility that they may be moving the needle from an increased compliance threshold to a lower one, they could still add to the company’s compliance burden in the interim. Hence it would be advisable that the regulatory changes are streamlined and implemented in a phased manner to give the industry adequate time to adopt to and prepare for the changing regulatory threshold.
Conclusion
The fact that the Ministry/ Regulator is opening communication channels for discussions with a cross section of stakeholders is a very positive step. The MCA-PLCP will pave the way for inter alia the industry and industrial associations, such as FICCI and NASSCOM, to constructively provide information on what business are doing, the issues they are facing from a commercial/business perspective, and regulatory changes/interventions that could help scale the ‘ease of doing business’ in India. This structured codification of the PLCP would help build unambiguous and more stakeholder-friendly regulatory thresholds that would inspire increased compliance.
For further information, please contact:
Bharath Reddy, Partner, Cyril Amarchand Mangaldas
bharath.reddy@cyrilshroff.com
[1] We note that regulatory bodies such as the SEBI and IRDAI have already kick started pre-legislative consultations aimed at scaling the ‘ease of doing business’ in India.
[2] Paragraph 3, MCA-PLCP.
[3] Part B, Annex, MCA-PLCP.
[4] DO Letter DO 11(35)/20-13-L.I, issued by the Legislative Department, Ministry of Law and Justice, dated February 5, 2014.
[5] Paragraph 2, Appendix, PLCP.
[6] Paragraph 2, Appendix, PLCP.
[7] Paragraph 7, MCA-PLCP.
[8] Part A.1(ii) and Part A.2(i), Annex, MCA-PLCP.
[9] Part A.1(iii) and Part A.2(iii), Annex, MCA-PLCP.
[10] Part A.1(i) and Part A.2(ii), Annex, MCA-PLCP.
[11] Part A.2(vii), Annex, MCA-PLCP.
[12] Part A.1(ii) and Part A.2(i), Annex, MCA-PLCP.
[13] Part B, Annex, MCA-PLCP.
[14] Part B.1(iv) and Part B.2(iii), Annex, MCA-PLCP.
[15] Part A.1(ix) and Part A.2(x), Annex, MCA-PLCP.
