नियम‑निर्माण पर नियंत्रण: अनुच्छेद 147 की भूमिका को आर्थिक कानूनों में विस्तारित किया जाए

Summary: Over the past 25 years, India’s economic law-making has shifted decisively from Parliament to regulators, with statutes such as the Companies Act, 2013 and the SEBI Act, 1992 supplying only a bare framework while the operative detail is filled in through rules, regulations, and circulars. Clause 147 of the Securities Markets Code, 2025 seeks to discipline this shift by embedding a structured, consultative, ex-ante process into SEBI’s rule-making power, coupling it to regulatory impact assessment and continuing proportionality review obligations elsewhere in the Code. This piece argues that the template Clause 147 establishes should not remain confined to securities law and should be extended to all other economic statutes which lack equivalent safeguards and would benefit from the same five-element architecture of pre-publication consultation, impact assessment, sunset review, and internal vires-certification.

Over the past 25 years, the centre of gravity of India’s economic law-making has gradually shifted from Parliament to regulators. The Companies Act, 2013, the SEBI Act, 1992, The Foreign Exchange Management Act, 1999, etc. are in their parliamentary form, comparatively bare statutes. The texture of everyday compliance thresholds, timelines, disclosure formats, governance norms is supplied not by the legislature but by rules, regulations, circulars and master directions issued by the executive or by statutory regulators. By itself, this is not objectionable as a modern regulatory state cannot function if every technical threshold requires a parliamentary amendment. But this shift raises a fundamental constitutional question that Indian legislative drafting has, until recently, addressed inadequately: what guardrails ensure that delegated legislation remains within the limits of the parent Act and the Constitution?

Clause 147 of the Securities Markets Code, 2025 (“SMC”), already examined by the Parliamentary Standing Committee on Finance and awaiting Parliamentary approval in forthcoming Winter Session, attempts to address the issue through primary legislation rather than sporadic judicial correction. This piece argues that the discipline imposed by Clause 147 on SEBI’s regulation-making power under Clause 146 should be extended to India’s other major economic statutes, beginning with Section 469 of the Companies Act, 2013, which currently provides no comparable safeguard.

The Constitutional Test: Policy in the Statute, Detail in the Delegate

In Re: The Delhi Laws Act, 1912 (1951), broadly settled the constitutional tolerance for delegated legislation in India. The Supreme Court held that legislature may delegate policy details but it cannot abdicate itself from determination of the legislative policy itself. This principle has been refined in later decisions. In Hamdard Dawakhana v. Union of India (1960), the Court invalidated the delegation because the statute granted the executive uncanalised discretion to determine which advertisements it considered objectionable, without establishing legislative standards to guide that discretion. The recurring formula across these cases is that the legislature must establish the essential policy and standards, while any delegated authority may extend only to working out the details.

Indian jurisprudence has been slower to develop a complementary doctrine of procedural vires: the regulator’s exercise of valid rule-making power must comply with statutory discipline, rather than rely solely on its own administrative judgment. While substantive vires examines whether a regulation aligns with its parent Act’s policy, procedural vires examines whether it was made through a fair, transparent, and evidence-based process. Courts have occasionally inferred a prior-publication requirement into rule-making through Section 23 of the General Clauses Act, 1897, but this thin, largely formal safeguard is easily satisfied with a pro forma notice. Clause 147 of the SMC is significant because it converts what was historically a matter of administrative grace, or at most an unenforceable procedural formality, into a statutory precondition.

Clause 146–147 SMC: Coupling the Power to a Process

Clause 146 of the SMC preserves the SEBI Board’s familiar and wide regulation-making powers, a direct successor to Section 30 of the SEBI Act, 1992. While clause 146 alone would perpetuate the difficulty that has long characterised SEBI’s rule-making, clause 147 seeks to address this concern by establishing a structured, ex-ante process within the governing statute. It would introduce, for the first time in India’s securities law, a transparent and consultative framework for issuing subordinate legislation, replacing the largely internal and undocumented process previously followed.

A combined reading of two other clauses of the SMC along with Clause 147’s ex-ante discipline, a three-layered architecture is formed. First, Section 11(2)(x) requires the Board to conduct periodic research, regulatory impact assessment studies and audits of the securities markets’ operation and performance. It must also publish the resulting information, making regulatory impact assessment a statutory responsibility of the regulator rather than merely a policy best practice. Second, Section 11(3) requires the Board to “review its performance and functioning, including proportionality and effectiveness of the regulations made in this behalf”. This is a continuing, self-auditing obligation that has no equivalent in the SEBI Act, 1992, the Companies Act, 2013, the Foreign Exchange Management Act, 1999 or the RBI Act, 1934. Third, Clause 148 preserves a familiar safeguard: regulations must be laid before both Houses of Parliament, which retain the power to modify or annul them. This serves as a second layer of legislative oversight, following the regulation’s prior assessment against consultation and proportionality requirements at the pre-notification stage. A process like this is unprecedented in Indian economic legislation.

It is worth noting that the Parliamentary Standing Committee on Finance broadly endorsed SEBI’s expanded statutory role under the SMC while calling for much stricter safeguards over the Board’s rule-making and enforcement discretion. These safeguards include clearer procedures, greater transparency in regulation-making, and firmer limits on matters such as the reopening of stale cases. This reflects an emerging legislative consensus that procedural guardrails around delegated legislation are structurally necessary and not merely a drafting preference.

The Blind Spot in Section 469 of the Companies Act, 2013

Section 469 of the Companies Act, 2013, illustrates precisely the older model that Clause 147 departs from. Sub-section (1) confers on the Central Government a general power to make rules to carry out the provisions of the Act; sub-section (2) adds, without prejudice to that generality, a power to make rules in respect of any matter which the Act requires or permits to be prescribed; sub-section (3) permits retrospective rule-making, subject only to a proviso that vested rights are not prejudicially affected; and sub-section (4) requires every rule to be laid before both Houses of Parliament, which may modify or annul it, without affecting the validity of anything already done under the unmodified rule. This is, in essence, the same negative-resolution safeguard that Clause 148 of the SMC retains. Unlike the SMC, the Companies Act attaches no ex-ante consultation requirement, no statutory regulatory impact assessment duty, and no continuing obligation on the Ministry of Corporate Affairs to review the proportionality of the rules it has made. The laying-before-Parliament requirement is, in practice, rarely invoked to modify or annul a rule once notified, and by its own terms cannot unwind action already taken under it.

The practical consequences of this gap are not just theoretical. Previous examinations have revealed how the rules governing related party transactions, significant beneficial ownership under Section 90, and the governing framework for independent directors have each generated interpretive uncertainty at various stages. A more structured and consultative rule-making process, the kind Clause 147 now mandates for SEBI, could have addressed these ambiguities at the outset rather than leaving them to be resolved through subsequent circulars, FAQs, and enforcement orders. A rule-making power as broad as Section 469, exercised without a statutory requirement to publish reasons, invite comments, or periodically assess proportionality, risks creating a gap between subordinate legislation and legislative policy that the doctrine of permissible delegation intends to prevent.

Towards a Uniform Guardrail Template

The underlying architecture of Clause 147 should be abstracted into a template capable of being read into Section 469 of the Companies Act, Section 58 of the RBI Act, 1934, Section 47 of the FEMA Act, 1999, Section 114A and allied provisions of the Insurance Act, 1938, and the regulation-making powers of the IBBI under the Insolvency and Bankruptcy Code, 2016. Five elements of that template merit particular attention:

One, mandatory pre-publication of draft rules or regulations accompanied by a reasoned explanatory memorandum describing the measure’s necessity, objectives, and the alternatives considered, rather than a bare draft with no stated rationale.

Two, a minimum public comment period, with a statutory obligation on the rule-making authority to publish a consolidated response to the comments received before the rule is finalised, making consultation process accountable and documented from a mere courtesy.

Three, a statutory regulatory impact assessment for rules of material economic consequence, on the model of Section 11(2)(x) of the SMC, so that the compliance burden and market impact of a rule are estimated before, not after, it takes effect.

Four, a continuing, periodic proportionality and sunset review of the accumulated body of subordinate legislation under a statute which mirrors Section 11(3) of the SMC so that the rules that have outlived their rationale, or whose cumulative compliance cost has grown disproportionate to their regulatory benefit, are systematically identified rather than left to accumulate indefinitely.

Five, an internal vires-certification by the concerned ministry or regulator’s own legal affairs function, confirming before notification that the proposed rule does not breach the enabling provision. It’s a modest but meaningful institutional check that would operate well before any question of substantive vires reaches a court.

None of this displaces the doctrine of permissible delegation as laid down in Re Delhi Laws Act and its progeny; it operationalises it. Courts will continue to test whether a regulation has exceeded the policy of its parent Act. A Clause 147-style mechanism ensures that the issue is examined and substantially resolved before a regulation takes effect and reshapes market or corporate conduct, rather than years later through litigation that by then addresses a fait accompli.

Conclusion

India’s regulators have over the past 25 years become the country’s principal law-makers in substance if not in form. This development is not reversible and need not be resisted. Sophisticated markets require rule-making that is faster and more technically granular than the ordinary legislative process allows. For the constitutional framework to permit a delegation where Parliament establishes policy and regulators provide the necessary details, the process needs to remain transparent, reasoned, and subject to periodic proportionality assessment. Clause 147 of the Securities Markets Code, 2025, is a modest legislative innovation. The principle it embodies is one that Section 469 of the Companies Act, 2013, and the rule-making frameworks of India’s other economic statutes should adopt rather than leaving it confined to securities-market law.

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