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Interpretation of Statutes with the Companies Act, 2013

CS Shivam Singhal 
on 17 October 2020

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The Ship Repairman Story: A giant ship engine failed. The ship's owners tried one expert after another, but none of them could figure out how to fix the engine.

Then they brought in an old man who had been fixing ships since he was young. He carried a large bag of tools with him, and when he arrived, he immediately went to work. He inspected the engine very carefully, top to bottom.

Two of the ship's owners were there, watching this man, hoping he would know what to do. After looking things over, the old man reached into his bag and pulled out a small hammer. He gently tapped something. Instantly, the engine lurched into life. He carefully put his hammer away. The engine was fixed!

A week later, the owners received a bill from the old man for 10,000 dollars.

"What?" the owners exclaimed. "He hardly did anything!"

So they wrote the old man a note saying, "Please send us the bifurcation of the bill".

The man sent a bill that read:

Tapping with a hammer………………….. $ 2.00
Knowing where to tap…………………….. $ 9,998.00

An effort is important, but knowing where to make an effort makes all the difference! That's why perfect skills make a perfect professional.

Interpretation of Statutes with the Companies Act, 2013

Professionals Skills: In today scenario, as a professional (i.e. CS, CA, CMA, or Advocate), we should have the following skills:

  1. Interpretation Skills;
  2. Drafting Skills;
  3. Presentation Skills; and
  4. Information Technology (IT) Skills.
 

Without the abovementioned skills, a professional cannot win the heart of his client or his employer. In this article, we will discuss the interpretation of statutes with the provisions of the Companies Act, 2013.

Why 'Interpretation of Statutes':

'Interpretation of Statutes' is a process to:

  • understand the true and correct meaning of the law; and
  • understand the intention of the lawmaker/ legislature.

As a professional, we should have sound skills of interpretation of statutes so that we can advise our client or employer on any point of law.

 

Difference between 'Interpretation' and 'Construction'

'Interpretation' is the art of deriving the true meaning of law and 'Construction' is the drawing of a conclusion based on the true spirit of law. So, we can say that interpretation is the first stage and construction is the final stage to understand the law.

RULES OF INTERPRETATION/ CONSTRUCTION:

  1.  

Literal Construction

Another name

:

It is also known as the 'plain meaning rule'.

Maxims and meaning

:

Absolute sententia expositore non-indigent. It means 'Plain words require no explanation'.

Rule

:

As per this rule, the words or phrases of a statute are to be interpreted using the ordinary meaning of the language of the statute unless a statute explicitly defines some of its terms otherwise or unless the result would be cruel or absurd. In other words, if the words are clear, they must be applied, even though the intention of the legislator may have been different or the result is harsh or undesirable.

Example

:

Section 101 of the Act provides that:

'A general meeting of a company may be called by giving not less than clear 21 days notice either in writing …………'

Here, for the purpose of reckoning 21 days clear notice, the day of sending the notice and the day of the meeting shall not be counted.

  1.  

Reasonable Construction

Maxims and meaning

:

Ut res magis valeat quam pereat. It means 'The words of a statute must be construed so as to give a sensible or reasonable meaning to them'.

Rule

:

As per this rule, the words or phrases of a statute must be interpreted by using its reasonable or sensible meaning. In other words, while interpreting the law, two meanings are possible, one may be meaningless and the other leading to a meaningful interpretation, in this case, meaningful interpretation should be followed.

Example

:

Section 180 of the Act uses the expression "to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company…." If a company mortgages the whole or substantially the whole of its undertaking for obtaining loans or other financial assistance, whether the company has to comply with the requirements of section 180?

In this case, we should interpret this provision reasonably and such a mortgage is covered in the aforementioned expressions. Therefore, the company has to comply with the provisions of section 180.

  1.  

Harmonious Construction

Rule

:

As per this rule, if two or more provisions are written in a law which are conflicted with each other, they should be interpreted in a harmonize way so that each has a separate effect and neither is redundant or nullified.

Example

:

Section 152 of the Act states that every director shall be appointed by the company in a general meeting. However, section 161(1) facilitates to appoint any person (other than a person who fails to get appointed as a director in a general meeting) as an additional director by the Board of the company at any time, if articles permit.

In this case, we should interpret both provisions harmoniously and the Board of the company may follow any feasible route to appoint a director in the Board:

  • Appoint any person as an additional director through Board meeting subject to the conditions specified in section 161(1); or
  • Appoint a person as a director through a general meeting.
  1.  

Beneficial Construction

Another name

:

It is also known as 'Heydon's rule/ Mischief rule/ Purposive rule'

Rule

:

As per this rule, if there are two interpretations possible of the words or phrases of a statute, then for a sure and true interpretation, the following four things are to be considered in the form of questions:

  1. What was the common law before the making of the Act?
  2. What was the mischief and defect for which the common law did not provide?
  3. What is the remedy that the Act has provided?
  4. What is the reason for the remedy?

Example

:

The Companies (Amendment) Act, 2017 has amended section 82 of the Act to increase the timeline for filing of satisfaction of charge to 300 days. Previously, the timeline was 30 days.

We may observe that creation and modification of charges were allowed to file beyond 30 days but no such facility was in case of satisfaction of charges. To provide such a remedy, parliament has amended the law in 2017 and allow to file a satisfaction of charges beyond 30 days. 

  1.  

Ejusdem Generis Construction

Meaning

:

It means 'of the same kind'.

Rule

:

As per this rule, where there are general words following particular and specific words, the general words must be confined to things of the same kind as those specified.

Where an Act permits the keeping of Car, Bike, Truck, Rickshaw, etc., the expression 'etc.' would not include airplanes or trains, but would mean keep only private vehicles like Scooter, etc.

Example

:

Section 120 of the Act provides that:

'any document, record, register, minutes, etc., required to be kept by a company may be kept in electronic form'.

Here, any form or document filed by the company with the regulators would also be kept in electronic form.


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