India - Legal Status Of Press Notes.

Legal News & Analysis - Asia Pacific - India - FDI

8 February, 2019

 

Vital economic policy issues, such as Foreign Direct Investment (FDI) Policy have been announced through various Press Notes issued by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry. These Press Notes are not a product of legislative process, nor are they debated before Parliament, and yet they have far reaching consequences on economic policy.

 

What is a Press Note?

 

A Press Note is a policy document responsible for facilitating foreign investment, technology flows, and monitoring industrial development in liberalised India. One of the chief functions of the DIPP is to formulate and regulate FDI Policy. To exercise this function, it issues Press Notes that enshrine the policy regulating the manner and form of FDI into India. These are issued on an ad-hoc basis, when DIPP aspires to amend existing policy. Once issued, they acquire the force of law.

 

Per the Government of India (Allocation of Business) Rules, 1961, in exercise of powers conferred on the President under Article 77(3) of the Constitution, DIPP is constitutionally empowered to frame executive policies on “Direct Foreign and non-resident investment in industrial and service projects”.

 

Do Press Notes have the Force of Law?

 

Though Press Notes have the force of law, they do not go through the legislative process, nor are they placed before Parliament. Article 245 of the Constitution states that Parliament has the authority to make laws for the whole or any part of India. Press Notes, however, are non-legislative state actions or Executive actions. The question that arises is whether an admittedly legislative act (such as regulating sectoral FDI limits) may be perpetuated purely by Executive orders, such as a Press Note, and whether there is any constitutional/ legal requirement to have the same ratified by Parliament.

 

All non-legislative state actions, e.g. Press Notes, that operate as laws must usually fall into one of these two categories: (i) Delegated Legislation; or (ii) Executive Action.

 

Delegated legislation contemplates administrative actions in furtherance of a statute and is an internationally accepted mode of law making. It draws legitimacy from an underlying parent legislation, wherein the Legislature delegates its law-making power to the Executive. Delegated legislations are not formulated by the sovereign, and therefore are dependent on an enabling statute or authority for continued existence. The Legislature may accordingly empower the Executive to carry out statutory functions, which may be considered as ‘legislative’ powers.

 

However, applying this principle to DIPP’s Press Notes we find that:

 

The power to issue Press Notes flows directly from the sovereign (since Press Notes are issued by India’s highest authority, the Central Government (CG), or the sovereign)

 

It is not dependant on any superior authority for its existence (such as the Legislature). Not being dependant on a statute, and for the abovementioned reasons, Press Notes cannot be considered as delegated legislation.

 

Executive Action contemplates actions taken by the CG in its sovereign authority. Article 73 of the Constitution states, in part, that subject to the provisions of the Constitution, the Executive power of the Union shall extend to matters with respect to which Parliament has law making powers, implying that CG can validly take Executive action in all areas where Parliament’s legislative power extends.

 

It has been established that absent any legal provisions to the contrary and videArticle 73, the CG does not require any legislative sanction or authority for exercising Executive power. In Ram Jawaya Kapur v. State of Punjab[1], the Supreme Court (SC) stated that while the Executive has no authority to act against the provisions of a law, it is not a corollary that to enable the Executive to function, relating to any matter within the scope of its authority, there must be a law which specifically authorises such action.

 

Executive functions comprise both determination of the policy and its execution. Thus, the CG, acting through the DIPP, does not require any law to authorise its Executive action, be it determining or executing FDI policy. Further, since Article 73 is itself subject to the provisions of the Constitution, and in the absence of such a restriction of exercise of the Executive’s policy making functions, it cannot be said that the DIPP’s functions are ultra vires the Constitution.

 

Can the Government Issue Press Notes for all its Executive Actions?

 

The principle of jurisdiction is that Executive action may extend to all areas where Parliament’s legislative power extends, except in matters of occupied field i.e., where prior legislation over the subject matter exists; and the Executive action violates such legislation.

 

In such a case, the existing legislation will prevail and the Executive action will be struck down.

 

While there are specific entries in the Union List (i.e., matters wherein Parliament has the power to legislate and to which the Executive power of the Union extends), there is no express entry on FDI when dealing with foreign exchange and the Reserve Bank of India (RBI). Consequently, the same falls within the purview of residuary Entry 97 of the Union List and therefore, the Parliament will have the power to legislate on the same and the Union’s executive power will extend thereto.

 

Currently, FDI is not an occupied field, except for certain overlaps with provisions under the Foreign Exchange Management Act, 1999 (FEMA). Accordingly, the Union is competent to regulate FDI Policy through Executive orders such as Press Notes or the extant consolidated FDI Policy so long as they do not conflict with the statutory provisions under FEMA.

 

Are Press Notes Subject to Judicial Review?

 

As Executive actions have the force of law, they are subject to the same tests to which a law is, such as reasonableness, arbitrariness, violation of fundamental rights and the doctrine of ultra vires.

 

All Executive actions are subject to judicial review but on limited grounds. The SC in M.P Oil Extraction v. State of Jammu and Kashmir[2] held that the courts, while exercising their power of judicial review of Executive actions, must be cognizant of the ‘doctrine of separation of powers’. That means they must avoid overstepping their judicial limits but may interfere where the policy is absolutely capricious, arbitrary, not informed by reason or based on mere ipse dixit[3], which offends the fundamental right of equality under Article 14 of the Constitution.

 

It would be difficult however to challenge the validity of Press Notes merely on the ground that though legislative in effect, they are not ratified by tParliament. Article 73 of the Constitution admits no such argument.

 

In this context it is important to refer to the observations of the SC in M. L. Sharma v. Union of India[4] wherein the validity of FDI Policy on multi-brand retail trading was challenged under Article 32. The SC held that in relation to policy matters, courts cannot interfere unless the same is “unconstitutional or contrary to the statutory provisions or arbitrary or irrational or in abuse of power.”

 

Concluding Thoughts

 

The legal and constitutional provisions discussed above make any challenge to the legal validity of the FDI policy notified or amended by the DIPP difficult, if not impossible. Further, though rejection of any FDI application by the CG could have far reaching economic consequences for the applicant, there is no provision for filing an appeal against such a decision to any appellate authority.

 

However, constitutional remedy of judicial review of administrative actions would be available to the applicant. If any FDI proposal is arbitrarily rejected by the CG and/or RBI despite compliance with the extant FDI Policy and the applicable FEMA regulations relating to FDI, it could be subject to judicial review before the writ courts under Articles 226 and 32.

 

In any such challenge, though, the burden will be on the applicant to satisfy the court that the decision in question was arbitrary, unreasonable and violated the applicant’s right under Article 14 – a very onerous obligation. Moreover, courts generally are reluctant to interfere with any governmental policy decision. In addition, the government may justify its rejection of a foreign investment proposal citing national security concerns in highly sensitive sectors.

 

 

For further information, please contact:

 

Bharat Vasani, Partner, Cyril Amarchand Mangaldas

bharat.vasani@cyrilshroff.com

 

[1] AIR 1955 SC 549.

[2] AIR 1989 SC 1899.

[3] Something asserted but unproved.

[4] MANU/SC/0J20/2013.