To 'Read Up' A Provision Is To Flesh It Out And Fill In Words To Erase Discordance: Calcutta High Court Reiterates

The Calcutta High Court recently held that clause (d) to the Proviso to Rule 5(1) of the West Bengal Excise Rules, 2009, was unconstitutional since it exempted public limited companies from payment of license fees for "change in management," while levying the same from private limited companies.

A single bench of Justice Moushumi Bhattacharya held that a mere change in the composition of the board of directors would not constitute a change in the management of a company and that the proviso exempting public companies from payment of fees for the same was ultra vires the Constitution due not being based in intelligible differentia borne out of a rational nexus with the purpose sought to be achieved. 

In looking for an alternative to the aforesaid clause (d), the Court "read up" the clause so as to include “change in management in the usual course of business” in case of a Private Limited Company in the same manner as provided in clause (e) to the Proviso to Rule 5(1) of the 2009 Rules.

Brief facts

Petitioners argued that a change in the board of directors in the usual course of business did not amount to a change in management and that such circumstances did not result in needing to apply for a new excise license under the 2009 rules.

It was submitted that while these fees were levied upon private companies, they exempted public companies and that this distinction was not based in any intelligible differentia and did not have any rational nexus to the object sought to be achieved, rendering it ultra vires the constitution.

Petitioner desired the law to be read up to include a change in management in the usual course of business in the case of a private limited company in the same manner as clause (e) to the proviso to Rule 5(1) of the Rules.

Respondents, on the other hand, argued that the difference afforded to private and public companies emanated out of the distinction in the corporate laws of India.

It was submitted that the expression “change in management” had been clarified through government circulars. Notification issued by the Finance Department of the State on 11.2.2020 sought to amend Rule 3 of the 2009 Rules and that the said amendment is by way of substitution of the original Rule 3 whereby the meaning of “change in management” stands crystallised, it was submitted.

Court's Verdict

In declaring the aforesaid proviso unconstitutional due to it discriminating between public and private companies, thereby violating Article 14, the Court applied the principle of 'reading up' to the impugned provision. 

It observed that while the expression 'reading down' may have been popular in constitutional law jurisprudence, to 'read up' would mean to supply words or filling up the lacuna so as to make the provision consonant in line with the context of the statute.

The aim is to interpret the word or provision so as to prevent discordance, absurdity and repugnancy to the object of the statue. The provision is therefore to be suitably “read down” or “read up” to preserve the legislative intention, the Court held.

It held that in order to pull the offending clause (d) into the line of equality, it would be necessary to add the words “change in management in the usual course of business” to erase the inequality between clauses (d) and (e) of the Proviso to Rule 5(1) of the 2009 Rules.

It observed that if the clause was suitably "read up" as detailed above, then the exemption afforded to a private company would be increased and made equal to the exemption given to a public company.

In effect, a Private Limited company would be entitled to exemption from payment under the same circumstances as that of a Public Limited Company; that is death of a Director or change in management in the usual course of business, it clarified. 

It concluded that the intention in the present case as to level the playing field for private and public companies under the scheme of Article 14 of the Constitution, specifically when the basis for creating such a distinction was found to be absent. 

Accordingly, the plea was allowed and the orders of the Excise Department seeking license fees from the petitioners were set aside with the court directing the department to return the fees already levied.

Case: New Kenilworth Hotel Private Limited and another v State of West Bengal and others

Case No: WPA 4873 of 2018