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Opinion | The Constitution prevails in the world of business too

Constitutional principles have had a bearing on business disputes over bilateral treaties, natural resources, contract enforcement, bankruptcy and more. Various legal provisions for companies are drawn from it. (Photo: iStock)Premium
Constitutional principles have had a bearing on business disputes over bilateral treaties, natural resources, contract enforcement, bankruptcy and more. Various legal provisions for companies are drawn from it. (Photo: iStock)

Does the Constitution come up in commercial disputes? It’s a question typically asked by those who know little about the practice of corporate law in India

On 26 January, India completes 70 years of being a republic under its Constitution, which was worked on tirelessly by its draftsmen. The document has a bearing on many matters of law, but people often ask if the same is so for commercial cases. Thus, my purpose here is to analyse the interplay of principles laid down in the Constitution vis-a-vis corporate law.

I remember a rather interesting brush with the impact of constitutional principles—or rather, an absolute negation of them—on the Mauritian Bilateral Investment Treaty arbitration proceedings brought in against the Indian government over the Dabhol Power Project. This, in 2004, was the first ever Bilateral Investment Treaty (BIT) claim faced by the Republic of India. It was possibly also the highest ever such claim—of $6.5 billion as compensation for expropriation against the Republic of India before an arbitral tribunal seated in London under the UNCITRAL Rules, 1976. The claimants alleged expropriation of their investment in the project, attributing it even to the judiciary. Being at pains to explain the basic structure of India’s Constitution, I learnt the hard way that all acts of the executive, legislature and judiciary are attributable to the Republic of India, contrary to the distinct separation of powers between the three recognized under the Constitution. A similar issue underlay the second BIT arbitration case against India, involving an India-Australia treaty.

Next, consider the Public Trust Doctrine, as laid down by India’s Supreme Court in Reliance Natural Resources Ltd vs. Reliance Industries Ltd (2010). This doctrine is drawn from the Constitution and has found its way into several cases in my experience, particularly of arbitration and disputes arising out of production sharing contracts that the government had with private entities. Referring to Articles 297, 14 and 39(b) of the Constitution, the Supreme Court had held that the country’s natural resources belong to the people. They are vested with the government, which holds them in trust for citizens. Thus, though the exploration, extraction and exploitation of these resources are within the government’s domain, constitutional restrictions apply equally to private players. The Public Trust Doctrine was also upheld in Manohar Lal Sharma vs. The Principal Secretary & Ors. (2014), striking down most coal block allocations made back then.

Further, a fundamental provision is Article 299 of the Constitution that covers all contracts that private entities have with the government. In Bhikaraj Jaipuria vs. Union of India (1961), the Supreme Court held that a formal written contract is a must, and that Article 299(1) is mandatory in character and any contravention thereof would render the contract void. The government is therefore bound by that article, as observed by the Supreme Court in UP in Rajkiya Nirman Nigam Ltd vs. Indure Pvt. Ltd & Ors. (1996).

The Constitution has featured in matters related to the Insolvency and Bankruptcy Code (IBC) as well. It was at the instance of homebuyers that the apex court, in Pioneer Urban Land and Infrastructure Ltd. vs. Union of India (2019), rejected a legal challenge to amendments to the IBC, which granted the status of “financial creditors" to home buyers under the code, ruling that the changes made were not violative of Articles 14, 19(1)(g), read with Article 19(6), or for that matter 300-A, of the Constitution.

Other notable modifications of the law that applies to businesses are the corporate social responsibility provisions under the Companies Act of 2013. These were incorporated as an extension of the Constitution’s Directive Principles of State Policy.

Another key principle that is also recognized by the Constitution is gender equality. Section 149 of the Companies Act, read with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules of 2014, requires listed companies and large public companies to appoint at least one woman director. This has seen an increased representation of women directors on the boards of companies. The Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act of 2013 is another example. This law seeks to guarantee a safe working environment as a fundamental right qua women. After it came into effect, companies have had to run sensitization modules and set up internal complaint committees, etc, to comply with it.

The Competition Act of 2002 also refers to the constitutional mandate to protect the interests of consumers and ensure freedom of trade. The Aadhaar verdict, which recognized privacy as a fundamental right, has had a huge impact on the financial services sector. To ensure compliance, I have seen corporations shift their databases from overseas to India. A further impact on several companies will be seen once the government notifies rules under the Information Technology Act of 2008 to regulate social media.

Clearly, the practice of corporate law, far from being aloof from the Constitution of India, operates in alignment with it. Its supremacy prevails in the world of business just as much as it does in the lives of “We the people".

Mamta Tiwari is counsel at Fox Mandal & Co.

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