APPLICATION OF LITERAL RULE OF CONSTRUCTION IN COMPANY

LAW

The term ‘Interpretation’ is derived from Latin term ‘interpretari’ which means to explain or to

understand or translate. Interpretation is a process through which one ascertains the true and
correct intention of the law making bodies as is laid in the form of statutes. As the administration
of justice is conducted by the judges in accordance with the provisions of law, therefore it
requires that there are certain rules of interpretation to ensure that just and uniform decisions are
delivered by them. The most important objective that is achieved by the interpretation of statutes
is that it ensures that the court act according to the intent of the legislature. The courts are
expected not to act arbitrarily and consequently they are to follow the rules of interpretation.

The primary rule of interpretation of statutes is called ‘literal interpretation’ or ‘literal

construction’. The words of a statute are to be first understood in their natural, ordinary and
popular sense and phrases and sentences are constructed according to their grammatical meaning
unless that leads to some absurdity or unless there is something in the context or in the object of
the statute to suggest the contrary.

According to literal rule of interpretation, the words are given their ordinary and natural meaning
and if the meaning of such words is clear they should be given effect to whatever is their
consequence. So, the ordinary, natural popular or literal meaning of the words has to be taken
into consideration. It is the general rule of interpretation that judges are not at liberty to add to or
to take away from the letters of law. They have to keep themselves confined to the language of
the law. Courts cannot read anything into statutory provision which is plain and unambiguous.
The literal rule follows the legal maxim, legis non est recelendum, which conveys that there
should be no departure from the words of law.

In the case of Globe Cogeneration Power Ltd. v. Sri Hiranyakeshi Sahakari Sakkere
Karkhane Niyamit1, It is a well-recognised principle of interpretation of statutes that if the
language used in a statute is capable of bearing more than one construction, in selecting the true
meaning regard must be had to the consequences resulting from adopting the alternative
constructions. A construction that results in hardship, serious inconvenience, injustice, absurdity

1
[2004] 52 SCL 646 (KAR.)
or anomaly or which leads to inconsistency or uncertainty and friction in the system which the
statute purports to regulate, has to be rejected and preference should be given to that construction
which avoids such results. However, that rule has no application when the words are susceptible
to only one meaning and no alternative construction is reasonably open. The rule of purposive
construction or mischief rule enables consideration of four matters in construing a statute: (i)
what was the law before enacting the statute concerned; (ii) what was the mischief or defect for
which the law did not provide; (iii) what is the remedy that the statute has provided; and (iv)
what is the reason of the remedy. The mischief rule then directs that the Court must adopt that
construction which shall suppress the mischief, that is to say, the Courts should identify the
‘mischief which existed before passing of the statute and then, if more than one construction is
possible, favour that which will eliminate the mischief so identified.

In the case of Colgate Palmolive(India) Ltd. v. M.R.T.P Commission 2, the court held that It
is now a well-settled principle of law that a  literal meaning should be assigned to a statute unless
the same leads to anomaly or absurdity. The terminology used in the provisions is absolutely
clear and unambiguous. In terms of the aforementioned provisions not only a trade practice is
resorted to for the purpose of promoting sale or use or supply of any goods or services, but
thereby loss or injury to the consumers of such goods or services must be caused. The word
'thereby' must be assigned its plain meaning for interpretation  of the aforementioned provisions.

In the case of Sudhir Vohra v. Registrar of Companies3,

 The petitioner was an architect registered under the Architects Act, 1972. He sought
issuance of a writ of mandamus directing the Registrar of Companies and Ministry of
Corporate Affairs to not to entertain registration applications from any 'company' or
'Limited Liability Partnership' which stated that it provided architectural services as one
of its objectives in its memorandum of association.
 The petitioners sought a direction to the Ministry of Finance to cancel the permission
granted to RSP Singapore, by the Ministry of Commerce and Industry vide its letter dated
8-1-1996, for setting up a wholly owned subsidiary company in India, i.e., RSP India for
providing services in architectural planning, design, civil engineering and construction
management.

2
[2003] 41 SCL 98 (SC)
3
[2018] 92 taxmann.com 391 (Delhi)
The court held that, It is not for the Court to make an attempt to discern the legislature's
intention, when the statute unequivocally prohibits, and thereby regulates, only the use of the
style and title of 'architect'. It is not the Court's function to supply that which it supposes the
legislature may have intended. One cannot ignore the most cardinal rule of
statutory interpretation that the legislature is not easily accepted to have made linguistic mistakes
and courts must proceed with the presumption that the legislature intended what it has said in the
statute. Literal interpretations of the sections involved(S.36 & 37) is very unambiguous and
categorical, suggests that the Act only protects the title and style of 'architect'. A comprehensive
reading of the provisions of the Act leads to one and only one conclusion, that the legislature
only intended to make the use of the title and style of 'architect', and not the provision of
architectural services, the exclusive privilege of natural persons registered as architects under the
Act. 

In the case of Alembic Chemical Works v. Workmen4, an industrial tribunal allowed more
number of paid leaves to workers than what the Factories Act recommended. This was
challenged by the appellant. T he Supreme Court held that enactment being a welfare legislation
for the workers, had to be beneficially constructed in the favour of workers and thus, if the words
are capable of having two meanings, one that gives benefits to the workers must be used.

In the case of Pahuja Takii Seed ltd. v. Registrar of Companies, NCT of Delhi & Haryana 5,
the appellants, companies along with its officers, filed applications under section 441 for
compounding of the offence committed by them, on the ground that corrective measures have
already been taken, which have been dismissed/disposed of by the Tribunal by common order
dated 16-2-2018 with the observations that since all the five applications pertains to default in
relation to filing of Annual Returns which was required to be filed for each year and the default
was in relation to more than a year and as the same offence had been committed for the second
or subsequent occasions within a period of three years and as the defaulted section being section
92 provides for fine or imprisonment or with both, for the officers in default thereby making it
virtually non-compoundable by virtue of operation of section 451 read with section 441(6)
Tribunal did not have jurisdiction to compound the offence supra; further, a joint application for
the default committed was also not maintainable. Since the maximum amount of fine prescribed
4
1961 AIR 647
5
[2018] 98 taxmann.com 424 (NCL-AT)
for the offence of not filing annual returns was not in excess of five lakh rupees, Tribunal lacks
the pecuniary jurisdiction to entertain the compounding applications. The Supreme Court
interpreted S.451 of the Companies Act and the words used in it 'where the same offence is
committed for the second or subsequent occasions within a period of three years'. The apex court
took the help of S.441(2) where it is provided that 'any second or subsequent offence committed
after the expiry of a period of three years from the date on which the offence was previously
'compounded', shall be deemed to be a first offence'.

In the case of Ganesh Roy v. State of Jharkhand6, The petitioner was in employment of OP
No. 2-company and while he was in service, he was extended the facility of residential
accommodation. Subsequently, the petitioner’s service was terminated and the company asked
him to vacate the residential quarter. In spite of notice and reminders, the petitioner did not
vacate the premises and, therefore, he was alleged to have committed offence under section 630.
The petitioner, by filing the instant petition, prayed for quashing the entire criminal proceedings
initiated against him alleging that the termination of his service was illegal and the Government
had referred the dispute to the Labour Court for adjudication and, thus, under such
circumstances, criminal proceedings under section 630 could not be initiated against him. The
Supreme Court with the help of literal interpretation conluded that service of the petitioner was
terminated in 1999 and thereafter he ceased to be in the employment of the Company.
Consequently, possession of the quarter allotted to the petitioner became wrongful possession.
This is a different thing when the termination of service of the petitioner is declared illegal and
he is reinstated in service but so long as the order of termination subsist the petitioner cannot be
held to be in the employment of the company and possession of the premises allotted to him
while he was in service cannot be held to be legal and valid possession. In that view of the matter
initiation of criminal proceeding under section 630 of the Companies Act cannot be held to be
without jurisdiction.

In Rajkot Saher/Jilla Grahak Suraksha Mandal v. Securities and Exchange Board of

India7, the court held that,

6
[2004] 55 SCL 662 (JHARKHAND)
7
[2009] 96 SCL 113 (SAT - MUM.)
 The rule of purposive interpretation  has been repeatedly commended by Hon’ble
Supreme Court. If literal interpretation  results in defeating the purpose of a statute, such
literal meaning must give way to purposive interpretation.
 The golden rule of interpretation of giving literal meaning to the provisions unmindful of
the consequence has been squarely rejected by the Hon’ble Supreme Court. When literal
interpretation leads to unjust results which Legislature never intended, the
interpretation according to the legislative intent is accepted to be more logical.
 The rule of interpretation with respect to giving effect to the "preordained series of
transaction", which may individually be legal and valid but when combined in a single
comprehensive transaction serve no commercial or business purpose other than avoiding
a liability to tax is required to give way to a construction of a statute which is against
evasion of tax and protects the integrity of the statute or the guidelines. The principles
laid down by the House of Lords in tax cases and approved by the Hon’ble Supreme
Court of India are equally applicable in interpreting SEBI regulations that are intended to
protect a large body of investors.