Interpretation of “Proviso”

A ‘proviso’ is a clause in a statute, which begins with the phrase Provided that.  Literally it means ‘on the condition or understanding that’.

A ‘proviso’ has one or more of the following three functions:

1.  Exception to the main provision;
2.  Condition to the main provision;
3.  Additional requirement.

Sometimes, we get a doubt whether a ‘proviso’ should be interpreted along with the section or sub-section to which it is appended or should it be interpreted separately.

For example, Section 188 of the Companies Act, 2013 deals with Related Party Transactions.  The 4^th Proviso of Section 188 (1) provides that “nothing in this sub-section shall apply to any transactions entered into by the company in its ordinary course of business other than transactions which are not on an arm’s length basis”.

Now the question is whether the sub-section (1) of Section 188 ends with 188 (1) (g) or it extends with further ‘Provisos’.  If it ends with Section 188 (1) (g), then the 4^th Proviso exempts only the Board Approval.  Only if the sub-section (1) extends beyond 188 (1) (g), i.e. only if it extends to the further provisos, then the 4^th proviso exempts shareholders’ approval also.

The cardinal Rule of Interpretation is, a ‘proviso’ must be interpreted harmoniously with the section or subsection to which it is appended. A ‘proviso’ qualifies the generality of the main enactment.

Unless the words of the ‘proviso’ indicate otherwise, the ‘proviso’ applies to the whole of the main part of the section or subsection under which the proviso has been inserted.  For example, the 3^rd Proviso provides that “nothing contained in the second proviso shall apply to a company in which ninety per cent or more members, in number, are relatives or promoters or are related parties”. 

Again, if you see Explanation to Section 188 (1), it starts with the words – “In this sub-section” and explains the expression “arm’s length transaction”.  The said expression “arm’s length transaction”  is mentioned in the 4^th Proviso to sub-section (1) of Section 188.  This clearly indicates that the “proviso is part of the sub-section or section to which it is appended.