Overview of Business

Laws in India
Chapter 1
Definition of Law & Business Law
 Law: It includes all the rules and principles which regulate
our relations with other persons and with the State
 The terms Mercantile Law, Commercial Law’ and ‘Business
Law’ are synonymous (i.e., one and the same).
 Business law is a branch of general law (i.e., a branch of civil
law).
 Business Law is that branch of civil law dealing with rights
and obligations of business persons arising out of business
transactions in respect of business property.
Definitions
 A Business person is a person who carries on
commercial transactions and may be a single
individual i.e., sole trader or a partnership or a
company.
 Business transactions relate most to what is
known as merchandise or movable property
or goods, as distinguished from immovable
property.
Objectives of Business Law
 Firstly, law lays down the framework within which
business activities shall be carried out.
 For example, X company issues an advertisement
disparaging the products of its rival - Y company. Further
X company prohibits its dealers to deal in the products of
Y company.
 These acts of X company are not in conformity with some
legal rules prescribed by some statute or the other.
 Thus Y company can enforce its right which have been
infringed by the X company.
Objectives of Business Law
 Secondly, a business person can resort to
various judicial and quasi-judicial authorities
against the government in case his legal rights
have been violated.
 Thirdly, some laws are made to facilitate the
business persons to achieve their goals
smoothly.
 For example, business has been extended the facility of
doing business by getting a company incorporated,
deriving all the advantages incorporation such as separate
legal entity, limited liability etc
Objectives of Business Law
 Fourthly business law has social objectives
too.
 The anti-competition laws, the pollution control
laws etc. are some of the examples.
 Further, laws concerning regulation of essential
commodities and prevention of food adulteration
in the interest of the consumers go along way in
sewing in social objectives.
Sources of Indian Business Law

 The rights of Hindus and Muslims were governed by the

respective laws and usage.
 Where both parties were Hindus, they were regulated by the
Hindu Law and where both parties were Muslims, the
Mohammedan Law was applied.
 Uniform law regulating the contracts was realized and this
gave birth to the Indian Contract Act, 1872
 Since then a number of statutes have been enacted, viz.
 The Negotiable Instruments Act, 1881;
 The Sale of Goods Act, 1930;
 The Indian Partnership Act, 1932;
 The Insurance Act, 1938;
 The Arbitration Act 1940 etc
Sources of Indian Business Law
 The main sources of Indian Mercantile Law
are:
 (a) English Mercantile Law,
 (b) Acts enacted the by the Indian Legislature,
 (c) Judicial Decisions or Precedents;
 (d) Customs and Trade Usages,
 (e) justice, equity and good conscience
Sources of Indian Business Law
1. The English Mercantile Law
 The English Mercantile Law constitutes the
foundation on which the super-structure of the
Indian Mercantile Law has been built.
 Even now, despite the enactment of various statutes
relating to matters falling within the purview of the
Mercantile Law, our courts generally take recourse
to the English Law where some principles are not
expressly dealt within an of Act, or where there is
ambiguity.
Sources of Indian Business Law
 2. The Statute Law
 When a bill is passed by the Parliament and signed
by the President, it becomes an ‘Act’ or a ‘statute’.
 The bulk of Indian Mercantile Law is Statute Law. The
Indian Contract Act, 1872;
 The Negotiable Instruments Act, 88 ;
 The Sale of Goods Act, 1930;
 The Indian Partnership Act, 1932;
 The companies Act, 1956 are instances of the Statute
Law.
Sources of Indian Business Law

3. Judicial Decisions or Precedents or Case Law

 Judicial decisions are usually referred to as precedents
and are binding on all courts having jurisdiction lower to
that of the Court which gave the judgment.

 They are also generally followed even by those of equal

jurisdiction in deciding similar points of law.

 Whenever an Act is silent on a point or there is ambiguity,

the judge has to decide the case according to the
principles of justice, equity and good conscience.
Sources of Indian Business Law

4. Customs and Usages

 Custom or usage of a particular trade also guides the courts
in deciding disputes arising out of mercantile transactions,
 but such a custom or usage must be widely known, certain
and reasonable, and must not be opposed to any legislative
enactment.

 But where a statute specifically provides that the rules of
law contained therein are subject to any well recognized
custom or usage of trade, the latter may over-ride the statute
law.
Sources of Indian Business Law

5. Justice, Equity and Good Conscience

 The equitable principles of law developed by the

English ‘equity’ courts are the guiding force
behind most of the Indian statutes on business
laws.
 Also as and when necessary, the Indian courts
make use of these principles of equity in
interpreting the Indian law.
Need for Knowledge of Business Law

 The general knowledge of business law will certainly help the

businessmen to solve their business problems and avoid
conflicts with others with whom they come into business
contacts.

 It will also save businessmen of considerable loss of time,

efforts and money in case something goes wrong in their
business activities.

 A knowledge of business law is quite essential to

businessmen engaged in economic and commercial activities.
SCOPE OF BUSINESS LAW
 The Industries (Development & Regulation) Act, 1951

 This Act influences the product and distribution decisions of

companies in India.

 The Act divides the industrial economy into the public sector and the
private sector, and reserves certain industries exclusively for the
public sector.

 It requires industries to first acquire license and registration whenever

a new venture or substantial expansion is to be undertaken.

 It also reserves certain products for the small medium or large these
to be sold in the manner desired by the government.
 SCOPE OF BUSINESS LAW
 The Indian Contract Act, 1872

 This Act helps people to forge legally enforceable relations and conduct business
and non business transactions.

 It impinges on practically every type of decisions which involves stipulation of
contract.

 However, in a legally enforceable contract there should be an offer and acceptance,

lawful consideration between the parties competent to contract, free of consent an
unlawful object.

 In case of breach of contract the injured party may claim specific performance or
damages and seek injunction.

 The agency relationship between the principal and the agent is also governed by
this Act.

 It prescribes the manner of agency stipulation and rights and duties of parties.
SCOPE OF BUSINESS LAW
 The Indian Sale of Goods Act, 1930
 This Act governs the transactions of sale and purchase.
 It, thus, influence the selling decision of companies.

 It defines contract of sale as a contract whereby a seller transfers or

agrees to transfer the property in goods to a buyer for a price.
 It divides the term of sale into conditions and warranty.

 Condition is a stipulation essential to the main purpose while warranty

is collateral to the main purpose Breach of condition gives a right of
repudiating the contract while warranty does not.
 Warranty entitles to only damages.

 The Act proclaims the principle of caveat emptor which has possibly
ma many people in the Indian business sales-oriented.
 It lays down rules for the performances of contract of sale.
SCOPE OF BUSINESS LAW
 The Contract of Partnership Act, 1932
 Section 4 of the Indian Partnership Act defines the term
‘partnership’ as under:

 “Partnership is the relation between persons who have

agreed to share the profits of a business carried on by all
any of them acting for all.

 Persons who have entered into a partnership with one

another individually called as ‘partners’ and collectively as
‘a firm, and the name under which their business carried on
is called the ‘firm name’.
SCOPE OF BUSINESS LAW
 The Negotiable Instruments Act, 1881
 The term “negotiable instrument”, literally
means “a document transferable by delivery”
 Section 13 of the Negotiable Instruments Act
states that, a Negotiable Instrument means a
promissory note, of exchange or cheque payable
either to order or to bearer:
 provisions of this Act are not applicable to
Hundis and other native instruments.
SCOPE OF BUSINESS LAW
 The Monopo1ies and Restrictive Trade Practices Act,
1968
 This Act attempts to regulate the monopolistic and trade restrictive
practices of companies India
 It applies to companies whose assets exceed Rs. 100 crores and to
dominant undertakings whose assets exceed Rupees 10 crore.
 Companies covered the Act have to first secure approval from
government before acquiring license for diversification it is given
only when it will not lea concentration of economic power.
 It seeks to curb monopolistic trade practices by empowering
government to regulate production, supply or distribution of goods,
prohibit commercial practice leading to monopoly, fix standards for
product, and declare certain agreements unlawful.
 The restrictive trade practices tending to obstruct the flow of capital
and products and which manipulate prices are curbed by asking
companies to cease such practices.
SCOPE OF BUSINESS LAW
 The Companies Act, 1956
 The Companies Act controls all the registered companies’ right from
birth to death.
 The capital issues of registered companies are regulated by the SEBI.
 The registrar of Joint Stock Companies, the Dept.of Company affairs,
the High Court, the Official Liquidator, the Corporate Auditors, etc. are
acting as watch-dock of public interest under this act.
 This Act influences capital market and distribution channel decisions
particularly regarding appointment of directors and selling agents.
 According to this Act, a selling agent can be appointed at a time for a
maximum period of five years subject to renewal for a further period(s)
of five years each time.
 The Act empowers government to forbid appointment of selling agents
in certain cases where it is warranted under the law.
SCOPE OF BUSINESS LAW
 The Patents Act, 1970
 This Act regulates the patent rights of a company and thus
influences the product decisions.
 According to the provisions of this Act the term of patent right
for food and drug is five years which for other products it is 14
years.
 It also provides for a system of compulsory licensing by the
patent holder after the expiry of three years from the date of
sealing of the patent.
 Accordingly, any person can force the patentee to share the
patent right at a mutually agreeable term or terms directed by
this Controller of Patents.
 The Act provides penalties for the infringement of rights.
SCOPE OF BUSINESS LAW
 The Trade and Merchandise Marks Act, 1958

 This Act influences the product and advertising decisions of a

company, particularly with regard to the trade and merchandizing
marks.
 The registration of trade mark under this Act, endows on its holder
the right of exclusive use of trade mark for a maximum period of
seven years each time.
 It lays down conditions for the registration of the trade mark.
 An infringement of the rights of the trade mark holder attracts
Injunction, damages, and submission of an account of profit and its
payment by the person who has infringed the rights of the trade mark
holder.
 It also attracts criminal liability in certain cases.
SCOPE OF BUSINESS LAW

 The essential Commodities Act, 1955

 This Act controls the production, supply, and
distribution of essential commodities in order to
availability at a fair price.
 For this purpose, the Act empowers the
Government to regulate production by licensing,
control price, regulate storage and transportation,
prohibit sale and to buy products at a specified
price.
 It imposes both civil and criminal liabilities.
SCOPE OF BUSINESS LAW
 The Prevention of Food Adulteration Act 1954
 consumer-oriented legislation designed to protect the
health of the public by prohibiting adulteration of food
 It is deemed injurious when
 The product quality is not as demanded or claimed;
 It contains an injurious substance;
 Any constituent of the article has been taken away; .
 It has been prepared, packed or kept under insanitary conditions;
 It is unfit for human consumption;
 It is obtained from deceased animals;
 It is poisonous or deleterious;
 It contains a prohibited preservative;
SCOPE OF BUSINESS LAW

 The Weights and Measures Act, 1958

 This Act was enacted to safeguard the consumers
against the exploitation of weighing measures of
commodities by traders.
 Under this Act standard weights and measures are
introduced and metric system of weights and
measure has been introduced,
SCOPE OF BUSINESS LAW

 The Drugs and Cosmetics Act 194O

 Just as in of sub-standard quality are manufactured and
marketed.
 The prices charged for medicines are not proportional to
the cost of production.
 The high prices charged by the manufacturer are high
enough to exploit the consumers.
 There is the problem of spurious drugs manufactured by
unscrupulous producers, and they are not only harmful
but also dangerous to life.
SCOPE OF BUSINESS LAW

 The Packaged Commodities Order, 1975

 This is an important measure for consumer protection.

 This order provides that producers of several packaged

commodities should print on the packages the contents,
weights, price, month of manufacture, the date of expiry
of the products, the name of manufacturer meant for retail
trade so that consumers will come to know what they
purchase.

 It has valuable provisions to consumers.
SCOPE OF BUSINESS LAW
 The Drugs and Magic Remedies Objectionable Advertisement) Act,
1954

 This Act influences the advertising decision of companies

marketing drugs for, certain types & ailments.
 It aims to protect consumers resorting to self-medication
with harmful drugs and appliances.
 It prohibits advertisement of drugs marketed for the
treatment of certain Incurable diseases and which make
false claims regarding their potency.
 It imposes both civil and criminal liabilities.
 SCOPE OF BUSINESS LAW
 The Sales Promotion Employees (Conditions of Service) Act,
1976
 This Act applies to pharmaceutical companies only.
 However government can also apply it to any industry.
 Its major influence is on the sales force decisions.
 The provisions of this Act regulate service conditions of sales
promotion employees and endow then the benefits largely
accruing to industrial workers under industrial legislation of
the country.
SCOPE OF BUSINESS LAW
 The Foreign Exchange Management Act, 1999

 The Foreign Exchange Management (FEMA) Act was

passed by the Government of India in parliament in 1999.
 The Act aims to Consolidate and amend the law relating
to foreign exchange maintenance of foreign exchange
market in India.
 The stated objective of the new Act s to facilitate external trade
and payment.
 It seeks to promote the orderly development and
maintenance of the foreign exchange market.
 On the capital account, the forex outflow is allowed only
for transactions that are permitted.
 Current account transactions can be restricted by the
Centre in consultation with the RBI.
SCOPE OF BUSINESS LAW
 The Environmental Protection Act, 1986
 The Act is enacted with three main objects:
(1) Protection of Environment;
(2) Improvement of Environment; and
(3) Prevention of hazards to:
(i) human beings
(ii) other living creatures
(iii) plants; and
(iv) property
 The other relevant Acts direct bearing on internal trade
as well as foreign trade are listed below:

 The Foreign Trade Development and Regulation Act, 1992.

 The Arbitration and Conciliation Act, 1996.
 The Securities Exchange Board of India Act,
 The Reserve Bank of India Act, 1934.
 The Trade Marks Act 1999 (came into force w.e.f. 1-9-2003).
 The Copyright Act, 1957.