Prepared by,

Hussain Jariwala

Source: Elements of Mercantile Law by N.D.Kapoor (2007)

Law
What is law?
 Law includes all the rules & principles which regulate our relations
with other individuals & with the state.

Object of law?
 To establish socio-economic justice and remove the existing
imbalance in the socio-economic structure.

Need for the knowledge of law?

 Ignorance of law is no excuse.
Mercantile/Business/Commercial Law
What is it mean?
 It deals with contractual situations and the right & obligations
arising out of mercantile transactions between mercantile persons.

Sources of Business Law?

 English Mercantile law
 Statute Law
 Judicial decisions or the system of precedents
 Customs & usages
The Indian Contract Act, 1872
Object?
 Branch of law which determines the circumstances in which
promises made by the parties to a contract shall be legally
binding on them.

Contract = Agreement + Enforceablility by law (Legal

obligation not a Social obligation)
Agreement = Offer + Acceptance (In genuine consent)
Essentials of valid contract
1. Offer and acceptance - 2 parties – one party making the offer, other
party accepting the offer, terms of offer must be definite and the
acceptance must also be according to the mode prescribed and
must be communicated to the offeror.

2. Intention to create legal relationship

3. Lawful consideration - something in return

4. Capacity of parties - competent, major, sound mind, not

disqualified from contracting by any law
Essentials of valid contract
5. Free and genuine consent – same mind on all the material terms of
the contract

6. Lawful object – legal, moral, not opposed to public policy

7. Agreement not declared is void

8. Certainty and possibility of performance – not vague or indefinite

9. Legal formalities – contract should be in writing

Workmen’s Compensation Act, 1923
First step towards social security of workmen
The theory behind this act is that “the cost of product should
bear the blood of the workmen”

Object?
 To provide for the payment of compensation by certain classes
of employers to their workmen for injury by accident.

 Note: Workmen who are covered under ESI Act, 1948 are not entitled to
compensation under this Act as disablement and dependants’ benefit is
available to workmen under the former act.
Disablement?
Disablement means loss of capacity to work or to move
It may result in loss or reduction of his/her earning
capacity.
Disablement may be
 Partial
 Total
Further it may be
 Permanent
 Temporary
Employer’s liability for compensation
1. Personal injury
2. Occupational Disease

Compensation for Calculation Minimum

amount
Death 50% of monthly wages * relevant age factor Rs. 80,000
Eg: Age 16 factor = 228.54, Age 65 factor = 99.37

Permanent total 60% of monthly wages * relevant age factor Rs. 90,000
disablement

Permanent partial % loss of earning capacity * relevant age factor

disablement

Temporary disablement 25% of monthly wages shall be payable every half

(total & partial) month till the disablement lasts

Note: Where the monthly wages of workman exceed Rs. 4000, his monthly wages shall be
deemed to be Rs.4000 only.
Trade Unions Act, 1926
Trade Union – “An association of workers in a particular
craft or industry” and now it symbolize
 Workers’ right to organize
 Their right to press their demands collectively and to go on strike
if their demands are not accepted

Object?
 To regulate the conditions governing the registration of
trade unions
 Obligations imposed upon a registered trade union and
 Rights & liabilities of registered trade unions
Indian Partnership Act, 1932
 A contract of uberrimae fidei- “utmost good faith” i.e partnership
contract must run with mutual trust and confidence
 Min: 2 competent persons
 Max: on banking business should not exceed 10, any other business not
exceeding 20
 Profit must be distributed in “agreed ratio”
 Documents which contains the agreement is called “Partnership Deed”
and it contains
 nature of business,
 principal place of business,
 name and address of the partners,
 management,
 accounts
 Deed must be duly stamped as required by the Indian Stamp Act, 1889
 Payment of Wages Act, 1936
Object?
 To avoid with holding wages, delays in paying wages & making
unreasonable deductions out of wages.

 This Act does not apply to persons whose wages exceed Rs. 6500 per
month (2005)
 Wage period – shall not exceed 1 month
 Time of payment of wages
 <1000 persons – before the expiry of the 7th day of the following wage period
 >1000 persons - before the expiry of the 10th day of the following wage period
 Termination of employment – before 2nd working day from the terminated day
 Wages to be paid on a working day
Deductions from wages
 Medium of payment of wages – current coin or currency notes or both,
after obtaining written authorization of the employed person, payment
can be made either by cheque or by crediting the wages in bank
account

 Deductions from wages

 Fines (shall not exceed 3% of wages payable to him in that wage period)
 Absence of duty
 Services like house accommodation, amenities etc
 Recovery of advances
 Recovery of loans
 Payments to co-operative societies & insurance schemes
 Other deductions such as income tax, PM’s Relief fund etc
Maintenance of registers & records
Every employer shall maintain registers & records giving
the following particulars of the persons employed by him:
 the work performed by them
 the wages paid to them
 the deductions made from their wages
 the receipts given by them
The Industrial Employment (Standing
Orders) Act, 1946

Object?
 To require employers in industrial establishments to define
with sufficient precision the conditions of employment
under them & to make the said conditions known to
workmen employed by them.
Matters to be provided in Standing Orders
 Classification of workmen
 Manner of intimating to workmen about periods & hours of work,
holidays, pay days & wage rates
 Shift working
 Attendance & late coming
 Conditions of procedure in applying for, and the authority which may
grant leave & holidays
 Requirement to enter premises by certain gates, & liability to search
 Closing & reopening of sections in Industrial Establishment, temporary
stoppages of work & the rights & liabilities of workmen & employer arising
therefrom.
 Termination of employment & respective notice
 Suspension or dismissal for misconduct & related actions
 Redress mechanism against unfair treatment
Procedure for Certification of Standing orders
The Industrial Disputes Act, 1947
 Object?
 To secure industrial peace
 By preventing & settling industrial disputes between the employers &
workmen
 By securing & preserving amity & good relations between the employers
& workmen through an internal Works Committee
 By promoting good relations through an external machinery of
conciliation, Courts of Inquiry, Labor Courts, Industrial Tribunals &
National Tribunals
 To improve the condition of workmen in industry
 By redressal of grievances of workmen through a statutory machinery
 By improving job security
What is Industrial dispute?
It means any dispute or difference between
 employers & employers
 employers & workmen
 workmen & workmen, which is connected with
a) The employment or non-employment
b) The terms of employment
c) The conditions of labor of any person

It includes both individual & collective disputes

Important Terms
Lay off – Failure/Refusal/Inability of an employer to give
employment to a workman
Lock out – Temporary closing of a place of employment or
suspension of work or refusal by employer (Employer’s
weapon)
Closure – Closing the business due to actual loss or
apprehended loss
Retrenchment – Employees terminated on account of
surplus labor
Strike – Cessation of work by workmen
Unfair labor practices
Conciliation Machinery
Work committees
Conciliation Officer
Board of Conciliation
Courts of Inquiry

Adjudication Machinery
Labor Courts
Industrial Tribunal
National Tribunal
Factories Act, 1948
Factory means any premises where in a
manufacturing process
10 or more persons are engaged if power is used or
20 or more persons are engaged if power is not used

Object?
To protect children & to provide for some health &
safety measures.
State Government / Chief Inspector
1. Site Approval for a factory before it is constructed
2. Submission of plans of Factories
3. Registration & Licensing of Factories
4. Appeal to State/Central Govt within 30 days if permission is refused
by Chief Inspector/State Govt respectively
5. Notice by the occupier
 Name & address of the factory, owner & occupier
 Address for communication
 Nature of manufacturing process
 Total rated horsepower
 Name of the manager
 No. of workers likely to be employed etc
Health of workers
 Cleanliness
 Disposal of wastes & effluents
 Ventilation & Temperature
 Dust & fume
 Artificial humidification
 Overcrowding
 Lighting
 Drinking water
 Latrines & Urinals
 Spittoons
Safety of workers
 Fencing of machinery
 Work on near machinery in motion
 Employment of young persons on dangerous machine
 Striking gear & devices for cutting off power
 Self acting machines
 Casting of new machinery
 Prohibition of employment of women & children near cotton opener
 Hoists & Lifts
 Lifting machine, chains, ropes & lifting tackles
 Revolving machinery
Safety of workers
 Pressure plant
 Floors, stairs and means of access
 Pits, sumps, openings in floors etc
 Excessive weights
 Protection of eyes
 Precautions against dangerous fumes
 Precautions regarding the use of portable electric light
 Precautions against explosive or inflammable dust, gas, fire etc.
 Power to require specifications of defective parts or tests of stability
 Safety of building & machinery
 Maintenance of building
 Safety officers
Welfare of workers
 Washing facilities
 Facilities for storing & drying clothes
 Facilities for sitting
 First aid appliances
 Canteens
 Shelter, rest rooms & lunch rooms
 Creches (>30 women workers)
 Welfare officers (>500 workers)
Working hours
 Not more than 48hours per week or 9 hours per day
 Intervals of rest – fixed by factory
 Women employees – 6AM to 7PM

 Ordinary rate of wages = Basic wage + Allowances

 Extra wages for overtime – wages at twice the ordinary rate

 Annual leave with wages

 1 day for every 20/15 days of work performed in case of adult/child
 Application for leave – atleast 15 days before for private, 30 days for public
utility service
 Maternity leave not exceeding 12 weeks
Employees’ State Insurance Act, 1948
Object?
 The Act is a piece of social security legislation conceived as a
means of extinction of the evils of the society, namely, want,
disease, dirt, ignorance and indigence

Benefits?
 Sickness benefit
 Maternity benefit
 Disablement benefit
 Dependants’ benefit
 Medical benefit
 Funeral expenses
Employee?
 Any person employed for wages in or in connection with the work
of a factory or establishment
 Directly employed by the principal employer

 Employed through an intermediate employer

 Contract employees

 Apprentice, not being an apprentice engaged under the

Apprentices Act, 1961 or under Standing Orders

Wages?
 All remuneration paid in cash to an employee except employer
contribution to pension & provident funds, travelling allowance,
special expenses paid and gratuity payable on discharge
Contribution?
 Contribution – Sum of money payable to ESI Corporation by the principal
employer & employee
 Contribution period – Must not exceed 6 consecutive months

Contribution by Rate of Contribution

Employer A sum equal to 4.75% of the total wage bill of all employees rounded
to the next higher rupee
Employee A sum equal to 1.75% of his/her wages rounded to next higher rupee

 Employee Contribution is exemption for employees whose wages are <

Rs.50 per day
 Default in payment of contribution – to pay simple interest at 12% or
more per annum, till the date of its actual payment
 All disputes arising out of this are resolved by Employees’ Insurance Court
Minimum Wages Act, 1948
Object?
 To secure the welfare of the workers in a competitive market
by fixing the minimum rates of wages in certain employments

Scheduled employment – Workers in mines, plantation,

transport, mills etc

Appropriate State Government shall fix

 minimum rate of wages for time work
 minimum rate of wages for piece work
 guaranteed time rate
 overtime rate
Fixation & Revision of wages
Fixation & revision of minimum wages are done by
appropriate Government through either of the 2
methods
1. Appointment of committees & sub-committees as it
considers necessary to hold inquiries
2. Publication of proposals in the Official Gazette

Appropriate Government shall consult with Advisory

Boards before fixing/revising minimum wages
Employees’ Provident Fund &
Miscellaneous Provisions Act, 1952
 Object?
 It is a social security measure meant to induce employees to save a
portion from their present earnings for a rainy day

 Authorized Officer?
 Central PF Commissioner
 Additional Central PF Commissioner
 Deputy PF Commissioner
 Regional PF Commissioner
 Contribution is made to
 Employees’ Provident Fund Scheme
 Employees’ Pension Scheme & Fund
 Employees’ Deposit Linked Insurance Scheme (EDLI) & Fund
Contribution
Basic Salary = Basic Wages + Dearness Allowance
including cash value of any food concession + Retaining
Allowance
Employee Contribution Employer’s Contribution

12% of Basic Salary 12% of Basic Salary

Pension Fund: not exceeding 8.33% of
Basic Salary or Rs.541 whichever is lesser

Provident Fund: Rest of the 12% of Basic

Salary

EDLI Fund: Not exceeding 1% of Basic

Salary
Company Act, 1956
Company - “ an association of many persons who
contribute money or money’s worth to a common stock
and employ it in some common trade or business(for
common purpose) and who share the profit or loss arising
there from”
Characteristics of the company
1. Separate legal entity
2. Limited liability
3. –limited by shares
4. –limited by guarantee
5. Perpetual succession
6. Common seal
7. Transferability of shares
8. Separate property
9. Capacity to sue
 Company Vs Partnership

Company Partnership
Regulated under Companies Partnership Act 1932
Act 1956
Exits after registration under Registration not mandatory
Co.Act 1956
Managed by Directors, Board of Every partner should take part
Directors in the management
Property and rights is Transferable to any or all
nontransferable to partners
shareholders
 Company Vs Partnership
Shares are transferable when the Shares cannot be transferred
transferee becomes the member without the concern of all partners

Shareholders is not the agent…has Each partner is an agent…has

no power power
Members Public Pvt Min-2
Min 7 2 Max- banking 10
Max No limit 50 others 20
Bound by law and audited annually No statutory provisions

Only it can be dissolved (Wound Dissolved by death/ insolvency of

by provisions of companies Act partner or wound if it is for fixed
1956) period.
 Public Co. Vs Private Co.
Public Co. Private Co.
Min members- 7 Min- 2
Max members - no limit Max - 50

File with registrar to act as Director No restriction

Invites public to subscribe for No public invitation

shares / issues

Quorum members –5 2

Managerial remuneration cannot No restrictions

exceed 11% of NP

No privileges Special priviliges

Documents to be filed with Registrar for getting
Certificate of Incorporation
• Memorandum of Association signed by the subscribers
• Fundamental document
• Lays down the area of operation
• Regulates the external affairs of the co in relation to outsiders
• Articles of Association if any(public limited co limited by shares need
not have its own AOA
• Rules and regulations and bye-laws for the internal management of the affairs of a
company.
• Agreement between the Co and the individual for the appointment of
whole time Director or Manager
• List of directors agreed to act as director with their written consent
• Declaration relating to companies act and formalities related to
registration
Apprentices Act, 1961
“An apprentice is bound to obey his master in all his
lawful commands, take care of his property and promote
his interest, endeavor to learn his trade or business, &
perform all the conditions of his contract not contrary to
law. He must not leave his master’s service during the
term of his apprenticeship”

Object?
 To provide for the regulation & control of training of
apprentices
Types
 Technician (Vocational) Apprentice
 Undergo training for 2 years inorder to hold a certificate in vocational
course after completing secondary stage of school education,
recognized by All India Council of Technical Education
 Trade Apprentice
 Undergo apprenticeship training in any trade or business

Qualifications for being an apprentice

 14 years of age or above
 satisfies the standard of education & physical fitness as prescribed for
apprenticeship training
Employer’s responsibilities
 Total number of hours/week = 42 to 48 (6AM to 10PM)
 Employer shall look after
 Offer & Acceptance of employment
 Practical & basic training of apprentices & related instructions
 Health, Safety & Welfare of apprentices
 Leave / Overtime hours
 Payment of stipend
 Compensating for injury during training
 Holding test & granting certificate
 Records, settlement of disputes
Maternity Benefits Act, 1961
 Object?
 To regulate the employment of women in certain establishments for
certain periods before & after child birth & to provide for maternity
benefit & other certain benefits

 Wage?
 Remuneration in cash + Cash Allowances including DA & HRA +
Incentives + Money value of food grains
 Maternity benefit is a payment to a women (should have worked
atleast 80 days) at a rate of the average daily wage for the period of
her actual absence
 Maternity benefit is given for a maximum period of 12 weeks, of which
not more than 6 weeks shall precede the date of her expected delivery
Liabilities of Employer
 Pregnant women are prohibited to work in establishments during a
period of 6 weeks immediately following the day of her delivery or her
miscarriage

 Employer is liable to pay maternity benefit to her nominee or that

woman even in case of death of that woman/child respectively

 2 nursing breaks per day shall be allowed until the child attains the
age of 15 months

 6 weeks leave shall be allowed for miscarriage on production of the

prescribed proof
Payment of Bonus Act, 1965
 Bonus – “gratuity to workmen beyond their wages”

 Object?
 To maintain peace & harmony between labor & capital by allowing
the employees, in recognition of their right, to share in the
prosperity of the establishment reflected by the contributions made
by capital, management & labor

 A minimum bonus of 8.33% of the wage or salary (upto Rs.1600) of an

employee is payable irrespective of the fact whether the establishment
has made a profit or loss
 Bonus is no longer linked with production & profitability and so it is a
statutory liability for an employer
 60 or 67% of available surplus is allocated for bonus
Payment of Gratuity Act, 1972
Principle?
 By faithful service over a long period, the employee is entitled to
claim a certain amount as a retirement benefit

Rate of Gratuity
Application for gratuity
 An employee or his/her nominee shall write to the employer within 30
days from the date the gratuity become payable or shall be applied
before 30 days if date of superannuation is known

 If it is not paid by the employer within 30 days, then he shall pay

simple interest as prescribed by Central Government

 The grievances are redressed by controlling authority and the

collector shall recover the gratuity amount + compound interest from
the employer
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