LEGAL ENVIRONMENT OF

BUSINESS

UNIT 1: BUSINESS LEGISLATION

Compiled by Dr. Divya

 Meaning and Nature of Law

•Law means a set of rules.

•Law refers to a kind of conduct or a prescribed rule

that is enforced by a controlling authority.

•Law includes all those rules and regulations which

regulate our relations with other individuals and with
the state.
 Definition of Law

• It may be defined as the rules of conduct recognized

and enforced by the state to control and regulate the
conduct of people, to protect their property and
contractual rights with a view to securing justice,
peaceful living and social security.
 Definition of Law

Definition of Law by Salmond

• “ Law is the body of principles recognized and

applied by the State in the administration of justice ”.
 Object of Law

• Establishing Order

– The object of law is order, and the result of order is that

men are enabled to look ahead with some sort of

security as to the future.

• To establish social-economic justice

 Need for Law

• To ensure order in the society

• To resolve conflict

• To ensure justice in society

 Nature of Law

• There are two perspectives on Nature of Law:

1. First focuses on “What is Law” i.e. Definitions of Law

2. Second Focuses on functions of Law

 Nature of Law
Definition of Law
The various definitions are classified into five broad classes
(schools) in order to understand the nature and meaning of
law:
1. Natural
2. Positivistic
3. Historical
4. Sociological
5. Realistic
 Nature of Law
1. Natural Law

• ‘Law’ is the command of God and not of any political

sovereign. Law is given by God and is not written

• “Justice” is the main and guiding element of law

• Human rights are basic rights

• Definition of Law by Salmond:“ Law is the body of

principles recognized and applied by the State in the
administration of the justice ”.
 Nature of Law
2. Positivistic Definition of Law
• Main exponent of this school is Austin
• Law is the “command of the sovereign”.
• It obliges a certain course of conduct or imposes a duty
• It is backed by a sanction.
• Thus the three elements of law are:
i. Command
ii. Duty and
iii. Sanction
• It is also known as imperative or coercive theory
of law
 Nature of Law
3. Historical Definition of Law
• Chief exponent of this school is Savigny
• Law is not universal in its nature. Like language, it
varies with people and age
• Custom not only precedes legislation but it is superior to
it.
• Law has its source in the common consciousness of the
people.
• Legislation is the last stage of law making, and, therefore,
the lawyer or the jurist is more important than the
legislator.
 Nature of Law
4. Sociological Definition of Law
• Main exponent of this school is Dean Roscoe Pound
• Pound thinks of law as a social institution to satisfy social
wants – the claims and demands and expectations
involved in the existence of civilised society by giving
effect to as must as may be satisfied or such claims given
effect by ordering of human conduct through politically
organised society.
• Law is instrument of social change and should change
with changing needs of society
 Nature of Law
5. Realistic Definition of Law (American Legal Realism)

• Law is not a logic but is an experience

• Realists define law in terms of judicial process.

• It gives importance to the courts

 Nature of Law (Characteristics of Law)
• Law is a body of rules
• For the guidance and conduct of persons
• Law Presupposes a State
• The State makes or authorizes to make, or recognizes or
sanctions rules which are called law
• Law is Enforced by the executive
• For the rules to be effective, there are sanctions behind
them
• Serves Social/Political/Economic purpose
 Nature of Law (Characteristics of Law)
• Law is Changing (Non Static)
– Since the value system of society keeps on changing , the law
also keeps changing according to the changing requirements of
the society.
– The law is not rigid, it is flexible.
• Law develops Social Order & Compel Social Member to
remain in order
• No one is above the law
• Ignorance of law is no excuse-“ ignorantia juris non excusat”
• There are several branches of law such as International law,
constitutional law, criminal law, civil law etc. Every branch of
law regulates and controls a particular field of activity.
 Sources of Indian Law

• Statutes or Legislation

• Judicial Decisions or Precedents

• Customs and Usages (Customary Law)

• Personal Law e.g., Hindu and Mohammedan Law, etc.

• The Common Law (sometimes called as case law)

• English Mercantile Law

 Sources of Indian Law
• The Statute Law (Legislation) :

• Statute law or statutory law is what is created by legislation,

for example, Acts of Parliament or of State Legislature.

• The various Acts passed by the Indian Legislature are the

main sources of law in India, e.g. Indian Contract Act, 1872,
The Sale of Goods Acts,1930, The Partnership Act, 1932,
The Negotiable Instruments Act 1881, The Companies Act,
2013.
 Sources of Indian Law
2. Judicial Decisions or Precedents:
• Precedents means the guidance or authority of past decisions
of the courts for future cases.
• The principles of law expressed for the first time in court
decisions become precedents to be followed as law in deciding
problems and cases identical with them in future.
• The practice of following precedents creates confidence in the
minds of the litigants as a judicial decision is presumed to be
correct.
• Law becomes certain and known
• Administration of justice becomes equitable and fair.
 Sources of Indian Law
3. Customs and usages (Customary Law) :
• Customary laws are those rules of custom that are habitually
followed by the majority of the persons subject to them in
the belief of binding nature
• In ancient times lives of the people were regulated by customs
which developed spontaneously according to circumstances.
When the same thing was done again and again in a particular
way, it assumed the form of custom.
• The customs and usages of a trade govern the merchants of a
trade in their dealings both each other and are one of the sources
of mercantile law in India.
• Some Acts passed by the Indian Legislature recognizes the
importance of such customs and usages.
 Sources of Indian Law
4. Personal Law :
• Courts are required to apply the personal law of the parties
where the point at issue is not covered by any statutory law
or custom.
• Personal law in the case of hindus, is found in
(a) The Shruti -includes 4 Vedas.
(b) The ‘Smritis’ - There are 3 main Smritis; Manu,
Yajnavalkya and Narada.
The personal law of Mohammedans is to be found in the holy
Koran, Hadis, Ijmas, Kiyas or reasoning by analogy, Digests
and Commentaries on Mohammedan law
 Sources of Indian Law
5. The Common Law :
• Common Law is unwritten law of England, whose
sources are customs and traditions, developed over
centuries by the English courts.
• It is found in the collected cases of the various courts of
law
• Sometimes known as ‘case law’.
• The common law emphasizes precedents i.e. Judicial
Decisions of Higher Courts / System of Precedents
 Sources of Indian Law

6. English Mercantile Law:

• English laws (The Law Merchant) are the primary sources

of Indian Mercantile Law.

• The Law Merchant are based on customs and usages of

merchants in England.
 Mercantile Law

• Mercantile Law are legal principles related to the

commercial activities of the people of the society.

• It is that branch of law which is applicable to or concerned

with trade and commerce in connection with various
mercantile or business transactions.

• The most important feature of such a business transaction is the

existence of a valid agreement, express or implied, between the
parties concerned.
 Mercantile Law
Origin and growth of Mercantile Law in England: The
following are the main sources of English Mercantile Law:
• Law Merchant
The Mercantile Law or Law Merchant is the name given to that part
of law which grew up from the customs and usages of merchants or
traders in England which eventually became a part of Common Law
of England.
• Statute Law
• Common Law
• Principles of Equity
– Equity is a body of rules, the primary source of which was
neither custom nor written law, but the imperative dictates of
conscience and which had been set forth and developed in the
Courts of Chancery.
 Indian Mercantile Law

The main sources of Indian Mercantile Law are:

– English Mercantile Law

– Acts enacted by Indian Legislature

– Judicial Decisions

– Customs and Trade Usages.

 Indian Mercantile Law
1. English Mercantile Law: The Indian Mercantile Law is mainly an
adaptation of English Mercantile Law. However, certain
modifications wherever necessary, have been incorporated in it to
provide for local customs and usages of trade and to suit Indian
conditions. Its dependence on English Mercantile Law is so much
that even now in the absence of provisions relating to any matter in
the Indian Law, recourse is to be had to the English Mercantile Law.
2. Acts enacted by Indian Legislature or Statute Law: The
following Acts enacted by the Indian legislature from time to time
are important for the study of Indian Mercantile Law:
(i) The Indian Contract Act, 1872,
(ii) The Sale of Goods Act, 1930,
(iii) The Indian Partnership Act, 1932,
(iv) The Negotiable Instruments Act, 1881,
 Indian Mercantile Law
3. Judicial Decisions:
Judicial precedents are an important source of law.
Prior to independence, the Privy Council of Great Britain was the
final Court of Appeal and its decisions were binding on Indian
Courts.
After independence, the Supreme Court of India is the final Court
of Appeal.
But even then, the decisions of English Courts such as Privy
Council and House of Lords are frequently referred to as
precedents in deciding certain cases and in interpreting Indian
Statutes.
 Indian Mercantile Law
4. Customs and Trade Usages:
• Many Indian statutes make specific provisions to the effect that
the rules of law laid down in a particular Act are subject to any
special custom or usages of trade.
• Eg. Sec 1 of the Indian Contract Act, 1872, lays down that,
“Nothing herein contained shall effect … any usage or custom of
trade, nor any incident of any contract, not inconsistent with the
provisions of this Act”.
• Sec 1 of the Negotiable Instruments Act, 1881, lays down that,
“nothing herein contained... affects any local usage relating to
any instrument in any oriental language”.
• The whole law relating to Hundis and the Kachhi and Pakki Adat
Systems of Agency is based on custom and usage of trade as
recognised and given legal effect to by courts of law in India.
 Classification of Law
LAW

International National (State)

Law Law

Private Public
International Private Law
Public
law
Law
International
Law
Law of
Law of Property
Person
law of
obligations
Constitutional Admi
Law criminal nistrat
law ive Quasi- Tort
law Contract
Contract
 Classification of Law
A)PUBLIC LAW:- It determines and regulates the
organization and functioning of the State and determines the
relation of the State with the subject.
1) Constitutional law:
• Law which determines the nature of the State and the
Structure of the Government.
• Above and superior to the Ordinary law of the land.
• Is basic law or fundamental law of the State.
• May be written as in India or unwritten as in England.
 Classification of Law
A)PUBLIC LAW:-
2) Administrative Law:-
• Deals with the
structures, powers and the functions of organs of the
administration,
 the limits of their Powers,
the methods and Procedures followed by them in exercising their
powers and functions;
the methods by which their power are controlled and legal
remedies available to a person against them when his rights are
infringed by their operation.
3) Criminal law:-
• Defines offences and prescribes punishment for them.
• Aim: Prevention of and punishment for offences.
• Necessary for the maintenance of order and peace within the State.
 Classification of Law
B) PRIVATE LAW: -
• Regulates and governs the relations of citizens with each other.
• The parties in such cases are private individuals and the State
through its judicial organ adjudicates the matters in dispute
between them.
• State only regulates conducts and relations of the citizens which
are of public importance and constitute the civil rights of the
citizens.
1. The law of Persons
2. The law of Property
3. The law of obligations:
• Divided into (i) Contract (ii)Quasi contract (iii) Tort
4. The conflict of laws
 Classification of Law

• International law:-
• International Law is the legal Process that concerns legal
relations among nations
• The United Nations is the Primary mechanism that
articulates and creates international law.
• Major sources of International Law: multilateral
Treaties, international custom and such General Principles
as are recognized by civilized nations.
 Essential Elements of Law

(a) Society makes laws;

(b) There is a system to enforce law; and

(c) Law develops as does society historically, culturally,

economically, and politically.
 Essential Elements of Law

(a) Law must be certain

(b) Law must be simple, clear and unambiguous

(c) Law must be reasonable

(d) Law must be stable

(e) Law must ensure liberty, justice and equality

(f) Law must not be rigid, it should change as society

changes historically, culturally, economically, and politically.
 Indian Legal System
• Government of India is mainly composed of
the executive, legislative, and judicial branches, in which
all powers are vested by the Constitution in the Parliament,
the President and Prime Minister and the Supreme Court.
• The executive power is vested mainly in the President of
India, as per Article 53 (1) of the constitution.
• The President of India is the Head of State and the
Supreme Commander of the Indian Armed Forces.
• The President has all constitutional powers and exercises
them directly or through officers subordinate to him as per
the aforesaid Article 53(1).
 Indian Legal System
• The people elected Prime Minister acts as the chief
executive (of the executive branch) and he leads
the Council of Ministers.
• Prime Minister is responsible for running the Government.
• The President is to act in accordance with aid and advice
tendered by the Prime Minister
 Indian Legal System
• Legislative branch in India is exercised by
the Parliament and a bicameral legislature consisting of:
1. Rajya Sabha (upper house): consists of members
appointed by the President and elected by the state and
territorial legislatures.
2. Lok Sabha (lower house) is the House of the people.
 Indian Legal System
• The judicial branch systematically contains an
apex Supreme Court, 24 high courts, and several district
courts; all inferior to the Supreme Court.

Supreme court is the guardian of the Constitution and

ultimate interpreter of the law of land. It is the highest
appellate court

High Court , generally found in state capitals

Lower court : each HC has its subordinate courts dealing with

civil, criminal and revenue matters at the district level
 Legal Theory and Nature of Jurisprudence

No person shall be deprived of his life or personal liberty

except according to procedure established by law.
– Constitution of India, Article 21

Legal theory is a systematic study of law. It is the

philosophy of law that studies the legal aspects in the
context of the society’s cultural, political, economic, and
other areas.
Jurisprudence, as against the theory, concerns itself with
the procedures and application of the law.
 Legal Terminology and Maxims

A legal maxim is an established principle or

proposition. The Latin term which were used as
the language for law and courts, are presently in
use in law.
 Legal Terminology and Maxims
Term/Phrase Meaning
ab initio From the beginning.
Created or done for a particular purpose. Not
ad hoc intended to be adapted to other purposes.
ad idem To the same thing.
ad infinitum To infinity.
ad valorem According to value.
alter ego A second identity living within a person.
amicus curiae Friend of the court.
audi alteram partem Hear the other side.
bona fide In good faith.
de facto In fact.
de jure In law.
de novo A new.
dehors Outside of scope of (eg will, agreement).
 Legal Terminology and Maxims
Term/Phrase Meaning
ex gratia As a matter of grace or favour.
ex officio By virtue of an office.eg ex-officio member of committee
signifies something done or said by one person not in the
ex parte presence of his opponent.
An accomplished act. Thing that has been decided before those
fait accompli affected hear about it, leaving them with no option but to accept it.
actus reus Guilty act.
Against the person. Refers to jurisdiction of a court to
in personam hear a case and render a decision over a party
Not against a specific person. An act/proceeding done or
directed with reference to no specific person or with
in rem reference to all whom it might concern.
inter alia Amongst other things.
A person is deemed to die intestate in respect of property
of which he or she has not made a testamentary
intestate disposition (“will”) capable of taking effect.
 Legal Terminology and Maxims
Term/Phrase Meaning
inter vivos Between living persons.eg a gift, sale of property
intra vires Within the powers.
ipso facto By the mere fact.
ipso jure By the law itself.
lis pendens A pending suit.
locus standi Signifies a right to be heard.
mens rea A guilty mind.
Intermediate profits, the profits which a person in
wrongful possession of the property actually received
or might with ordinary diligence have received
therefrom together with interest on such profits
excluding the profits due to improvement made by the
mesne profits person in wrongful possession.
Mode of operating; the way in which a thing, cause etc.
modus operandi operates.
 Legal Terminology and Maxims
Term/Phrase Meaning
mutatis With the necessary changes in points of detail, with such
mutandis change as may be necessary.
An opinion of law not necessary to the decision. An
expression of opinion (formed) by a judge on a question
immaterial to the ratio decidendi, and unnecessary for the
decision of the particular case. It is no way binding on
any court, but may receive attention as being an opinion
obiter dictum of high authority.
pendente lite During litigation.
The giving of one thing of value for another thing of
quid pro quo value; one for the other; thing given as compensation.
Prima facie On the face of it, on first sight
ratio decidendi Principle/Reasons/rationale/grounds of decision.
An untouched matter; a point without a precedent; a case
res integra of novel impression.
 Legal Terminology and Maxims
Term/Phrase Meaning
res judicata A case or suit already decided.
A rule to show cause why a party should not do a
certain act, or why the object of the rule should
rule nisi not be enforced.
sine die Without day.
sine qua non An indispensable requisite.
To stand by things decided; to abide by
precedents where the same points come again in
stare decisis litigation.
status quo Existing condition.
Before a judge or court, pending decision of a
sub judice competent count.
ultra vires Beyond one’s powers
 READING CITATIONS

Case Name
• There are typically two names for a case.
• First name identifies who is bringing the court action
(Plaintiff in a civil case)
• 2nd name is the person against whom action is being
brought (defendant).
Year: This is the year in which the decision was delivered by
the court.
 READING CITATIONS
Name of Reporter: A ‘reporter’ is a multi-volume
publication where court decisions are found.
 Business and Legal environment
• No Business can operate without being bound by laws
• The laws which are passed by the government for business
operation is called legal environment.
• In every country, the government regulates business activities.
These regulations of government set the limits for business
operations and are also considered as legal environment.
• All business policies and decisions are highly influenced by
legal environment, therefore, the organization should have
thorough knowledge of these policies
 Business and Legal environment
• No Business can operate without being bound by laws

• Non-implementation of legal policies results in heavy fines,

penalties & punishment & therefore every organization must
follow all these regulations.

• Business transactions are mostly based on promises to perform

on a later date. The enforceability of these promises is essential
for business world.

• The Law of Contract is concerned with enforcement of these

promises.
 Business and legal Environment

Legal Environment
Conductive Factors
1. System of the rule of law
2. Helps in uniformity
3. Based on provable
evidence and beyond
reasonable doubt
Non - Conductive Factors
1. Procedural delays
2. Non-availability of
specialized lawyers & legal
aid
3. Corruption
4. Costly-both in terms of time
and money
5. Problems of legal jargon
LEGAL ENVIRONMENT OF BUSINESS
IN INDIA
Indian Contract Act (1872)
Negotiable Instruments Act, 1881

Companies Act, 2013

LEGAL
ENVIRONMENT Competition Act, 2002
Sale of Goods Act, 1930
Consumer Protection Act, 1986
Information Technology Act,
2000
 LEGAL ENVIRONMENT OF BUSINESS IN INDIA

INDIAN CONTRACT ACT, 1872

• The Law of Contract constitutes the most important branch
of mercantile or commercial law.
• The law relating to contracts in India is contained in Indian
Contract Act, 1872.
• It determines the circumstances in which promise made by
the parties to a contract shall be legally binding on them.
• Each contract creates some right and duties upon the
contracting parties.
• Indian Contract deals with the enforcement of these rights
and duties upon the parties in India.
 LEGAL ENVIRONMENT OF BUSINESS IN INDIA
INDIAN CONTRACT ACT, 1872
Indian Contract Act originally included simple and elementary
rules relating to Sale of goods and partnership.
Provisions Section
General Principles of Law of Contract 1 to 75
Contract relating to Sale of Goods 76 to 124

Special kinds of Contracts (includes indemnity, 125 to 238

guarantee, bailment & pledge)
Contracts relating to Partnership 239 to 266
 LEGAL ENVIRONMENT OF BUSINESS IN INDIA
Subsequently the provisions relating to the sale of goods and
partnership contained in the Indian Contract Act were repealed
respectively in the year 1930 and 1932 and new enactments
namely Sale of Goods and Movables Act 1930 and Indian
Partnership act 1932 were re-enacted. At present the Indian
Contract Act includes:

Provisions Section
General Principles of Law of Contract 1 to 75
Special kinds of Contracts (includes indemnity, 125 to 238
guarantee, bailment & pledge)
 LEGAL ENVIRONMENT OF BUSINESS IN INDIA
COMPANIES ACT, 2013
• The companies are regulated under Companies Act 2013.
• The Companies Act, 2013 provides for a variety of companies of
which can be promoted and registered under the Act. These
companies may be:
Limited by shares;
Limited by guarantee;
Unlimited companies.
• Companies may also be classified as: (a) Private Companies; (b)
Public Companies; (c) One Person Company (d) Company with
charitable objects, etc. (e) Small Company (f) Government
companies; (g) Foreign companies; (h) Holding companies; and (i
Subsidiary companies. (j) Producer Companies.
 LEGAL ENVIRONMENT OF BUSINESS IN INDIA

COMPANIES ACT, 2013

• Companies Act provides for various aspects such as

 Board processes,

 Meetings (board meetings and shareholders’ meetings)

 The appointment, removal, qualification, etc. of officers of

the company involved in operations of a company mainly
the directors, key managerial personnel and the company
secretary.
 LEGAL ENVIRONMENT OF BUSINESS IN INDIA

The Sale of Goods Act 1930

• Contracts or agreements related to the sale of goods are
governed under the Sale of Goods Act 1930.
• Sale of Goods is one of the special types of Contract.
• Basic provisions of Contract Act apply to contract of Sale
of Goods Act also.
• Sale of Goods Act defines a contract of sale, and goods
LEGAL ENVIRONMENT OF BUSINESS IN INDIA

• The Sale of Goods Act 1930

• Distinguishes between sale and agreement to sell, sale and
bailment, hire purchase, contract for work and labour.

• Price, which is money consideration for the sale of goods,

constitutes the essence for a contract of sale.

• The Act gives rights of buyer and of seller

• It covers condition and warranties

 LEGAL ENVIRONMENT OF BUSINESS IN INDIA

Negotiable Instruments Act, 1881

• Sale Exchange of goods and services require flow of cash either
immediately or after a certain time.
• Certain documents may be used to make payments.
• Some of these documents are called negotiable instruments.
• Accepting payment using negotiable instruments is no less a risky
transaction than cash transaction since it involves deferred
payments.
• The Negotiable Instruments Act was passed in 1881 to regulate
commercial transactions in which payment is through negotiable
instruments such as promissory notes, bills of exchange, cheques.
 LEGAL ENVIRONMENT OF BUSINESS IN INDIA

Negotiable Instruments Act, 1881

• The Act recognizes only three kinds of negotiable
instruments under Section 13 but it does not exclude any
other negotiable instrument provided the instrument
entitles a person to a sum of money and is transferable by
delivery.
• It is an Act to define and amend the law relating to
promissory notes, bills of exchange and Cheques including
negotiation, endorsements, honour, discharge and
dishonour of these negotiable instruments and rights and
liabilities of parties to these instruments.
 LEGAL ENVIRONMENT OF BUSINESS IN INDIA

Information Technology Act 2000

• India is the 12th nation in enactment of cyber law with the
passage of Information Technology Act, 2000.
• The Act provides legal recognition for transactions carried
out by means of electronic data interchange and other
means of electronic communication, commonly referred to
as “electronic commerce”, which involves the use of
alternatives to paper based method of communication and
storage of information, to facilitate electronic filling of
documents with the Government agencies.
 CIVIL LAW CRIMINAL LAW
Scope of rights and
Civil law defines the Criminal law defines an
obligations
Civil vs. Criminal
rights between individual’s obligations to
individuals or society as a whole.
individuals and
governments.
Person commencing Plaintiff Government
the action:
Outcomes Damages Imprisonment
Specific Fines
performance Good behaviour bonds
Injunction Community service
order
Standard of proof: On the balance of Beyond a reasonable doubt
probabilities
Burden of proof Plaintiff Prosecutor