Introduction to Business Law

(Unit-1:) - MCG

Prof. C. Anand

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 Unit-1:Introduction to Business Law - Contents
1. Introduction to Business Law
2. Nature of Law
3. Meaning & Definition of Business Laws
4. Scope and Sources of Business Law
5. Fundamental Rights and Directive Principles of
State Policies
6. Principles having Economic Significance
7. Overview of Business Laws in India

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 1. Introduction to Business Law
1. Concept of Business Law: Business Law provides the
rules by which people and businesses interact. Law affects
almost every function and area of business. Every business
decision has legal repurcussins including deciding whether
to incorporate a business, obtaining financing, protecting
proprietary knowledge used to develop products/services,
entering into contracts to purchase raw materials, ensuring
that products meet safety standards, promoting and pricing
products, services, entering into contracts to sell
products/services, providing product warranties and after
sales service. Business Law leads prosperity of a country.
Importance of Business Law: 1. Protection of Economic Life;
2. Regulation & Systematization of Business; 3.
Commencement and development of Business; 4.
Enforcement of Business Contract; & 5. Delivery of Justice.

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 2.Nature of Law
2 . Nature/Features/Characteristics of Law: They are
as follows:-
1. Law is a conduct, culture, tradition and religion
developed by human beings.
2. It creates rights and duties, creating specific
powers and responsibilities to people.
3. It maintains peace and security.
4. It provides justice to the victims of injustice and
punishment to the law breakers.
5. It regulates the day-to-day activities of people.
6. Law is defined and interpreted and clarified by the
courts – High Courts and Supreme Court.

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 3. Meaning & Definition of Business Laws
3. Meaning & Definition of Business Laws:
a. Meaning of Law/Business Law: Law operates to regulate the actions of
persons with respect to one another and entire group or society and the
State.
On the other hand, Business Law deals with rights and obligations arising
out of mercantile transactions among mercantile persons. Business Law
denotes aggregate body of legal rule connected with trade, industry &
commerce.
Definitions of Law by different authors:
Salmond: Law is the body of principles recognized & applied by the State
for the administration of Justice.
Holland: Law is a general rule of external behavior enforced by a sovereign
political authority.
John Austin: Law is a body of rules fixed & enforced by a sovereign
political authority.

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 4. Scope and Sources of Business Law
4. Scope and Sources of Business Law:
A. Scope of Business Law: Business Law is not only concerned
with business community, but also with entire people of the
society. The Contract Act is much applicable both to the business
and non-business community. Both businesses and individuals
enter into a no. of contracts many times.
Business Law is incorporated in a no. of Acts and governs the
rules and regulations of the Government to run the business
activities smoothly.
The following Laws are incorporated in Mercantile or
Business Law:- 1. Contract Act; 2. Sales of Goods Act; 3.
Partnership Act; 4. Companies Act; 5. Negotiable
Instruments Act; 6. Banking Companies Act; 7. Insurance
Companies Act; 8. Carriers and Carriage of Goods Act; 9.
Commercial Securities Act; 10. Patents and Copyright Act;
11. Insolvency Act; and 12.Arbitration Act.
 4. Scope and Sources of Business Law
B. Sources of Business Law: The main sources of Mercantile /
Business Law: Indian Mercantile Law is largely based upon
English Mercantile Law. The main sources of Indian Mercantile
Law are: 1. English Mercantile Law; 2. Statute Law; 3. Judicial
Decisions; and 4. Customs and Usage.
1. English Mercantile Law is the most important source of Indian
Mercantile Law. Many rules of English Law have been
incorporated into Indian Law through statutes and judicial
decisions. The sources of English Law are: i. Common Law
(Judge made Laws); ii. Equity (Based on concepts of justice
developed by judges); iii. Statute Law (Laws laid down in the Acts
of Parliament); iv. Case Law ( Built upon the decisions of the
judges); v. Law Merchant ( Legal principles based on customs and
usage in English Mercantile Law).
2. Statute Law: A Bill passed in Indian Parliament or in State
Assemblies becomes Statutes or Acts. The Indian Contract Act,
1872; The Sale of Goods Act, 1930; Exp. Co Act, 1956.
3. Judicial Decisions: These are case laws. They are precedents
and are binding on all courts having lower jurisdictions.
4. Customs & Usages: Most of business customs and usage have
been codified and given legal sanctions in India by courts. 7
5. Fundamental Rights and Directive Principles
of State Policies
A. Fundamental Rights: Indian Constitution guarantees some
fundamental rights to the citizens of India. That is, the Indian
Govt. cannot pass an act that isolates or restricts the
fundamental rights in any way. Further, one may seek
protection of the Court for the vindication of fundamental
rights. The Fundamental Rights include:
1. Right to Equality
2. Right to Freedom
3. Right against Exploitation
4. Right to Freedom of Religion
5. Cultural and Educational Rights
6. Right to Property*
7. Right to Constitutional remedies
* Right to Property was removed by the 44th Constitutional
Amendment in 1978. Thus there are only 6 Fundamental
Rights in Indian Constitution.
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5. Fundamental Rights and Directive Principles of
State Policies
The Fundamental Rights are defined as the basic human rights of
all citizens. These rights, defined in Part III of the Constitution,
applied irrespective of race, place of birth, religion, cast, creed,
or gender. They are enforceable by the courts, subject to specific
restrictions.
The Fundamental Rights guarantee civil rights to all Indians, and
prevent the State from encroaching on individual liberty while
simultaneously placing upon it an obligation to protect the
citizens' rights from encroachment by society. 
The Fundamental Rights include:-
 
 5. Fundamental Rights & Principles of State Policies
Fundamental Rights explained elaborately:
(i) Right to Equality:
The Right to Equality is one of the chief guarantees of the
Constitution. It is embodied in Articles 14–16, which encompass
general principles of equality before law & non-discrimination.
(ii) Right to Freedom:
The Right to Freedom is covered in Articles 19-22, with the view of
guaranteeing individual rights that were considered vital by the
framers of the Constitution, and these Articles also include certain
restrictions that may be imposed by the State on individual liberty
under specified conditions. Article 19 guarantees six freedoms in
the nature of civil rights, which are available only to citizens of
India. These include the freedom of speech, freedom of
assembly without arms, Freedom of Association, Freedom of
Movement throughout the territory of our country, freedom to
reside and settle in any part of the country of India and freedom to
practice any profession. All these freedoms are subject to
reasonable restrictions that maybe imposed on them by the State.
5. Fundamental Rights and Directive Principles
of State Policies
(iii) Right against Exploitation:
The Right against Exploitation, contained in Articles 23–24, lays
down certain provisions to prevent exploitation of weaker sections
of society by individuals or State.[ Article 23 prohibits human
trafficking, making it an offence punishable by law, and also
prohibits forced labor or any act of compelling a person to work
without wages where he was legally entitled not to work or to
receive remuneration for it. However, it permits the State to impose
compulsory service for public purposes.  The Bonded Labor
system (Abolition) Act, 1976, has been enacted by Parliament to
give effect to this Article. Article 24 prohibits the employment of
children below the age of 14 years in factories, mines and other
hazardous jobs.
(iv) Right to Freedom of Religion:
Right to Freedom of Religion, covered in Articles 25–28, provides
religious freedom to all citizens & ensures a Secular State in India.
According to the Constitution, there is no official State religion,
and State is required to treat all religions impartially & neutrally.   &
5. Fundamental Rights and Directive Principles of
State Policies
Article 25 guarantees all persons the freedom of conscience and
the right to preach, practice and propagate any religion of their
choice. This right is, however, subject to public order, morality
and health, and the power of the State to take measures for
social welfare and reform. The right to propagate, however, does
not include the right to convert another individual, since it would
amount to an infringement of the other's right to freedom of
conscience.
(v) Cultural and Educational Rights:
The Cultural and Educational rights, given in Articles 29 and 30,
are measures to protect the rights of cultural, linguistic and
religious minorities, by enabling them to conserve their heritage
and protecting them against discrimination. Article 30 confers
upon all religious and linguistic minorities the right to set up and
administer educational institutions of their choice in order to
preserve and develop their own culture, and prohibits the State,
while granting aid, from discriminating against any institution on
basis that it is administered by a religious/cultural minorities. 1
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5. Fundamental Rights and Directive Principles
of State Policies
(vi) Right to Constitutional Remedies:
It empowers citizens to approach Supreme Court to seek
enforcement, or protection against infringement, of their
Fundamental Rights. The Supreme Court has been empowered to
issue writs. for the enforcement of the Fundamental Rights. The
Supreme Court has the jurisdiction to enforce the Fundamental
Rights even against private bodies, and in case of any violation,
award compensation as well to the affected individual.
Directive Principles of State Policies: The Fundamental Rights,
Directive Principles of State Policies and Fundamental Duties are
sections of the Constitution of India that prescribe the fundamental
obligations of the State to the citizens and the duties of the citizens
to the State.
The framers of the Constitution provided every state with some
guiding principles which are meant for promoting the ideal of social
and economic democracy. These guiding principles are known as:
Directive Principles of State Policy.
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5. Fundamental Rights and Directive Principles
of State Policies
These Principles ensure to avoid the violation of
fundamental rights of the citizen of State. They are meant
to establish a Welfare State. These principles are non-
judicial in nature. They can’t be enforced by the Courts for
their violation. But these principles have been declared as
the fundamental principles in the governance of the
country and it is the duty of the State to apply them in
making the laws. Hence they impose a moral
responsibility on the state authorities for their application.
Directive Principles of State Policy: Features & Principles:

A. Features: These principles signifies the ideals that the

State should keep in mind while making policies and
enacting laws. These are the constitutional

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 5. Fundamental Rights & Directive Principles
of State Policies
instructions on recommendations yo the State in legislative,
executive and administrative matters. It includes the legislative
and executive organs of the Central and the State Governments,
all local authorities, and public authorities in country.
These Principles are like instructions to the legislature and
executive.
These Principles constitute a highly extensive economic, social
and political program for a modern Democratic State. They aim
at realizing high ideals of justice, liberty, equality & fraternity as
outlined in yhe Preamble to Constitution – thus establishing
social & economic democracy in India.

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5. Fundamental Rights & Directive Principles of
State Policies
These Directive Principles are non-judicial in nature. Hence
Governments cannot be compelled to enforce them. But these
principles are fundamental in the governance of the country
and it shall be the duty of the Governments to apply these
principles in making laws.
These Directive Principles help courts in determining the
constitutional validity of a law. The Supreme Court ruled many
a times that in determining the constitutional validity of law.
Supreme Court has ruled many a times that in determining the
constitutionality of any law, if a court finds that the law in
question seeks to give effect to a Directive Principle, it may
consider such law to be reasonable in relation to Article 14
(Equality before Law) or Article 19 (six Fundamental Freedoms)
and save such law from unconstitutionality.

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5. Fundamental Rights & Directive Principles of
State Policies

B. Classification of Directive Principles of State Policy:

These Principles are divided into 3 categories: 1. Socialistic
Principles; 2. Gandhian Principles; and 3. Liberal-Intellectual
Principle.
1. Socialistic Principles: These principles reflect the ideology of
Socialism. They lay down the framework of a democratic
socialist state and aim at providing social and economic, and set
the path towards state.
Articles 38 (promote Welfare of People), 39 (right to adequate
means of livelihood), 39A (to promote equal justice), 41 (to
secure right to work), 42 (To get humane conditions to work), 43
(To secure living wage), 43A (To secure participation pf workers
in management), and 47 (To raise level of nutrition & standard of
living).

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5. Fundamental Rights & Directive Principles of
State Policies
2. Gandhian Principles: These principles are based on Gandhian
ideology. They represent the program of reconstruction enunciated
by Gandhi during the national movement. In order to fulfil the
dreams of Gandhi , some of his ideas were included as Directive
Principles.
Following Articles state the guidelines of Gandhian Principles of
State Policy: -
(i) Article 40: To organize village panchayats and endow them with
necessary powers and authority to enable them to function as units
of self-government.
(ii) Article 43: To promote cottage industries on an individual or
cooperation basis in rural area.
(iii) Article 43B: To promote voluntary formayion, autonomous
functioning, democratic control and professional management of
co-operative societies.
(iv) Article 46: To promote educational & economic interests of SCs,
STs & other weaker sections of society & to protect them
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from social injustice and exploitation.
5. Fundamental Rights & Directive Principles of
State Policies
(v) Article 47: To prohibit the consumption of intoxicating drinks
and drugs which are injurious to health.
(v) Article 48: To prohibit the slaughter of cows, calves, and other
milch and draught cattle and to improve their breeds.
3. Liberal Intellectual Properties: The Principles contained in this
category signify the ideology of Liberalism. Following articles
state the guidelines of Liberal –Intellectual Principles of State
Policy:-
(i) Article 44: To secure for all citizens a uniform civil code
throughout the country.
(ii) Article 45: To provide early childhood care and education for
all children until they complete the age of 6 years.
(iii) Article 48: To organize agriculture and animal husbandry on
modern and scirntific lines.
(iv) Article 48 A: To protect and improve the environment and to
safeguard forests and wildlife.
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5. Fundamental Rights & Directive Principles of
State Policies
(v) Article 49: To protect monuments, places and objects of artistic
or historic interest which are declared to be of national importance.
(v) Article 50: To separate the judiciary from the executive in the
public services of the State.
(vi) Article 51: To promote international peace and security and
maintain just and honorable relations between nations, to foster
respect for international law and treaty obligations, and to
encourage settlement of international disputes by arbitration.
C. Guidelines of Directive Principles of State Policy and their
Importance:
(a) Guidelines of Directive Principles: Following are the guidelines:
(i) To secure equal justice by providing free legal aid to the poor
and to ensure that opportunities for securing justice are not denied
to any citizen by reason of economic or other disabilities.
(ii) To Organize Village Panchayats & to endow them with such
powers & authority as may be necessary to enable them to function
as units of self-Government. 20
5. Fundamental Rights & Directive Principles of
State Policies
(iii) To secure the right to work, to education and to public assistance
in cases of unemployment, old age, sickness and disablement and
other cases of undesired want.
(iv) To make provision for security just and human conditions of work
and for maternity relief.
(v) To secure to all workers, agricultural, industrial or otherwise, work a
living wage, conditions of work ensuring a decent standard of life and
full enjoyment of leisure and social, cultural opportunities and in
particular, to endeavor to promote cottage industries on an individual
or cooperative basis in rural areas.
(vi) To secure the participation of workers in the management of
undertakings, establishment of other organizations engaged in any
industry.
(vii) To secure for the citizens a unified civil code throughout the
territory of India.
(viii) To endeavor to provide free and compulsory education for all
children until they complete the age of 14 years.
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5. Fundamental Rights & Directive Principles of
State Policies
(ix) To promote educational & economic interests of weaker sections
(scheduled castes & tribes) and to protect them from social injustice
and all forms of exploitation.
(x) To raise the level of nutrition & standard of living of people and
improve public health and to bring about public prohibition for
consumption of intoxicating drinks and drugs injurious to health.
(xi) To organize agricultural & animal husbandry on modern scientific
lines and to take steps for preserving & improving the breeds &
prohibiting slaughter of cows, calves and other milch and draught
cattle.
(xii) To protect and improve the environment and to safeguard the
forests and wild life of the country.
(xiii) To protect every monument or place or object of artistic or historic
interest from spoliation, disfigurement, destruction, removal, disposal
or export.
(xiv) To separate the judiciary from the executive in the public services
of the State.
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5. Fundamental Rights & Directive Principles of
State Policies
(xv) To promote international peace and security, to maintain just
and honorable relations between nations, to foster respect for
international law and treaty obligations in the dealings of organized
people with one another and to encourage settlement of
international disputes by arbitration.
B. Importance of Directive Principles: Same is explained below:-
1. Socialism: This is the age of socialism and welfare state. In this,
we are required to promote economic, social and cultural welfare of
the citizens. The Directive Principles enshrined in the constitution
aim at giving effect to these modern social and political ideals.
2. Minimizing Competitive Economy: Directive Principles aim at
minimizing the effects of competitive economy . If free competition
is allowed to dominate life, the poor are going to be affected. Only
the rich & strong will survive. Directive Principles aim at promoting
the spirit of cooperation and mutual aid in society so that every
individual irrespective of caste, creed, sex, birth, etc. may get a
chance to lead a decent human life.
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5. Fundamental Rights & Directive Principles of
State Policies
3. Conscience of Constitution: Directive Principles constitute the
conscience of our constitution. Their purpose is to fix certain
economic and social goals for immediately bringing about a non-
violent social revolution. Through such social revolution, the
constitution seeks to fulfill the basic needs of common man and to
change the structure of our society. It aims at making the Indian
masses free in the positive sense.
4. Non-Violent Socio-Economic Revolution: The most important
thing about the Directive Principles of State Policies is that they
aim at bringing about a non-violent socio-economic revolution in
the country. This is the age of revolutionary upheavals. The
masses are on the march everywhere. If exploitation of man by
man is not eliminated, if social justice is not established by
peaceful democratic methods, violent upheavals are bound to
occur. If Directive Principles are implemented, there would be no
need for a violent revolution.

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 6. Principles having Economic Significance
Principles having Economic Significance: The Constitution framers
enshrined so many principles to establish a new social order in
which social, economic and political justice will prevail. Social
justice will ensure minimum basic needs of citizens in civilized
society and establish a democratic set-up followed by
constitutional reforms. To fulfill the basic objective, the State has
been charged to make provisions for securing the Rights to work,
education, assistance in case of unemployment, old age, sickness,
disability and other cases of undeserved want. To implement and
translate such directives into action, the Govt. has taken so many
steps colored by these directive principles.
The Government has enacted social, labor and economic
legislations besides industrial, agricultural and taxation policies.
Exp. The Taxation Enquiry Commission (TEC), 1953-54 was asked
to examine the tax structure and to suggest measures inequalities
of income and wealth. The Industrial Development & Regulation
Act, 1954 and the establishment of Monopolies Enquiry
Commission in 1965 was aimed to achieve the objective of TEC. 25
 6. Principles having Economic Significance
Monopolies Commission made inquiries into the causes and extent of
concentration of economic power in private hands, the factors
responsible for monopolies tendencies in the national economy and
their social consequences. Similarly in the early years of 1950s Land
reforms legislation was enacted to abolish intermediaries and
zamindari system, and now land - both rural and urban is subject to
ceilings and the surplus land has gone to the weaker sections of the
community. In compliance with such laws, many States have enacted
separate State Acts to prevent concentration of land holdings and fixed
a ceiling for individual owners. A large no. of laws have been enacted to
implement organization of Village Panchayats, & Panchayati Rajs as
institutions of self-governments.
Govt. has also established All-India Handicraft Boards, Handloom
Boards, Small-Scale Industries Boards, Silk Boards and Coir Boards for
promotion of cottage industries. The National Small Industries
Corporation (NSIC) and Khadi & Village Industries Commissions have
been set up for development of Khadi & Village Inds. Various measures
were taken up for upliftment of SC/STs.
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 6. Principles having Economic Significance
The Govt. took up various community development programs in
1952 for rural reconstruction in the field of communications,
transport, housing, sanitation, agriculture, education etc. Steps
were taken to prohibit and restrict people from taking intoxicating
drinks and drugs. Legislation has been enacted to protect
monuments and places of national important.
Central Government has also enacted the National Rural
Employment Guarantee Act (NREGA) to ensure 100 days work
assistance to rural people – which is in line with the Right to Work
- as enshrined in the Directive Principles of State Policy of the
Indian Constitution.
The Principle of International Peace & Security enshrined in Article
51 finds its full expression in the external policy of India. After
Independence, the Government of India, under the leadership of
Jawaharlal Nehru, advocated many ideals of peace and mutual
tolerance.

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 7. Overview of Business Laws in India
To operate businesses, we should have knowledge of all Business
Laws – both National and International. The law which applies in
any business situation will depend upon what governing body has
authority, both with respect to- (i) The location of the business
(The Country or State where business is being carried out); and (ii)
the area of activity (in some places, international agreements like
European Common Market) may come into force.
The Role of Courts: In running businesses, it is important to
understand the role of courts in its area. Wherever the business is
located, courts are responsible for a range of things as follows:-
1. Arbitrating the Constitution; 2. Interpreting Legislation; 3.
Arbitrating Disputes; and 4. Protecting Civil Rights.
1. Arbitrating the Constitution: In Australia, for example: There are
two distinct levels of Government – State and Federal.
Under the constitution of the Federal and various State
Governments, each Government has designated distinct spheres
of influence which it can act within. It is illegal for a Government to
act outside of its designated sphere of activity. 28
 7. Overview of Business Laws in India
If someone is unhappy with the way a Government Department is
putting into practice Sections of a State or Federal Constitution,
they may complain to the department which administers that
Section of the Law. If the Govt. employee changes his/her decision,
the matter will end there. If the dispute is not settled, a complaint
can then be made to either an administrative board or to the courts.
If the dispute is serious and still not reached to the satisfaction of
both parties after appeal, the option then exists for a further appeal
to be made to a higher court (e.g. Supreme Court) , whose ruling
will be final.
2. To Interpret Legislation: Legislation is the Act of Parliament .
Most words written in Legislation do not have precise meanings.
This fact leaves Legislation open to be interpreted in different ways
depending on who is reading it and how literal or liberal a view they
take.
New legislation always has the possibility of affecting the way
existing legislation would be interpreted. Frequently there are
conflicts created between two different pieces of legislation if 29
 7. Overview of Business Laws in India
interpretation is made in a liberal way. In extreme cases of conflict
between two pieces of legislation, a Government may repeal one in
order to prevent undesirable interpretations being made by the
courts.
Courts have a role to decide what is the proper interpretation of the
legislation.
3. To Arbitrate in Disputes: Though there is legislation which affect
disputes between people or organizations , there are many areas
where there is no legislation exists. In these areas, the courts have
developed opinions and made rulings which form precedents. In
each disputes, the courts will make a judgment, and the same is
binding .
4. To Protect Civil Liberties: Civil Liberties are things such as
freedom of religion, freedom of speech, and freedom of politics.
Some countries will have a bill of rights incorporated into their
constitution, or legislation. But, Australia does not. There are laws
in some States which guarantee certain civil liberties (e.g. equal
rights legislation – where it is illegal to advertise a job for one sex30
 7. Overview of Business Laws in India
or group and exclude other groups. There are also some laws
which interfere with what some people would call civil liberties (e.g.
restricting drinking alcohol etc).
Legal Obligations: In creating a business and deciding what type of
business to open - Sole Proprietary, Partnership, or Corporation –
legal issues need to be addressed. The decision on which type of
business to open will be your decision. Therefore, it is important
that we look at all the types along with their benefits and liabilities,
to make a sound decision. Different types of business decisions
will have different legal obligations with respect to such things as
the following:-
1. Business Name Registration: You may operate under your name
without registering a business name, but if you operate under any
other name (e,g. Lynda Lawn Moving) , you need to register with
Corporate Affairs Officer or your Capital City. You will not be able to
open a bank account or cash cheques using the name of a
business without registering that name and being able to show an
official busines registration certificate. 31
 7. Overview of Business Laws in India
2. Trading Hours: Legislation may or may not restrict hours of
trading in some businesses.
3. Staff Employment (Wages and Conditions): Wages and
Conditions may be established under the Union Award Systems, or
some other legal mechanism.
4. Other Legally Binding Conditions:
1. Consumer Protection
2. Legislation regarding Sale of Goods
3. Health Laws
4. Town Planning requirements
5. Weights and Measures Laws
6. Uncollected Goods Laws
7. Sales Tax
8. Laws Relating to Shoplifting
9. Restrictive Trade Practices Laws
10. Prices Justification Legislation. ****** 32