Legal Environment of Business (LEB)

Constitutional Provisions relating to Business

and Indian Legal & Judicial Systems
Study Notes by Dr. N.Y. Phadnis
Session No. 1.
Business Law
Law can be defined as set/body of rules & regulations which are recognized and enforced by
the state/govt. Laws deal with human conduct in a civilized society and regulates/controls
relationships amongst individuals and also with the state. Laws create rights/interests and
corresponding obligations/duties which are recognized & enforced by authority/state/govt.
Breach/violations of law attract sanctions in the form of monetary compensations and/or
penalty and/or punishments. Laws are justiciable through courts of law i.e. remedy lies in
the court of law. Justice is administered through law courts as per law.
Business is any commercial activity or mercantile transaction undertaken for material gains
or profits. Business may deal with & involve manufacture/transportation/supply of goods
and/or services for sale/re-sale/use/consumption of customers/consumers (B to B or B to C).
Business, Industry, Trade & Commerce are synonyms in the eyes of law. From legal point of
view these are equivalent terms.
Business does not cover an activity which is solely & purely undertaken for any social,
religious, charitable, humanitarian and missionary purpose. It also does not include domestic
i.e. family activities and sovereign functions of the state (i.e. basic & fundamental activities
relating to countrys governance by govt. authorities or Institutions)
Business Law also referred to as Commercial law or Mercantile law is law relating to and
dealing with commercial/business transactions in trade, commerce & Industry. It is a branch
of civil law dealing with contractual business relations. However it also applies to
commercial relations within social groups (relatives & friends) but does not apply to social
relations. Business law creates legal/regulatory business environment and regulates,
controls and governs formation & execution of business transactions. It ensures & assures
Certainty in business dealings and provides mechanism & legal remedies for breach of
business commitments.
A Business has to operate in the socio-economic & politico-legal environment. The legal
aspects of business (LAB) form an important component of a business environment as every

major area of a business has legal dimensions. Business Managers are required to take lawful
business decisions & act within the boundaries of law while solving managerial issues &
problems. Legal Aspects of Business (LAB) also popularly known as Business Law is an
integral & inseparable facet of commercial transactions. Understanding the Legal Aspects of
Business (LAB) plays a vital role in smooth & hassle free running of a business house. The
course interfaces law with management and deals with various aspects of law having bearing
on the business.
The LAB course covers only those topics (refer course contents of course outline) which are
common for & relevant to all streams/areas of specialization. The legal aspects of Taxation,
Banking, Accounts & Finance, Employment, International business, Information technology
(cyber) etc are outside its scope as these topics would be dealt with under the respective area
specialization courses (electives) during the 2nd year of PGDM program.
Constitution of India is Basic, Fundamental & Supreme law in India. All laws & regulations in
India are required to be consistent with and cannot be contrary to & conflicting with
constitutional provisions. Similarly all govt. authorities & institutions in India are required to
perform assigned functions and exercise their powers within the scope & limitations laid
down in the constitution.
Constitutional Provisions for Business, Trade & Commerce in India are as under:Fundamental Rights (Chapter-III)
1. Equality before Law & Equal Protection of Laws [Art.14]
2. Freedom of Speech & Expression-[Art. 19(1) (a)] which includes commercial speech,
advertising & product promotion activities. This also includes consumers right to
receive right information about products from the seller or service providers.
3. Freedom to assemble & form unions & associations to protect & promote business
interests. [Art.19 (1)(b) & (c)]
4. Freedom to move & settle in any part of India for business or residence and to carry
out any lawful business, profession, trade, occupation etc. [Art. 19 (1) (d) (e) (g)]
5. Right to life & earn livelihood through legitimate means/sources (through any job,
business, industry, profession etc) [Art.21]
6. Right to acquire, own, hold & dispose-off property for business & residence purposes
(Art. 300A). Not a fundamental right but a constitutional right.
The above freedoms are not absolute but are limited & regulated by reasonable restrictions
in the larger public/social & countrys interest. *Art.19 (2) to 19 (6)+

Fundamental Duties (Chapter IV-A) Article-51-A

There are 10 fundamental duties for all citizens of India prescribed under the constitution.
The fundamental duties relevant for Business Managers are:1. To protect & improve the natural environment including forests, lakes, rivers and
wild life. And to have compassion for living creatures. (which is also part of CSR)
2. To develop the scientific temper, humanism and the spirit of inquiry and reform.
3. To strive towards excellence in all spheres of individual & collective activity, so
that the nation constantly rises to higher levels of endeavors and achievement.
Directive Principles of State Policy (Chapter IV)
These principles are not justiciable i.e. cannot be enforced through court of law however the
govt. is under duty to apply these principles while making laws. They lay down a code of
conduct for administrators in India. The important & relevant principles for business
managers are:1.
2.
3.
4.
5.
6.

Right to work & adequate means of livelihood.

Equal Pay for Equal Work for both men & women.
A living wage, conditions of work ensuring a decent standard of life, to all workers.
Workers participation in the management of Industries.
Organization of agriculture & animal husbandry on modern & scientific lines.
Equitable distribution of the natural & material resources of the country to serve the
common/collective social interest. (part of CSR)

There are provisions under the constitution relating to finance, property, contracts, suits,
trade & commerce (Articles 264 to 307) particularly when govt./public sector industry is one
of the parties to such transactions.
Judicial System in India
Our Constitution has taken special care to establish an independent & impartial judiciary. A
single unified judicial system is a unique feature of the Indian Judicial System. The Supreme
Court of India is at the apex of the entire judicial system followed by High Courts in each State
or group of States. Below High Courts lies a hierarchy of Subordinate Courts & Tribunals. The
subordinate courts/tribunals separately deals with matters/litigations of civil, criminal,
labour, taxation, consumer etc according to their assigned jurisdictions as stipulated under
the specific/particular law(s) creating these courts/tribunals. Supreme Court & High Courts

however deals with & decides all types of legal disputes/issues concerning all laws in India as
they are established by & under the Constitution of India. The appeals from the
verdicts/judgments of lower/subordinate courts/tribunals would lie to High Court & finally to
Supreme Court of India.
Supreme Court & High Courts have powers of Judicial Review and Doctrine of Ultra-vires is
(Article13) applied while deciding cases i.e. SC & HC are empowered under the constitution to
scan & scrutinize any Legislative and/or Executive decisions/actions of the govt. authorities
and can declare such decisions/actions being un-constitutional or beyond the scope of the
constitution and can strike it down. SC is the custodian, guardian and final interpreter of
constitution & laws in India. There is also a fundamental right (Article 32) to approach SC
directly for breach of fundamental rights by govt. authorities. Apex Court (SC) has original,
appellate and advisory jurisdictions. Verdicts of SC are binding on all authorities in India
(Doctrine of Precedent & Stare decisis- Article 141) and all authorities in India are required to
act in aid & support to SC (Article 144). Thus Supreme Court of India is fully empowered by
the constitution of India to protect its peoples rights & interests and do justice. Parliament of
India is the supreme legislative body whereas SC is the supreme Judicial body in India.
There is a balance of power between these two institutions. Both these supreme institutions
are supposed to act in harmony and as per the powers laid down under the Constitution of
India.
SC & HC also have powers to issue Writs in the form of directions/orders/commands in the
nature of Habeas-Corpus, Mandamus, Certiorari, Prohibition, Quo-Warranto and
Public/Social Interest Litigation (PIL).
Habeas-Corpus is a Latin term which means have a body or bring a body. The purpose of the
writ is to enquire about the un-authorized/illegal confinement (i.e. without any legal
justification) of a person by any authority and on such confirmation to order immediate
release of a person from unlawful confinement. This writ ensures & assures the liberty &
freedom of citizens in India.
Mandamus is a Latin word which means We Order or Command. It is an order directing any
person or institution to do its legal duties (which they are supposed to do as per law) or to
refrain from doing any illegal/un-authorized act (i.e. not authorized by law)
Certiorari is an order to quash & set aside the wrong orders/decisions/judgments of lower
courts or other govt. authorities whereas Prohibition is a stay order issued in case lower
courts or other govt. authorities are proceeding in the wrong direction or without
jurisdiction. The SC & HC may also transfer the cases to appropriate court or to itself under
both these writ petitions.

Quo-Warranto is writ where court questions any person who holds any office or post to
which he/she is not legally entitled to hold or occupy and to direct such person to vacate the
office/post and declare such post/office as vacant.
Public or Social Interest Litigation (PIL) is an order issued by SC or HC when any public spirited
person or social activist takes up the issue of any collective public or social interest (not any
personal or individual dispute) with regard to any social/community evil or exploitation. The
court directs the concerned govt. authorities to take appropriate steps to resolve the issue.
Issues relating to child labour exploitation, under trial prisoners, wild life protection,
environmental pollutions etc are few instances where PIL can be filed. SC & HC are
empowered to take a su-moto (on its own) notice of media news or can treat any letter as
PIL writ petition.
SC or HC can issue any appropriate combination of the above writ orders or commands to do
justice in an appropriate case.
(Note: - For details please refer to Chapter Nos. 64 & 69 of Ref. Book Legal Aspects of
Business by Akhileshwar Pathak-4th Edition-MGH Publishers and Chapter Nos. 1 & 2 of Ref.
Book Business Law for Managers by Prof. (Cmde) P.K. Goel- Indian Text Edition- Biztantra
Publishers. Both books are available in our LRC). This study note relates to Teaching/Class
Session No. 1.
_________________________________________O___________________________________
You may approach Dr. Narendra Y. Phadnis- Professor-Law & HRM -Course Facilitator Legal
Environment of Business for clarification/queries (if any)
Phone: - 0712-2805123 (O) Mail Id: - nyphadnis@imtnag.ac.in