LEGAL ENVIRONMENT OF BUSINESS

Law and business are closely related disciplines (complementary) Regulated by Law MRTP Act,1969(Monopolies and Restrictive Trade Practices Act) - enactment of law to control concentration of economic power in the
hands of business

Enactment of Labour Laws Law seeks to control concentration of economic power Dispute settlement Legal rights

Meaning & Nature of Law

In its widest sense, law means any rule of conduct, standard or pattern, to which actions are required to conform; if not conformed, sanctions imposed Law of a State: may be defined as rule of conduct of persons (both natural and artificial), imposed upon and enforced among the members of a given state

Important Elements or Characteristics of Law

Law is a body of Rules. Law is for the guidance or conduct of persons- both human and artificial. Law is imposed. (to bring about an order) Law is enforced by the executive- fear of consequences, such as punishment, ensures
observance of law. (legal sanctions=the force used)

The State- is a territorial division subject to a uniform system-law presupposes a state. Content of Law- never static- changes to the public opinion Two basic ideas involved in law 1. to maintain some form of social control in a group 2. to compel members of the group to be within that order. Law is made to serve some purpose which may be social, economic or political. eg: Law of land, Moral rules or etiquettes, Rules of International laws

Advantages of Law
1. The principles of law provide uniformity and certainty to the administration of justice. 2. The existence of fixed principles of law avoids the dangers of arbitrary, biased and dishonest decisions. 3. The fixed principles of law protect the administration of justice from the errors of individual judgment. 4. It is more reliable than individual judgment.

Ignorance of Law is NO excuse

Maxim-

ignorantia juris non excusat .

This maxim places a burden on every member of the society with the knowledge of law. In other words, Ignorance of law is not a good excuse.

Classification of Law (Procedure)

Criminal Laws

Civil Laws

Criminal Law
Any law which prescribes a punishment, can be termed as criminal law. Indian Penal Code- assimilated all kinds of activities which were considered to be wrong.

With development of trade and commerce, the state expanded the base of activities which were considered to be violative of its directions and thus, criminal Eg: The manufacturing and selling of sub- standard food under the Prevention of Food Adulteration Act,

Civil Law
Civil Law is related to the rights, duties and obligations of individuals among themselves. It also includes contractual relationships. Most of the areas in the field, commerce an business are covered by civil laws. Some of the categories of civil laws would be the laws dealing with family, property, contract etc. Under civil law, individuals go to court against other individuals, for enforcement of their rights. Eg.- Consumer moving a consumer forum.

Principles of Natural Justice (PNJ)

(embedded in Article 311 of the Constitution of India)

PNJ were derived from the Romans who believed that some legal principles were natural or self evident and did not require a statutory basis.
There are two basic safe guards which govern all decisions of judges or Govt. officials when they take judicial or quasi-judicial decisions . They are:

1. Audi alteram partem means hear the other party also known as Rules for the fair hearing. 2. Nemo debet esse judex in propria sua causa means no one shall be judged in his own case - also known as the Rule against Bias .

Sources of Indian Law

Primary Customs , Judicial precedents, Statutes and Personal law Secondary English Law, (common law, equity, law of merchant, statute law) Justice , equity and Good conscience.

Objectives- BL
Law lays down framework within which business activities shall be carried out. A business person can resort to various judicial and quasi judicial authorities against the govt. in case his legal rights have been violated. Some laws are made to facilitate the business persons to achieve their goals smoothly. Social objectives:- anti- competition laws- the pollution control laws-etc. Prevent concentration of economic power and help in the adjustment of claims of against each other individual

Court Structure

Legislature- Legislate or makes law Executive- enforces the law Judiciary- courts settle dispute by interpreting law.

 Supreme Court High Courts Lower courts ( 2 or 3 layers)

Lower Courts under High Court.

Criminal Sessions court (Dist. LevelCapital Punishment)

Civil District Court Sub Divisional Court Munsiffs Court. Follows CPC
Depending upon the pecuniary value of the dispute b/w the parties

Chief J M (7 yrs) 1st &2nd Class JM (5 yrs) Follows Cr.PC

Jurisdiction depend upon territory and severity of the crime

At the level of High Court, the division b/w Civil and criminal cases disappears. Parties move in appeal from a lower court to higher court

Tribunals
Specialist courts dealing with only subject matter. ( increased cases, problem of competencies) Administrative tribunals Motor vehicle compensation tribunals Sales tax tribunals Consumer forum(3 tier ) Labour tribunals. etc A tribunal may be only parallel to the Dist. Level courts. Parties can go in appeal from the judgment of these tribunals, to High Court or Supreme Court.

Jurisdiction SC/ HC
Provided in the constitution of India. HC has jurisdiction on all laws whether made by Union or a State- but only if the case arisen in the territory of the State. Individual can directly move the SC or a HC for the violation of Fundamental Rights called the Original jurisdiction . A larger bench (more number of judges) of the SC can deviate from an earlier decision of a smaller bench, in a similar case- called Overruling.

IMPORTANT LAWS

LAW OF CONTRACTSTHE INDIAN CONTRACT ACT, 1872. SALE OF GOODS ACT, 1930 THE NEGOTIABLE INSTRUMENTS ACT, 1881 THE COMPANIES ACT, 1956

LAW OF CONTRACTSTHE INDIAN CONTRACT ACT, 1872. Questions 1.All agreements are not contracts but all contracts are agreements". Explain. 2.State essential elements of a valid contract? 3.Distinguish between void and voidable contracts. 4.Discuss the various ways of discharge of contracts or performance of a valid contract? 5.Explain the various remedies for breach of contract? 6.Explain Quasi-Contracts and Quantum merit.

1.All agreements are not contracts but all contracts are agreements". Explain. Only those agreements which are enforceable at law are contracts. Contract = Agreement + Legal Obligation. Agreement = Offer or Proposal + Acceptance. Offer or Proposal is to do or not to do something with a view to obtain acceptance. Agreement is defined as every promise and every set of promises forming consideration for each other.

2.State essential elements of a valid contract? a.Agreement b.Intention to create legal relationship c.Free and genuine consent d.Parties competent to contract e.Lawful consideration f. Agreements not declared void or illegal. g.Certainty of meaning. h.Possibility of performance and i. Necessary legal formalities.

3. Distinguish valid, voidable and void contracts. Valid contracts-All essential elements exists. Voidable contract is one which may be repudiated at the will of one of the parties, but until it is so repudiated it remains valid and binding. The contract has flaws like fraud, coercion etc. Void contracts-An agreement which is not enforceable by either parties to it . No legal effect from the very beginning ( ab initio)

4.Discuss the various ways of discharge of contracts or performance of a valid contract? a.By performance or tender b.By mutual consent- Novation, Rescission, Alteration or Remission c.By subsequent impossibility. d.By operation of law. e.By breach.

5. Explain the various remedies for breach of contract? a.Rescission of the contract b.Damage for the loss sustained or suffered. c.A decree for specific performance. d.An injunction e.Suit on Quantum meruit.

6. Explain Quasi-Contracts Quasi-Contracts-- Certain relations resembling those created by contracts. No contract expressed or implied by the parties. Obligations referred between the parties are not contractual but are still enforceable. This is on the grounds of natural justice. Underlying principle is that no one shall be allowed unjustly to enrich himself at the expense of another.

7.Explain Quantum meruit. Quantum meruit means as much as is merited (earned). Unless a part has performed his promise in its entirely, it cannot claim performance from the other party. Exception to this is a right to sue on QM. A right to sue on QM arises where a contract, partly performed by one party, has become discharged by the breach of the other party. Eg: repudiation of the contract by the other party, some vent happens that makes the further performance of the contract impossible etc.

SALE OF GOODS ACT, 1930

1.Explain the difference between sale and agreement to sell. 2.What are the rights of an unpaid seller? 3.Distinguish conditions and warranties. 4.Explain Rule of Caveat Emptor. 5.State essentials of a contract of sale under the Sale of Goods Act.

Sale Executed contract Property has passed to the buyer, hence seller can sue the buyer for the price of goods . In case of loss of goods it would fall on buyer though possession is with seller. In Seller becoming insolvent buyer can claim goods from assignee. Transfer of property from buyer to seller.

Agreement to sell Executory contract In case of breach seller can only sue for damages, unless the price was payable at a stated date. Loss to be borne by seller even though possession is with buyer. Buyer cannot claim the goods only a ratable dividend for the money paid. Transfer of property from buyer to seller

2.What are the rights of an unpaid seller? The seller of goods is deemed to be unpaid seller if a. The whole of the price has not been paid or tendered; b. when a bill of exchange of other negotiable instrument has received as a conditional payment, and the condition on which it has been received has not been fulfilled by reason of the dishonor of the instrument. Rights against goods i. Lien on goods ii. A right of stoppage in transit iii.A right of re-sale. Rights against buyer personally i. Right to sue for the price and ii. The right to sue the buyer for damages for nonacceptance.

3.Distinguish conditions and warranties. Condition A condition is a stipulation in a contract which is essential to the main purpose of the contract. A breach of condition gives the aggrieved party a right to sue for damages as well as the right to repudiate the contract. Warranty A warranty is a stipulation which is only collateral or subsidiary to the main purpose of the contract. A breach of warranty gives only the right to sue for damage. The contract cannot be repudiated.

4.Explain Rule of Caveat Emptor. Let the buyer beware It is no part of the sellers duty to point out defects of his own goods. The buyer must inspect the goods to find out if they will suit his purpose. Exceptions: i. False representations ii.Actively conceals iii.Buyer makes his intention known to the seller for which he is buying goods and seller happens to be a person whose business is to sell goods of that description then implied condition overrules caveat emptor. iv.Sale by description there is an implied cond.

5.State essentials of a contract of sale under the Sale of Goods Act. i. There must be at least two parties. ii.Transfer or agreement to transfer the ownership of goods. iii.The subject matter of the contract must be necessarily be goods (No Immovable property). iv.The consideration is price. v.Contract of sale may be absolute or conditional. vi.All other essentials of a valid contract must be present.

THE NEGOTIABLE INSTRUMENTS ACT, 1881 1.State the nature and characteristics of a negotiable instrument. 2.Explain holder and holder in due course. 3.Distinguish cheque and bills of exchange. 4.Distinguish Crossing , Endorsement and Indorsement under the Negotiable Instruments Act, 1881. 5.When a banker must refuse payment?

1.State the nature and characteristics of a negotiable instrument. A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. Characteristics: i. Freely transferable. ii. Holders title free from defects. iii. The holder can sue in his own name. iv. Can be transferred infinitum. v. Is subject to certain presumptions.

2.Explain holder and holder in due course.

Holder-A person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Holder in-due-course is a person who for consideration became the possessor of a promissory note, bill of exchange or cheque, if payable to bearer, or the payee or endorsee thereof, if payable to order, before the amount mentioned in it becomes payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. (privileges)

3.Distinguish cheque and bills of exchange

cheque Drawn only on a banker Amount is always payable on demand No days of grace Notice of dishonour not necessary Can be crossed

bills of exchange Drawn on any person including a banker Amount may be payable on demand or after spefied time 3 days of grace Notice of dishonour is necessary Crossing not possible

Acceptance is not needed Acceptance is needed

4.Distinguish Crossing , Endorsement and Indorsement under the Negotiable Instruments Act, 1881. Crossing is a direction to the paying banker by the drawer that payment should not be made across the counter. Endorsement-when the maker or holder of a NI signs the same otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto he is said to endorse the same. Endorsement sans recourse- exclude his liability w/o recourse to me. Indorsement is on the back of it.

5.When a banker must refuse payment? Customer countermands the payment Notice of customers death. Customer becoming insolvent Notice of customers insanity Garnishee order Suspicious misuse by trustee Suspicion to the title Cheque Post-dated Insufficient funds Not duly presented. After 6 months.

THE COMPANIES ACT, 1956 1.Distinguish private and public limited company. 2.Distinguish AoA and MoA. 3. Procedure for registration of a company. 4.Doctrine of Ultra Vires. 5.State the various kinds of shares. 6. Circumstances of winding up of a company. 7.Powers and duties of Directors.

1.Distinguish private and public limited company. Private 2 persons ; max 50 Right to transfer shares restricted Cannot issue prospectus No Statutory meeting required; Quorum 2 Public 7 persons ; no maximum no: Freely transferable Can issue prospectus Statutory meeting required Quorum 5

AoA Regulations which govern the management of its internal affairs and the conduct of its business. Define duties, rights and powers and authority of Shareholders and directors business, capital issues,shares, rights of shares, allotment, transfer transmission Meetings, directors Accounts, audit ,books

MoA Charter which contains the fundamental conditions upon which the company can be incorporated Name clause

Registered office clause

Objects clause Liability and capital clauses

Procedure for registration of a company. i. The memorandum of the company ii. The articles iii. The agreement with the managing director / manager. iv. Statutory declaration of compliance

4.Doctrine of Ultra Vires Companies activities are strictly confined to the objects mentioned in the memorandum of association and if it goes beyond then such acts are ultra vires. Ultra vires contracts are null and void ab initio.

5.State the various kinds of shares. Authorized capitalEquity-voting rights Preferential right in respect of dividends , repayment of capital during winding up. Preference-participating-non participating To participate further in profits To participate in the surplus assets at the time of winding up. Cumulative and Non Cumulative Redeemable and Irredeemable Deferred or founders

6. Circumstances of winding up of a company. Property administered for its creditors and members when the life of the company ends. i. Compulsory Winding up by court ii.Voluntary winding up iii.Voluntary winding up under the supervision of the court

7.Powers and duties of Directors. Powers To make calls on share holders To issue debentures To borrow money otherwise than on debentures To invest funds To make loans Duties i. Statutory duties ii.Duties of general nature