BUSINESSREGULATORYFRAMEWORK

ISO 9001:2008 CERTIFIED

As per the New CBCSS Syllabus for 2nd Semester, B.Com. ofM.G. University w.e.f. 2017-18

Prof. P. SARAVANAVEL Prof. Dr. VILZON P. KOSHYM.Com., M.L., Principal,

Member, Bar Council of Tamil Nadu. Musaliar College of Arts and Science,Pathanamthitta,

Former Head, Post GraduateDept. of Commerce and Tourism,

Catholicate College,Pathanamthitta,

Former Chairman, U.G. Board of StudiesM.G. University,

Kottayam

G. KAVITHAM.A., M.Com.

Consultant.

© Authors

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of theauthors and the publisher.

First Edition : 2018

Published by : Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd.,“Ramdoot”, Dr. Bhalerao Marg, Girgaon, Mumbai - 400 004.Phone: 022-23860170, 23863863; Fax: 022-23877178E-mail: himpub@vsnl.com; Website: www.himpub.com

Branch Offices :

New Delhi : “Pooja Apartments”, 4-B, Murari Lal Street, Ansari Road, Darya Ganj,New Delhi - 110 002. Phone: 011-23270392, 23278631; Fax: 011-23256286

Nagpur : Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur - 440 018.Phone: 0712-2738731, 3296733; Telefax: 0712-2721216

Bengaluru : Plot No. 91-33, 2nd Main Road, Seshadripuram, Behind Nataraja Theatre,Bengaluru - 560 020. Phone: 080-41138821; Mobile: 09379847017, 09379847005

Hyderabad : No. 3-4-184, Lingampally, Besides Raghavendra Swamy Matham, Kachiguda,Hyderabad - 500 027. Phone: 040-27560041, 27550139

Chennai : New No. 48/2, Old No. 28/2, Ground Floor, Sarangapani Street, T. Nagar,Chennai - 600 012. Mobile: 09380460419

Pune : First Floor, “Laksha” Apartment, No. 527, Mehunpura, Shaniwarpeth (Near PrabhatTheatre), Pune - 411 030. Phone: 020-24496323, 24496333; Mobile: 09370579333

Lucknow : House No. 731, Shekhupura Colony, Near B.D. Convent School, Aliganj,Lucknow - 226 022. Phone: 0522-4012353; Mobile: 09307501549

Ahmedabad : 114, “SHAIL”, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura,Ahmedabad - 380 009. Phone: 079-26560126; Mobile: 09377088847

Ernakulam : 39/176 (New No. 60/251) 1st Floor, Karikkamuri Road, Ernakulam, Kochi - 682 011.Phone: 0484-2378012, 2378016; Mobile: 09387122121

Bhubaneswar : Plot No. 214/1342, Budheswari Colony, Behind Durga Mandap, Laxmisagar,Bhubaneswar - 751 006. Phone: 0674-2575129; Mobile: 09338746007

Kolkata : 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank, Kolkata - 700 010.Phone: 033-32449649; Mobile: 07439040301

DTP by : Sri Siddhi Softtek Bengaluru.

Printed by : M/s. Aditya Offset Process (I) Pvt. Ltd., Hyderabad. On behalf of HPH.

Legal framework is an important constituent of the business and corporate environment. Nocorporate entity can effectively work and survive without meeting legal obligations. The law relatingto contracts is perhaps the most significant and all pervasive amongst the various Business Regula-tory Framework.

The Indian Contract Act, 1872 which governs contract in India is the earliest piece of legis-lation which the country has produced. Since the book is meant for students of Law, Commerce andManagement Institutes, the authors have dealt with the provisions of the Act topic-wise for facilitat-ing better understanding of the subject. Examples, case laws etc. have been given to illustrate theprovisions of the Act. Section numbers have been given at appropriate places to enable the readers tomake reference to the Companies Act for further details. Suitable headings and sub-headings havebeen given to focus the attention of the reader on important aspects of company law.

The chapter arrangement in this text have been made in a systematic and logical way withexamples, illustrations and charts. The important judicial decisions on the various issues have alsobeen included.

We express our deep gratitude to the several authors whose contributions have helped us towrite this book. We are grateful to Shri Niraj Pandey and Vijay Pandey, Himalaya Publishing House fortheir constant encouragement in publishing the book in a short period time. A creative feedback fromthe learned readers, bringing to our notice any mistake, error or omission or discrepancy that mighthave crept in this book in spite of our sincere efforts to avoid those, is almost welcome, for it will helpus to improve the overall quality, style and presentation of the book in the forthcoming editions.

Kumaran Illam P. SARAVANAVELVILZON P. KOSHY

20 Parisutham Nagar, G. KAVITHAFirst Cross Street,THANJAVUR – 613007

PREFACE

Objectives: The course is intended to familiarise the students with the legal framework influencingbusiness decisions.

MODULE I: INTRODUCTION TO MERCANTILE LAW 25 HOURS

Law of Contract - Definition - Kinds of Contracts - Valid – Void - Voidable - Contingent and QuasiContract - E-Contract - Essentials of a Valid Contract - Offer and Acceptance - Communication ofOffer - Acceptance and its Revocation - Agreement - Consideration - Capacity to Contract - FreeConsent - Legality of Object and Consideration - Performance of Contract - Discharge of Contract-Breach of Contract - Remedies for Breach of Contract.

MODULE II: SPECIAL CONTRACT – I 15 HOURS

Bailor and Bailee - Finder of Lost Goods - Pledge - Essentials - Rights and Duties of Pawner andPawnee

MODULE III: SPECIAL CONTRACT – II 10 HOURS

Indemnity and Guarantee- Indemnity - Meaning and Definition - Contract of Guarantee - Kinds ofGuarantee - Rights and Liabilities of Surety - Discharge of Surety.

MODULE IV: LAW OF AGENCY 12 HOURS

Essentials, kinds of agents, rights and duties of agent and principal, creation of agency, terminationof agency-Sub agents and substituted agents- Relationship

MODULE V: SALE OF GOODS ACT, 1930 10 HOURS

Essentials of Contract of Sale Goods - Classification of Goods - Condition and Warranties - Transferof Property in Goods - Right of Unpaid Seller - Buyer’s Right Against Seller - Auction Sale.

SYLLABUS

MODULE - I: INTRODUCTION TO MERCHANTILE LAW

1. INTRODUCTION TO LAW 1-9Definition of Law – Objectives of Law – Sources of Law – Need for Knowledge of Law– Scope of Law – Review Questions.

2. NATURE OF A CONTRACT 10-22The Indian Contract Act, 1872 – Agreement – Kinds of Agreements – Essentials ofa Contract – Classification of Contracts – Review Questions.

3. OFFER AND ACCEPTANCE 23-36Legal Rules and Essentials Regarding Offer – Termination of Offer – Definition ofAcceptance – Essentials and Legal Rules of a Valid Acceptance – Review Questions.

4. CONSIDERATION AND CONTRACTUAL CAPACITY OF PARTIES 37-56Legal Rules Regarding Consideration – No Consideration, No Contract – Stranger toConsideration and Stranger to Contract – Doctrine of Privity of Contract – Exceptionsto the Rule: A Stranger to Contract cannot Sue on the Contract – ContractualCapacity – Minor (Infant) – Legal Disability – Review Questions.

5. FREE CONSENT 57-76Coercion – Undue Influence (Moral Coercion) – Fraud – Good Faith Contracts –Misrepresentation – Mistake – Review Questions.

6. LEGALITY OF OBJECT AND PUBLIC POLICY 77-94Meaning of Public Policy or Interest – Agreement in Restraint of Trade – VoidAgreements – Wagering Agreement – Illegal Agreements – Agreements in Restraintof Legal Proceedings – Review Questions.

7. CONTINGENT AND QUASI CONTRACTS 95-107Characteristics of Contingent Contract – Meaning and Kinds of Quasi-Contracts –Necessaries Supplied to Person Incapable of Contracting – Payment by an InterestedPerson – Liability for Non-gratuitous Act – Responsibility of Finder of Lost Goods –Action for Money Paid, or Thing Delivered, by Mistake or under Coercion – AccountsStated – Claim for Quantum Meruit – Review Questions.

CONTENTS

8. PERFORMANCE AND DISCHARGE OF CONTRACT 108-128Discharge of Contract by Performance – Devolution of Joint Liabilities and JointRights – Time for Performance – Place for Performance of a Contract – Appropriationof Payments – Contracts Which Need not be Performed – Discharge of Contract byNew Agreement – Discharge of Contract by Operation of Law – Discharge of Contractby Impossibility – Instances/Cases Covered under Supervening Impossibility – TheDoctrine of Frustration – Review Questions.

9. BREACH OF CONTRACT AND REMEDIES 129-144Remedies in Case of Breach of Contract – Suit for Damages – Liquidated Damagesand Penalty – Cancellation or Rescission – Suit for Restitution of Benefit – Suit forSpecific Performance – Suit for Injunction – Suit for Quantum Meruit – ReviewQuestions.

MODULE - II: SPECIAL CONTRACTS – I

10. CONTRACT OF BAILMENT AND PLEDGE 145-160Characteristics of Bailment – Classification of Bailments – Rights of Bailor – Dutiesof Bailor – Rights of Bailee – Duties of Bailee – Finder of Lost Goods – Terminationof Bailment – Lien – Particular Lien – Pledge – Rights of Pledgee – Duties of aPledgee/Pawnee – Rights of a Pledgor/Pawnor – Duties of a Pledger/Pawnor – Pledgeby Non-owner – Review Questions.

MODULE - III: SPECIAL CONTRACTS – II

11. CONTRACT OF INDEMNITY AND GUARANTEE 161-176Definition of Contract of Indemnity – Essentials of a Contract of Indemnity –Contract of Guarantee – Essentials of a Contract of Guarantee – ContinuingGuarantee – Right of Surety – Rights of the Creditor against Surety – Dischargeof Surety – Review Questions.

MODULE - IV: LAW OF AGENCY

12. CONTRACT OF AGENCY 177-204Meaning and Characteristics of Agency – Special Features of Contract ofAgency – Test of Agency – Classification of Agents – Mercantile and Non-mercantileAgents – Creation of Agency – Agency by Ratification (Ex-post Facto Agency) Sec.196 – Essential of a Valid Ratification – Nature of Authority of an Agent –Ostensible or Apartment Authority – Emergency Authority – Effects of Agent’s

Authority (Section 226) – Difference between Sub-agent and Substituted Agent –Rights of an Agent – Duties of an Agent – Principal and Third Parties – AgentActing for a Named Principal – Agent Acting for an Unnamed Principal – AgentActing for an Undisclosed Principal – Misrepresentation and Fraud by Agents– Personal Liability of an Agent – Rights of Third Parties When Agent isPersonally Liable – Termination of Agency – Irrevocable Agency – Review Questions.

MODULE – V: SALE OF GOODS ACT, 1930

13. CONTRACT OF SALE OF GOODS 205-224Contract of Sale of Goods – Document of Title of Goods – Conditions and Warranties– Doctrine of Caveat Emptor – Review Questions.

14. PERFORMANCE OF CONTRACT OF SALE 225-246Delivery of Goods – Transfer of Property, Possession and Risk – Transfer of Title byNon-owners – Rights of the Buyer – Duties of the Buyer – Rights of Unpaid Seller –Auction Sales – Passing of Property in Sea Carriage – Review Questions.

15. SALE BY AUCTION (AUCTION SALE) 247-253Procedure of Auction Sale – Legal Rules Regarding Auction Sale – Completion ofAuction Sale – Retraction of Bid – Transfer of Ownership – Fraudulent Sale –Auction Sale with ‘Reserve or Upset’ Price – Important Terms in Auction Sale –Implied Warranties in Auction Sale – Liabilities and Duties of an Auctioneer –Review Questions.

1

Chapter ObjectivesAfter completing this chapter, you will be able to understand:

the definition and objectives of Law

the scope of the Mercantile Act

the scope of Commercial Act

Chapter StructureDefinition of Law

Objectives of Law

Sources of Indian Law/Commercial Law/Mercantile Law

Need for Knowledge of Mercantile Law

Scope of Business Law

Review Questions

MODULE – I: Introduction to Mercantile Law

CHAPTERIntroduction to

Law

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Business Regulatory Framework2

DEFINITION OF LAWThe term 'Law' denotes the principles and rules that govern and regulate social conduct and

observance of which can be enforced through courts. According to Austin, "Law is a command ofSovereign". Law, in its most general and comprehensive sense, signifies a rule of action and is appliedindiscriminately to all kinds of actions whether animate or inanimate, rational or irrational. In the legalsense, the system of rights and obligations which can be enforced in a court of law, and it includes allthe rules and principles which regulate our relations with other persons and with the State.

Essential Features and Characteristics of Law

The essential characteristics of law are:

(a) Law is a body of rules and principles relating to actions of individuals.

(b) Law operates to regulate the external actions of individuals in respect of one another and inrespect of entire social group or society.

(c) Law is applied in the administration of justice.

(d) Law is recognised and enforced by the State.

(e) It is enforced by the State on the people so as to secure social justice, peaceful living andsocial security in the community.

(f) No doubt, the law is recognised and enforced by the State. But the State itself is conditioned(i.e., regulated) by the same law. That means, law applies to all without discrimination. Infact, law attempts to achieve uniformity in its application.

(g) Law always remains supreme. (The supremacy of law is technically called the rule of law).

Rule of Law

In earlier times (and in a few countries now), certain classes and individuals possessed specialprivileges and were judged by special law. The modern view is to apply the same law over all personsin the State and to give all persons equal rights and privileges for the protection of their human liberties.Democracy can remain only in a society of equals.

The concept of equality of all persons before law is the basis of what is called the Rule of Law.The Rule of Law numbering three are explained below:

1. The Rule of Law states that, no man is punishable or can be lawfully made to suffer in bodyor goods except for a distinct breach of law established in the ordinary legal manner beforethe ordinary courts. In other words, there must be supremacy and the breach of law must beproved in a duly constituted court of law. No citizen can be arrested or imprisoned, unless heviolates specifically any law of the country in force and is accused of a charge by the court.Thus the rule of law implies equal protection of law.

2. In the second place, Rule of Law means that, "no man is above law". Every man whateverhis rank or condition, is subject to the ordinary law of the State and amenable to the jurisdictionof ordinary tribunals. In other words, Rule of Law means: (a) equality before the law, (b)every citizen is subject to the ordinary law of the land and (c) the citizen has to face trial inthe same law courts, irrespective of his status or position in the society.

Introduction to Law 3

3. In the third place, the Rule of Law is the result of statutes and judicial decisions determiningthe rights of private persons. Thus, the constitutional law of the country follows from theordinary law of the land.

Thus, the Rule of Law is applicable to everybody (from Prime Minister to the convict, and fromthe millionaire to a beggar). The judiciary must be independent and impartial if the Rule of Law canmean anything real.

OBJECTIVES OF LAWThe objects of Law is to establish order and the result of order, that the commercial people are

enabled to look ahead with some sort of security as to the future. Although human action cannot bereduced to the uniformities of nature, they have yet endeavoured to reproduce by law somethingapproaching to this uniformity.

Objectives of Legal System are given below:

1. Laws define the "rules of the game", i.e., business activities.

2. Businessmen have 'rights' like other citizens.

3. Legal system is not expected to do only policing job.

4. Legal system has social objective too.

5. Finally legal rules, of which business law is a part, have an ultimate objective of decidingpriorities among unlimited wants which vie for satisfaction.

Development of Law

Law developed through the following four stages: In the beginning, law was made by the commandsof the ruler believed to be acting under the divine inspiration. In the second stage, the command of theruler crystallised into customary law. In the third stage, the knowledge and administration of customarylaw goes to the hands of minority, usually of religious nature. This is due to the weakening of thepower of original law-maker. In the fourth stage, the Codes (Legislative Acts) came into existence.The law is developed by passing Legislative Acts according to the needs of the society.

Law and Society

Law and society are very closely related. Law is dynamic as the society is ever undergoingchanges. It is the aim of the law to bring about social and economic harmony. The law aims to bringabout and maintain peace and order in the society. The purpose of the law is administration of justicewithout compromise. Law is the body of precepts in accordance with which justice is administered bythe authority of the State. Justice is an ideal relation among men. There are mainly four stages of legaldevelopment: (1) the stage of primitive law, (2) the stage of the strict law, (3) the stage of equity andnatural law, and (4) the stage of maturity of law. To this, one more stage may be added. This is thestage of socialisation.

The main purpose of law is to keep peace in society. Unless peace is attained and maintained, asociety cannot exist. The main attempt of the law is to regulate and provide a substitute in terms ofjustice for unlawful actions challenging the very essence of human rights. An injured person to whomwrong has been done gets his redress in three ways. Firstly, he could obtain redress by self-help. It isdone by his own help and the help of his kindred. It is the remedy of king organised society. Reprisals,

Business Regulatory Framework4

self-help and blood feuds are the ordinary methods for the redressal of injuries. Second method ofgetting a redress is by the help of gods and/or of their ministers. This is based on tenets of a religiousorganised society. Sacrificial execution, expropriation (to pay penalty or to amend injury) andexcommunication (cut off from the Church) are the main types of redress of a religious organisedsociety for wrong doing. The last way of getting a redressal is by the help of a State. It is the help ofKing or of magistrate or of state other officials. This remedy is based on politically organised society.It prevents the wrongdoer from interfering with self-redress by the injured party. The public authoritiesare taking a more active part to prevent a general disturbance of the peace of the community and tokeep self-redress within bounds in this system.

Change of Law and Change of Social Rules

The legal system of a country reflects the rules of society. If there is a change of social rules,usually there occurs a change of law. For example, in the Middle Ages in Europe, the landlord and thefeudal system prevailed. At that time, the rights of the peasant was very restricted. In modern timeswhen the feudal system was abolished, the rights of the peasant and the citizens were enlarged.Therefore, change of social rules leads to change of law. The converse of the above also applies, i.e.,change of law leads to change of the rules of the society. Legislation has enlarged the rights of Hinduwomen regarding inheritance, property rights and marital rights. In these cases, the change of law hasbeen accepted by the society. We can conclude that there is a dependence between law and social rulesand vice versa.

Classification of Law

To classify law is a very difficult task. However, some sort of classification is necessary to havea full view of it. First and foremost classification has been made keeping into mind its jurisdiction.According to this notion, it is divided into the following two categories: (1) International law and (2)Municipal or National Law.

Then keeping in view, the body of persons to be affected by it, they are divided into two categories:

1. International Law: (a) Public International Law and (b) Private International Law.

2. Municipal Law: (a) Public Law and (b) Private Law.

Public Municipal Law: These laws regulate the activities of the State as well as determine therelations of State with the people. They are: (i) Constitutional Law; (ii) Administrative Law; and (iii)Criminal Law.

Private Municipal Law: This branch of law deals with the relations of citizens with each other.The classification of Private Municipal Law is a difficult one, but a working classification is as follows:(1) The law of persons; (2) The law of property; (3) The law of obligations; and (4) The conflict oflaw.

The law of obligation is again divided into: (i) Contract; (ii) Quasi-contract; and (iii) Tort. This isonly a working classification and is neither universal nor exhaustive.

Branches of Law

Law as a faculty has several branches. They are Constitutional Law, Administrative Law, CriminalLaw, Civil Law, Commercial Law, Taxation Laws etc. Constitutional Law means the rule which regulatesthe structure the principal organs of the Government, their relationship to one another, and determines

Introduction to Law 5

their principal functions. The rules consist both of legal rules and of usages, commonly calledconventions, which, without being enacted are accepted as binding by all concerned with theGovernment. Administrative Law is the law that governs the executive branch of the Government. Itis as old as the executive.

Civil law deals with disputes regarding ownership, occupation, or trespassing of property ordisputes arising from trade or connected with contracts. Criminal Law deals with injury caused to aperson's body or property. Usually, a crime is a premeditated action which is investigated by the policeand against which action is taken by the State. Essential to both types of law is the law of evidence.There are four ways to decide what type of evidence is 'real' or admissible in a court. The first type ofevidence is 'conclusive proof' — for example, a court record of a marriage. An example of the secondtype of proof called 'conditional proof' is presuming someone dead if the person has not been seen orheard of for seven or more years. If just one witness makes an allegation, this is considered "noproof". Hearsay is not allowed in court, as this is considered "no evidence". E-mail can be relied uponas evidence in court.

Commercial law is a sub part of civil law and deals with the rights and obligations of commercialpersons and organisations emerging from commercial transactions in respect of commercial property.

Legal Systems in India

The Judiciary System in India is consisting of Supreme Court, High Court and other SubordinateCourts. The Indian Constitution is a basic and supreme law that outlines the Government structure,allocates authority and duties to the Government, establishes basic decision-making procedures andplaces limitations upon Government activities.

The Constitution of India

Preamble: We, the people of India, having solemnly resolved to constitute India into a SovereignSocialist Secular Democratic Republic and to secure all its citizens:

1. Justice, social, economic and political;

2. Liberty of thought, expression, belief, faith and worship;

3. Equality of States and of opportunity;

4. And to promote among all;

5. Fraternity assuring the dignity of the individual and the unity and integrity of the Nation.

In our Constituent Assembly, this twenty sixth day of November, 1949, do hereby adopt, enactand give to ourselves this Constitution.

Supreme Court

The Supreme Court is the ultimate court of law in India whose decision is final and cannot beappealed against. When the Supreme Court expresses its view, it shall be considered as overriding allcontrary views expressed on the point in an earlier decision of the Supreme Court. Thus, the SupremeCourt is not bound by its own decisions. However, in practice, its earlier decisions cannot be departedunless erroneous and detrimental to the public.

Business Regulatory Framework6

An appeal may be made to the Supreme Court from any judgement, decree or final order in a civilproceeding of a High Court in India, if in the opinion of the High Court a substantial question of law ofgeneral importance is involved and in the opinion of the High Court can also be made from a judgement,final order or sentence in a criminal proceeding of a High Court; if the High Court: (a) reversed anappeal of a acquittal of an accused person and sentenced him to death, (b) has withdrawn for trialbefore itself any case from any subordinate court and convicted the accused person and sentencedhim to death and (c) certifies that it is a fit case for appeal to the Supreme Court.

High Court

A High Court which normally has jurisdiction on a particular State, is the ultimate judicial authorityof the State, having power of superintendence over all courts and tribunals throughout the territoriesto which it exercises jurisdiction.

Every High Court is empowered over its jurisdiction to issue to any person or authority includingthe Government, orders or writs in the nature of the following:

(a) Writ of Habeous Corpus is sought for challenging the legality of a detention.

(b) The chief function of the writ of mandamus is to compel the performance or duties prescribedby Statute.

(c) If there is any complaint about the appointment or promotion of any officer who is noteligible under the service rules to be promoted or appointed, the proper remedy is to make anapplication to the High Court for the writ of quo warranto.

(d) High Court's writ of Certiorari is described to the judge or an officer of an inferior tribunalto bring proceedings into the High Court for ensuring speedy justice.

Subordinate Courts

District Courts: The Governor of a State appoints District Judges in consultation with the HighCourt. District Judge includes Judge of a City Civil Court, Additional District Judge, Joint DistrictJudge, Additional Session Judge and Assistant Sessions Judge. The Constitution also provides forformation of Village Panchayats whose members are elected. Panchayats are empowered to prepareplans for economic development and social justice. Further, there are provisions for Constitution ofMunicipal Corporations for larger urban areas and Municipal Council for small urban areas for self-government.

General Principles of Doctrine of Precedence

The first rule is that each lower court is bound by the decisions of the courts above it.

The second rule is that, in general, higher courts are bound by their own decisions.

The decisions of a High Court are binding on all the subordinate courts and tribunals within itsjurisdiction. The decision of one High Court is only of persuasive value in a court which is within thejurisdiction of another High Court, when it is not in conflict of a decision in the High Court withinwhose jurisdiction the court is situated. In case of any conflict between two decisions of co-equalbenches, generally the later decision is followed.

In a High Court, a single judge constitutes the smallest bench. A bench of two judges is called theDivision Bench. Three or more judges constitute a Full Bench. Pre-Constitution (1950) Privy Councildecisions are binding on the High Courts unless overruled by the Supreme Court.

Introduction to Law 7

Nature of Business Law

The terms 'Mercantile Law', 'Commercial Law' and 'Business Law' are synonymous (i.e., oneand the same). Mercantile law or Commercial law is a branch of general law (i.e., a branch of civillaw). Mercantile Law is that branch of civil law dealing with rights and obligations of mercantilepersons arising out of mercantile transactions in respect of mercantile property. A mercantile person isa person who carries on commercial transactions and may be a single individual, i.e., sole trader or apartnership or a company. Mercantile transactions relate mostly to what is known as merchandise ormovable property or goods, as distinguished from immovable property.

With the increasing complexities of the modern business world, the scope of Mercantile Law hasenormously widened. It is generally understood to include the laws relating to Contract, Sale of Goods,Partnership, Companies, Negotiable Instruments, Insurance, Insolvency, Carriage of Goods, Arbitration,Consumer Protection, Intellectual Property etc.

Growth and Sources of Business Law

Prior to the enactment of the various Acts constituting Mercantile Law, business transactionswere regulated by the personal laws of the parties to the suit. The rights of Hindus and Muslims weregoverned by their respective laws and usages. Where both parties were Hindus, they were regulatedby the Hindu Law and where both parties were Muslims, the Mohammadan Law was applied. In casewhere one party was a Hindu and the other was a Muslim, the personal law of the defendant wasapplied. In case of persons other than Hindus and Muslims, and also where laws and usages of Hindusor Muslims were silent on any point, the courts generally applied the principles of English Law.

Gradually, need for the enactment of a uniform law regulating the contracts was realised and thisgave birth to the Indian Contract Act, 1872. Since then a number of statutes have been enacted, viz.,The Negotiable Instruments Act, 1881; The Sale of Goods Act, 1930; The Indian Partnership Act,1932; The Insurance Act, 1938; The Arbitration Act, 1940, etc.

SOURCES OF INDIAN BUSINESS LAW/COMMERCIAL LAW/MERCANTILE LAW

The main sources of Indian Mercantile Law are: (a) English Mercantile Law, (b) Acts enacted bythe Indian Legislature, (c) Judicial Decisions or Precedents; and (d) Customs and Trade Usages.

1. English Mercantile Law: The English Mercantile Law constitutes the foundation on whichthe super-structure of the Indian Mercantile Law has been built. Even now, despite the enactment ofvarious Statutes relating to matters falling within the purview of the Mercantile Law, our courtsgenerally take recourse to the English Law where some principles are not expressly dealt within anAct, or where there is ambiguity.

2. The Statute Law: When a bill is passed by the Parliament and signed by the President, itbecomes an 'Act' or a 'Statute'. The bulk of Indian Mercantile Law is Statute Law. The Indian ContractAct, 1872; The Negotiable Instruments Act, 1881; The Sale of Goods Act, 1930; The Indian PartnershipAct, 1932; The Companies Act, 1956 are instances of the Statute Law.

3. Judicial Decisions or Case Law: Judicial decisions are usually referred to as precedents andare binding on all courts having jurisdiction lower to that of the Court which gave the judgement. They

Business Regulatory Framework8

are also generally followed even by those of equal jurisdiction in deciding similar points of law. Wheneveran Act is silent on a point or there is ambiguity, the judge has to decide the case according to theprinciples of justice, equity and good conscience.

4. Customs and Usages: Custom or usage of a particular trade also guides the courts in decidingdisputes arising out of mercantile transactions, but such a custom or usage must be widely known,certain and reasonable, and must not be opposed to any legislative enactment. But where a Statutespecifically provides that the rules of law contained therein are subject to any well recognised customor usage of trade, the latter may over-ride the statute law.

NEED FOR KNOWLEDGE OF MERCANTILE LAWA knowledge of mercantile law is quite essential to mercantile persons or businessmen engaged

in economic and commercial activities. The general knowledge of mercantile law will certainly helpthe businessmen to solve their business problems and avoid conflicts with others with whom theycome into business contacts. It will also save businessmen of considerable loss of time, efforts andmoney in case something goes wrong in their business activities.

SCOPE OF BUSINESS LAWGenerally, the scope and coverage of Business Law includes the following Acts:

1. The Monopolies and Restrictive Trade Practices Act, 1969

2. The Competition Act, 2002

3. The Industries (Development & Regulation) Act, 1951

4. The Consumer Protection Act, 1986

5. Law Relating to Carriers and Shipping (Road, Rail, Sea & Air)

6. The Foreign Exchange Management Act, 2000

7. The Arbitration and Conciliation Act, 1996

8. The Essential Commodities Act, 1955

9. The Trade and Merchandise Marks Act, 1958

10. The Patents Act, 1970

11. The Copyrights Act, 1957

12. The Design Act, 1911

13. The Information Technology Act, 2000

14. The Foreign Trade (Development & Regulation) Act, 1992

15 The Banking Regulation Act, 1949

16. The Water (Prevention & Control of Pollution) Act, 1974

17. The Air (Prevention & Control of Pollution) Act, 1981

18. The Environment Protection Act, 1986

Introduction to Law 9

19. The Standards of Weights and Measures Act, 1976

17. The Packaged Commodities Rules, 1977.

Besides the above Acts, there are several enactements under the heading Labour and IndustrialLaws which have direct influence on running a business in modern times.

REVIEW QUESTIONS1. Define the term 'law' and state its characteristics and objects.

2. "Change of social rules leads to change of law". Explain.

3. What are the different branches of law?

4. What do you understand by business/commercial law?

5. Explain briefly the structure of the Judiciary System in India.

6. What are the sources of business law/commercial law in India?

7. Explain the scope of business law/commercial law in India.