Legal Environment of Business

The word ‘Legal’ connotes – pertaining to law or – relating to law Those parts of laws - which have a direct bearing on trade, commerce or industry or any other similar activities - are known as Business Laws or Mercantile Laws. Laws that confer benefits or impose burdens or regulate transactions of a business setting or industrial scenario and surroundings - may be understood and studied as the subject matter of - ‘Legal Environment of Law’.

Laws regulating organizational aspects of a business establishment may be studied by referring to – Company Law – Partnership Act – Societies Acts etc

Law regulating business transactions may be known by referring to – general principles of contract law and the rules governing special contracts such as bailment, pledge, guarantee.

Laws pertaining to contracts of ‘sale of goods, Transfer of property, ‘Negotiable Instruments, Banking, Insurance, Imports & Exports, Transport, Shipping…. etc have a lot of impact on business environment.

Laws pertaining to- Intellectual Properties, Information Technology do – protect and also confer certain rights and benefits on business units.

Laws of Direct or Indirect Taxation - are often looked down as imposing burdens on business without conferring any benefits in return.

Environmental Protection and Pollution Control Laws are an increasing source of itch in the minds of industrial entrepreneurs & business adventurists.

The Consumer Protection while aimed at protecting consumers’ interests , imposes responsibilities as to - supply of safe and quality goods without defects and to - render services without deficiency - on trade and manufacture.

There are other set of laws which either regulate market conditions, including capital markets and stock exchanges or have control over sale price of certain essential commodities.

‘Social responsibility of industry’, ‘Transparency in business dealings’ and ‘Good governance’ - are the popular slogan of the day. Thus, it is seen that the legal rules are all pervading and encompassing business scenario - calling for more efficient management of Legal Environment of Business with proper and timely compliance.

Meaning and Scope of Law in Society: Law is the command of the Sovereign.

In a democratic state, the rule of law prevails. Adherence to rule of law is a sine quo non. Failure to comply with law will result in sanctions – i.e. compensation or damages; punishment and Fine.

There is no discrimination before law. All are equal and are treated equally before law.

The purpose or object of Law is to maintain, - order, peace and tranquility in the society so that every one will live happily, without fear or threat.

The three (3) most important functions of Law:1. To regulate the relations between individuals and institutions and

inter-se individuals or institutions. Law attempts to regulate the relations by striking a balance between conflicting interests in society.

2. To bring social change, law is an instrument. Abolition of practice of ‘sati’ or dowry prohibition or untouchability, could not have been possible, but for the force of law, apart from pursueation and education of people on these evil practices.

3. To control crime rate: Harm or any injury or death caused to body of any person or damage to property is a crime punishable with fine or imprisonment or even death. Crime is treated as an offence against the State. Therefore, state takes action to prosecute the criminal. Law attempts to save society from crime and protect people from offenders. - More stringent is the law – Lesser the crime rate.

Working Definition of Law.

For the purpose of study of the subject matter of ‘Legal Environment of Business’ in India, the most opt working definition is found in Article 13(3)(a) of the Constitution of India.

“Law includes any – Ordinance, – order, – bye-law, – rule, – regulation, – notification, – custom or usagehaving in the territory of India, the force of law.”

The word ‘includes’ in the definition - is indicative of the fact that - it is not exhaustive definition. The definition is open to include – Principles of equity – Common Law i.e. precedents set by higher judiciary in India while interpreting the terms of statute law – Principles of Natural Justice – so on. Principles of equity have been evolved over ages in

England to over come the Statutory and Common Law procedures which are

– technical and – dilatory – causing much hardship to common man.

The primary source of equity law was - neither unwritten law – like custom

- nor written law – like statute.

Grant of relief on equity is always – a matter of discretion of courts.

It is governed by certain maxims.

Whenever the general preposition of legal law is found to work hardship to a particular case, equity must be applied to mitigate it and rectify the harshness.

There are many maxims of equity but five (5) Principles are of interest to us because - they are often referred to in deciding business/mercantile disputes.

They are One who seeks equity must come with clean hands One who seeks equity should do equity One who seeks equity should be vigilant - not indolent. Delay defeats equity. Where there are equal equities,

- the first in time will prevail.

Relief is always confined to - Compensation or

- Damages - in money.Equitable remedies are:

- Injunction- Specific performance

- Restoration- Rectification- Cancellation of documents or contracts – where Money alone can not do justice and give satisfactory relief to complainant.

Provisions relating to the above said reliefs have been laid down in Indian Specific Relief Act 1963.

Common lawCommon law in the context of Indian Business/

Mercantile Law is the name give to those - Principles of law - evolved by judges - in making decisions - on cases brought before

them.These principles have been built up over many

years, so as to form - a complete law, in particular areas

- of business/mercantile law.

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Natural Justice Justice may be classified into two types

- Legal Justice and - Natural Justice.

Legal justice refers to justice governed by the law of the state and Natural Justice refers to moral justice and is governed by the Laws of

Equity. Justice done to one seems

- not injustice to another. So the goodness of a law is in - maximizing the pleasure of the beneficiaries - with minimized pain to the others.

Natural Justice must ensure ‘Procedural Fairness’.

• The word ‘Natural Justice’ is derived from the Roman word ‘Jus naturale’, which means Principles of natural law are - justice, equity, and good conscience.

• Natural Justice is not something derived from Laws of nature. Laws of nature promote the survival rather than justice. Therefore, ‘natural’ justice is not justice found in nature; it is a compendium of concepts which must be naturally associated with justice, whether these concepts are incorporated in law or not.

Principles of Natural Justice

It’s the natural law - that provides the frame work of Principles and It is left to the statute law - to supply flesh and blood

to the legal system.

It’s - a great humanizing principle - intended to invest law with fairness, - to secure justice and - prevent miscarriage of justice.

Principles of Natural Justice operate in areas not covered by any rule or law; they do not supplant the law but only supplement it.

The following are the two (2) important basic principles of natural justice:

(i) ‘Nemo debet essa judex in propria cause’, means: No one can be a judge in his own cause.

(ii) ‘Audi Alteram Partem’, means: Hear the other side.

The first principle, ‘No one can be a judge in his own cause’ implies that the accuser must not sit in judgment on the accused. The judge can under no circumstances combine in himself the roles of judge and jury, of judge and witness or judge and prosecutor. He must be totally free from any bias.

Bias can be of three (3) types: A Judge may have (a) a pecuniary interest, (b) a personal interest, and /or (c) a general interest,

- in the subject matter brought before him for decision.

In employee relations , bias is relevant - not only in the disciplinary authority but also - in the inquiry officer,

even where the inquiry officer is a different person from the disciplinary authority.

The second principle, ‘Hear the other side’ means: That a judge - must hear both sides; and - must not hear one side in the absence of the other.

(a) In Administrative matters (HR), it means that the delinquent employee has - a notice of the charges he is called upon to explain; and - the allegations on which those charges are based.

(b) that he has access to all relevant evidence that he wishes to adduce; (c) that he is given the opportunity - to cross-examine the prosecution witnesses; - to produce witnesses in defence; and - offer himself for examination; (d) that no evidence should be recorded behind his back but all of it should be taken in his presence; and (e) that no materials should be relied on against him without giving him an opportunity of explaining them.

The following further principles emerge from a consideration of what is stated above: (i) that the decision must be made in good faith and (ii) an order must be a speaking order. (I) The principle that the decision must be made in good faith implies that

- the judge has bestowed due consideration to the facts and evidence adduced during the inquiry and - he has not taken into account any extraneous matter not adduced during the inquiry - and that he has arrived at the decision without favour to any of the parties.

(ii) The principle that the order must be a speaking order is based on the premise that whether the judge has considered all the aspects of a matter before him can be ascertained only if the order which he makes is a speaking order. The requirement of making a speaking order will minimise the possibility of arbitrary exercise of power as the necessary search for reasons will ensure fair-play and reasonableness. *Reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject matter while arriving at a decision.

• In simple terms, a speaking order is an order that speaks for itself.

• The order should stand the test of legality, fairness, and reason at all the higher appellate forums.

• That is, the Speaking orders should contain all the details – the facts, - reason, - finding of the case and also - reasons on basis of which such final order is passed.

• Mostly, Court orders are speaking orders

In conclusion, it may be summarized and said:

1. Rules of natural justice are the minimum standards – of fair decision-making – imposed on persons or bodies – acting in a judicial capacity.

2. Natural Justice is also known as - substantial justice, - fundamental justice, - universal justice or - fair play in action.

Administration of justice

Broadly, the Administration of Justice in India is a two fold (2) system:

1. Civil Law Administration2. Criminal Law Administration. Civil law administration is guided by the well

established principle of – ‘probability of preponderance of evidence’. For example, in a suit between ‘A’ and ‘B’ on a question whether the contract is voidable at the option of ‘B’ or is it a contract enforceable against ‘B’, the case will be decided on the basis of the strength of evidence produced by ‘A’ and ‘B’ in support of their respective claims in the case.

If the evidence adduced before the court by ‘B’ prevails over the evidence produced by ‘A’, then ‘B’ will succeed in the suit and ‘A’ will fail. After proper application and evaluation of the evidence produced by both the parties before it, if the court comes to the conclusion that the quality of evidence produced by ‘B’ before it and brought on record weigh 51% or above and that of ‘A’ is 49% or below, then ‘B’ will succeed and ‘A’ will fail’, even though ‘A’ has adduced evidence something nearing to that of ‘B’.

This is - what the ‘Principle of probability of preponderance of evidence’ means in civil law administration in India.

Criminal Law Administration is guided by the principle that - “Let ten thousand criminals scot-free or let-off but not even a single innocent be punished”. It means that the prosecution must establish that ‘it is the accused and the accused only and none else than the accused’ - has committed the offence. Thus, there is a burden of proof on the part of prosecution to adduce 100% evidence and establish its case beyond any reasonable doubt, before the trial court.

Even if there is an iota of doubt - say 0.01% appears in favour of the accused, the court shall acquit but not convict him. He will be released on the ground of ‘benefit of doubt’ and thus the accused would succeed against the prosecution.

This is because the Constitution of India guarantees ‘freedom of movement’ and ‘liberty of life’ to every person.

The presumption is that ‘the accused is innocent, unless proved guilty - without an iota of doubt’.

The standard of proof required in Criminal law administration is ‘evidence beyond reasonable doubt’. i.e. cent percent (100%) proof against the accused.

INDIA and LAW

The Preamble of the Constitution of India declares: India is a - Sovereign, - Socialist,

- Secular, - Democratic - Republic.1. Sovereign means: The State is Independent and it is

all powerful in its domain national territory. It is not subordinate to any political power or state in the world. No one can interfere with its internal affairs.

2. Socialist: 1. The Principle aim of socialist state is

- to eliminate inequality in (i) income and (ii) status and (iii) standard of life.

2. The basic framework of socialism is - to provide a decent standard of life to the working people and - especially to provide security from cradle to grave.

3. This, amongst others, on economic side - envisaged economic equality and equitable distribution of income.

4. The state shall in particular direct its policy towards securing – that the ownership and control of material resources of the community are so distributed as best to subserve the common good; and – that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.

3. Secular: The state does not profess, practice or propagate any particular Religion. It treats all religions equally. It will not discriminate one religious group against the other.

4. Democratic: The power and ultimate authority in governance of the state is vested in the hands of the people. It envisages a representative form of government and majority rule, with an opportunity to opposition - to convert its minority into majority.

5. Republic: means the Head of the State is not a titular and ancestral monarch, but an elected representative from among the people.

The three (3) main organs of the Government are: – Legislature [Supreme Law making body]

– Executive [Administrative and law enforcing authority] and – Judiciary [Independent and impartial adjudicating body.]

India is a union of states. [Not federation of states]. The Union of India is organized into 29 states for the purpose of - administrative convenience and on - linguistic basis.

There are also seven (7) areas declared as Union Territories (UTs). The UTs are administered by the President of India through a designated person appointed - subject to any law made by Parliament in this regard; hence the name ‘Union territory'. [Art -239]

India is - unitary in spirit and - federal in structure. It is often described as a ‘quasi federal’ state. It has two levels of Governments – one the ‘Union Government’ at the Centre , and – others at provincial level - the ‘State Governments’.

The Governments at both levels have separate- Legislative wing and- Executive wing.

But there is only one unitary form of Judiciary with - Supreme Court of India at its apex. It is the Court of last appeal. Law declared by Supreme Court is binding on all courts within the territory of India.

The Legislative, Executive and Financial Relations between Union and State Governments and inter se State Governments - are regulated by a schematic and systematic Constitutional framework.

Parliament, however, enjoys the status of supreme law making organ of India.

Schedule VII : Distribution of Legislative powers: There are three (3) lists under the Schedule

– List - I Union List – List - II State List – List - III Concurrent List.

On subject matters listed under ‘List-I Union List’ – the Union has exclusive legislative power.

On subject matters listed under ‘List-II State List’ – the State has exclusive legislative power.

On subject matters listed under ‘List-III Concurrent List’ both Union and States can exercise parallel legislative power – subject to the Principle of ‘Federal Supremacy.’

The Legislative wing of the Union is known as - the ‘Parliament’.

The Legislative wing of a state is known as - the ‘Assembly’.

The Indian Parliament is bicameral – having two chambers called as (1) Lok Sabha (House of people) and (2) Rajya Sabha (House of elders). They are also known as ‘Lower House’ and ‘Upper House’, -respectively.

It is left to the option of the Indian states to have a bicameral legislature or not. The two chambers are called as (i) Legislative Assembly and (ii) Legislative Council, similar to Parliament. Some States in India did not opt for or after having opted for some period dispensed with or discontinued having Councils - to reduce financial burden on state exchequer.

The Law made by Parliament extends to whole of the territory of India, subject to exemption of certain areas or parts of an area, if any.

The Law made by a state Assembly extends to whole of the territory of that state only, subject to certain exemption as to some area or part of an area, if any.

Thus, if we want to see ‘Legal Environment of Business’ in India, we are required to look for both sets of laws, - in case the subject matter is under concurrent list, – to the extent they are relevant to and having a bearing upon Trade, Commerce or Industry at a given place or location.

In other words, we have to keep in mind the - ‘Principle of Legislative Competency’. – check for example: Whether your business establishment is situated within the state limits of Karnataka, or Punjab or Maharashtra …so on. – check again, whether you have to look for only state or union law or both.

One need to look for – both the sets of laws in case the compliance required is of any subject matter listed under Concurrent List; For example: Matters related to Labour Laws, or Legal, Medical or other Professions or adulteration of food stuffs and other goods…etc .

One need not to look for – a State law, where the compliance required in connection with any subject matter listed under Union List; for example – a company law compliance matter; or computation and payment of income tax or corporate tax; or Central Excise or Customs Duty, or Service tax.

– an Union law when the compliance required is in connection with any subject matter listed under State List; for example payment of stamp duty and registration fee for any kind of transfer of land, or computation of General Sales Tax, Property tax, Land Revenue…… etc.

THANK YOU.Prof. Dr. KSN Sarma

B. Sc, M.A, LL.D

AdvocateHigh Court of Judicature

Andhra Pradesh Visiting Professor - IBS

Hyderabad.Mobile: 88864 22446

“Pro se”

• Litigants or parties• representing themselves in court without the

assistance of an attorney are known as pro se litigants. • “Pro se” is Latin for “in one’s own behalf.” • The right to appear pro se in a civil case is recognised

in India• Thus, with some limitations, anyone can appear pro

se, and anyone who appears before the Court without an attorney is considered pro se.