MB0051 Legal aspects of Business Q1. It is important for any person to know law as ignorance of law is no excuse.

Modern Indian law has been derived from some sources. Discuss the primary and secondary sources of Indian law.

Answer:- The main sources of modern Indian Law, as administered by Indian courts, may be divided into two broad categories: (i) Primary sources and, (ii) Secondary sources. Primary sources of Indian Law The primary sources of Indian Law are:

Custom Judicial precedent (stare decisis) Statute Personal law Custom Customs have played an important role in making law and therefore are also known as customary laws. In the words of Keeton, customary law may be defined as those rules of human action, established by usage and regarded as legally binding by those to whom the rules are applicable, which are adopted by the courts and applied as sources of law because they are generally followed by the political society as a whole or by some part of it. In simple words, it is a generally observed course of conduct by people on a particular matter. When a particular course of conduct is followed again and again, it becomes a custom. Judicial precedent Judicial precedent is another important source of laws. It is based on the principle that a rule of law that has been settled by a series of decisions generally should be binding in court and followed in similar cases. Only those rules that lay down some new rules or principles are treated as judicial precedents. Thus, where there is a settled rule of law, it is the duty of the judges to follow the same; they cannot substitute their opinion for the established rule of law. This is known as the doctrine of stare decisis. The literal meaning of this phrase is standing by the decision. Statute Statutory law or legislation is the main source of law. This law is created by legislation of bodies such as the Parliament. It is called statute law because it is the writ of the state and is in written form (jus scriptum). In India, the Constitution empowers the Parliament and state legislatures to promulgate law for the guidance or conduct of people to whom the statute is made applicable, either expressly or by implication. It is sometimes called enacted law because it is brought into existence by passing acts in the legislative body.

Personal Law Many times, a point of issue between the parties to a dispute is not covered by any statute orcustom. In such cases, courts are required to apply the personal law of the parties. Secondary sources of Indian law The secondary sources of Indian Law are English Law and Justice, Equity and Good Conscience. English law the chief sources of English Law are:

(i) The Common Law (ii) Equity, (iii) The law Merchant and (iv) The Statute Law. Common law - This source consists of all those unwritten legal doctrines embodying customs and traditions developed over centuries by the English courts. Equity - The literal meaning of the term equity is natural justice. ln its technical and narrower sense, equity means a body of legal doctrines and rules emanating from the administrations of justice, developed to enlarge, supplement or override a narrow rigid system of existing common laws. However, like the common law, equity is also unwritten. Statute - Statutes consist of laws passed by the legislature and is the written law. The authority of the Parliament is supreme but is subject to limitations laid down by the Constitution. The Parliament can pass laws as it pleases and can override its own previous acts and decisions of courts. A statute, therefore, is superior to and can override rules of common law or equity. Law merchant or Lex Mercatoria - lt is a source of law based on customs and usage prevalent among merchants and traders of the Middle Ages. Its evolution, like that of equity, can be traced to the unsuitability of the common law for commercial transactions. The common law was found to be unsatisfactory in dealing with disputes between merchants. The merchants, therefore, developed certain rules based on customs and usages to govern their mercantile transactions. These rules are known as Lex Mercatoria or the law merchant.
Q2. We all enter into many contracts in a day knowingly or unknowingly. Explain the definition of a valid contract. How are contracts classified? (definition - 5 marks, classification 5 marks) 10 marks Contract According to Section 2 (h) of the Indian Contracts Act, 1872, a contract is an agreement enforceable by law made between at least two parties as per which rights and obligations are mutually createdfor both panties. lf theparty who had agreed to do something fails to do that, then the other party has a remedy in law. Classification of contracts Contracts may be classified as follows: Classification according to formation: A contract may be made:

ln writing (express) By spoken words (implied) , Inferred from the conduct of parties or circumstances of the case.

Contracts are also classified as formal or informal on the basis of their formation. A formal contract is one in which the law gives special effect because of formalities or special language used in creating it. The bestexample of formal contracts is negotiable instruments such as cheques. Informal contracts are those in which the law does not require formalities or special language. Classification according to validity: Contracts may be classified according to their validity as follows: Valid Voidable Void Non-enforceable Valid means that the contract possesses all the elements of a contract as mentioned in Section 10 of the Contracts Act. If one or more of the essential elements are missing, the contract is voidable, void, .illegal or non-enforceable. As per Section 2 (i), a voidable contract is one which may be repudiated (i.e., avoided) at the will of one or more parties, but not by others. Q3. The parties to bailment have certain rights and duties. Discuss the duties of both parties i.e. the bailor and bailee. ( duties of bailor- 5 marks, duties of bailee- 5 marks) 10 marks Duties of a bailor To disclose known faults in goods (Section 150) The bailor is bound to disclose to the bailee all faults in goods bailed of which he/she is aware of These faults materially interfere with the use of them or expose the bailee to extraordinary risks. lf the bailor does not make such disclosure he/she is responsible for the damage arising to the bailee directly from such faults. Example. A lends a horse, which he knows to be vicious, to B. He does not disclose to B the fact that the horse is vicious. The horse runs away, B is thrown down and injured. A is responsible for injury caused to B. To bear liability for breach of warranty as to title - The bai.lor is responsible to the bailee for any loss that the bailee may sustain by reason that the bailor was not entitled to make the bailment, or to receive goods or give directions respecting them (Section 164). Example: A gives Bs car to C without Bs knowledge and permission. B sues C and receives compensation. A, the bailor, is responsible to make good this loss to C, the bailee. To bear expenses in case of gratuitous bailment Regarding bailment under which the bailee is to receive no remuneration, Section 158 provides that in the absence of a contract to the contrary, the bailor must repay to the bailee all necessary expenses incurred by him for the bailment. To bear expenses in case of non-gratuitous bailment - ln case of non-gratuitous bailments, the bailor is responsible for bearing only extraordinary expenses. Example: A car is lent for a journey. The ordinary expenses like petrol, etc., shall be borne by the bailee. However, in case the car needs repair, the money spent in this regard is an extraordinary expenditure and borne by the bailor.

Duties of a bailee To take care of goods bailed (Section 151) - ln all cases of bailment, the bailee is bound to take care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed. ln case the bailee has taken proper care of the goods, he shall not be responsible, in the absence of any special contract, for the loss, destruction or deterioration of the goods bailed (Section 152). Example: A lends a car to B for his own driving only. B allows C, his wife, to drive the car. C drives with care, but the car is damaged in an accident. A is liable to make a compensation to B for the damage caused to the car. Not to make unauthorised use of goods (Section 154) - ln case the bailee makes unauthorised use of goods, i.e. uses them in a way not warranted by the terms of bailment, he is liable to make a compensation to the bailor for any damages arising to the goods from or during such use of them. Not to mix bailors goods with his own (Sections 155-157) - If the bailee without the consent of the bailor mixes the goods pf the bailor with his own and the goods cannot be separated or divided, the bailee shall bear the expenses of separation or division and any damages arising from the mixture. A bails 100 bales of cotton marked with a special mark to B. without As consent, mixes the 100 bales with other bales of his own hearing a different mark. A is entitled to have his 100 bales returned and B is bound to bear all expenses incurred in the separation of the bales any other incidental damage. however in case the goods are mixed in such a manner that it is to separate the goods bailed from the other goods and deliver them, the bailor is entitled to be compensated by the bailee for loss of goods. To return goods bailed without demand (Section 160) - lt is the duty of the bailee to return, or deliver according to the bailors directions, the bailed without demand, as soon as the time for which they were has expired, or the purpose for which they were bailed has been accomplished. [bailee fails to return goods at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of goods from that time urwards (Section 161). To return any accretion to goods bailed (Section 163) - In the absence of any contract to the contrary, the bailee is bound to deliver to lie bailor, or according to his/her directions, any increase or profit that may have accrued from the goods bailed. Example: A leaves a cow to be taken care of in the custody of B. The ccow gives birth to a calf. B is bound to deliver the cow as well as the calf to A.

Q4. A contract comprises of reciprocal promises. In a contract of sale who is an unpaid seller? Discuss the remedies for breach of contract under Sale of Goods Act, 1930. (unpaid seller- 2 marks, breach of contract- 8 marks) 10 marks A seller of goods is an unpaid seller when: Entire price has not been paid or tendered. A bill of exchange or other negotiable instrument has been received as conditional payment and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.In addition to the rights of a seller against

goods provided in Sections 47-54, the seller has the following remedies against the buyer personally: Suit for price (Section 55) Damages for non-acceptance of goods (Section 56), and Suit for interest (Section 56).

Suit for price (Section 55) Section 55 states that where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay the price, the seller can sue the buyer for the price of the goods. Where the property in goods has not passed to the buyer, as a rule, the seller cannot file a suit for the price; his only remedy is to claim damages. Example: A sold certain goods to B for Rs.5,000 and the price was agreed to be paid before the expiry of 10 days of the contract. B fails to pay the once within the stipulated time. A can file a suit for price against B even though the goods have not been delivered or the property in goods has not been passed to B. Suit for damages for non-acceptance According to Section 56, where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non- acceptance. Where the property in the goods has not passed to the buyer and the price was not payable without passing of property, the seller can only sue for damages and not for the price. The amount of damages is to be determined in accordance with the provisions laid down in Section 73 of the lndian Contracts Act, 1872. Thus, where there is an available market for the goods prima facie, the difference between the market price and the contract price can be recovered. Suit for interest Section 61 claims that when under a contract of sale, the seller tenders the goods to the buyer and the buyer wrongfully refuses or neglects to accept and pay the price, the seller has a further right to claim interest on the amount of the price. ln the absence of a contract to the contrary, the court may award interest at such rate as it thinks fit on the amount of the price. The interest may be calculated from the date of the tender of the goods or from the date on which the price was payable. lt is obvious that the unpaid seller can claim interest only when he/she can recover the price, i.e., if the seller's remedy is to claim damages only, then he/she cannot claim interest. Buyers remedies against seller The buyer has the following rights against the seller for breach of contract: Damages for non-delivery (Section 57) 5 Right of recovery of the price Specific performance (Section 58) Suit for breach of condition Suit for breach of warranty (Section 59) Anticipatory breach (Section 60) Recovery of interest (Section 61) The Sale of Goods Act is important for any new business as it deals with the movement of goods and movable property across India and is applicable across businesses. Q5. The Companies Act, 1956 deals with the formation and transaction of business of a company. Discuss the features of a company. Also explain the process of formation of a company. ( features- 3 marks, process of formation- 7 marks) 10 marks

The Companies Act, 1956, deals with the formation and transaction of business of a company. Generally, a company is defined as the voluntary association of individuals formed for some common purpose. Section 3 of the Act defines the word company as a company formed and registered under the Act or an existing company formed and registered under any of the previous company laws. However, this definition does not define the nature of a company clearly. A company is construed to be an artificial legal person created by a process of law for the purpose of conducting its business. lt has perpetual succession and a common seal and is an entity uniquely different from its constituent members. in this unit, the legal provisions related to the formation, sustenance and winding up of the company are discussed in detail. In the previous section, we have had a brief introduction on the Companies Act. ln this section, we shall discuss the formation of a company. A company is a unique legal entity that is created by the due process of law.lt has unique features that differentiate it from other types of associations. Some of the key features of a company are that it has: An independent corporate existence separate from its members Limited liability Perpetual succession as a juristic person Common seal Ability to transfer ownership by way of shares Right to property, and Right to seek legal relief in its own name The nature of the independent existence of the company forms the basis for all its activities as a unique legal person, as is evident from the case below. The process for the formation of a company may be divided into three parts: Promotion Registration Floatation Promotion Promotion denotes the preliminary steps undertaken for the purpose of registration and floatation of the company. The persons who assume the task of promotion are called promoters. The promoter may be an individual, syndicate, association, partnership or company. The term promoter has not been defined under the Act, although the term is used expressly in Sections 62, 69, 76, 478 and 519. Registration Before the formation of a company, preliminary decisions regarding the type of company, share capital, etc. have to be decided by the promoters, who do the work incidental to the formation of a company. According to Section 12, seven or more persons (two or more for a private limited company) associated for a lawful purpose may form an incorporated company, with or without limited liability. They subscribe their names to Memorandum of Association (MoA) and comply with other formalities for registration. A company so formed may be limited by shares or guarantee or may be an unlimited company. Before registration, it is necessary to ascertain from the Registrar of Companies (ROC), whether the proposed company name is approved. The following documents have to be filed with the ROC, and duly stamped along with necessary fees: A MOA, duly signed by the subscribers

Articles of Association (AoA), if any, signed by the subscribers of the MoA. This is optional for a public limited company limited by shares, which may adopt Table A in Schedule I of the Act. A The agreement, if any, by which the company proposes to enter into with any individual for appointment as managing director/whole time director or manager (Section 33(1)). A list of directors who have agreed to become the first directors of the company, with written consent to act as directors and take up qualification of shares (Section 266). A declaration stating that all requirements of the Companies Act and other formalities relating to registration have been complied with. This declaration shall be signed by any of the following persons: An advocate of the Supreme Court or a High Court An attorney or pleader entitled to appear before a High Court A secretary or a Chartered Accountant in whole-time practice in india, who is engaged in the formation of the company A person named as a Director, Manager or Secretary of the Company in AoA Section 146: Within 30 days of incorporation, a notice of the situation of the registered offence of the company shall be given to the ROC who shall record the same. When the documents are filed with the ROC, they have to satisfy themselves that statutory requirements have been complied. Then, they retain and register the MoA, AoA and other documents filed with the ROC. The ROC then issues a Certificate of lncorporation", i.e., formation of the company (Section 33 (3)).This Certificate is issued as a soft copy and not a hard copy, as per recent changes in the Act. Floatation When a company has been registered and has received its COI, it is ready for floatation, that is to say, it can go ahead with raising capital that is needed to commence and carry on its business. Section 70 makes it obligatory for every public company to take either the following two steps: issue a prospectus in case the public is to be invited to subscribe to its capital, or Submit a statement in lieu of prospectus in case the capital has been arranged privately. lt must be done at least three days before allotment. Q6. With Information Technology Act, 2000, India has a set of cyber laws to provide legal infrastructure for e commerce. Discuss the objectives and limitations of this Act. (objectives- 3 marks, limitations- 7 marks) 10 marks Objectives of the act The objectives of the Act as reflected in the preamble to the Act are: To provide legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication, commonly referred to as electronic commerce, which involves the use of alternatives to paper-based methods of communication and storage of information To facilitate electronic filing of documents with the government agencies To facilitate electronic storage of data in place of paper-based methods of storage of data To amend the Indian Penal Code, the Indian Evidence Act, 1872, the Bankers Books Evidence Act, 1891, and the Reserve Bank of lndia Act, 1934,and To provide for matters connected therewith or incidental thereto.

Limitations of the Information Technology Act, 2000. The Act does not cover the following aspects of e-commerce The Act deals only with the commercial and criminal areas of law as affected by information technology and does not deal with certain other issues, such as intellectual property rights, (i.e., copyright, trademarks and patents). Thus, infringement of copyright on e-commerce will be governed by the Copyright Act, 1957. The Act does not address itself to internet related issues such as domain names and cyber squatting. There have arisen many disputes about domain names globally, including infringement, concurrent claims and cyber squatting. ln the USA, these issues are tackled by the US Anti-Cyber Squatting Consumer Protection Act, 1999. This Act is a powerful deterrent to cyber-squatting, as it provides for the levy of damages up to US$300,000 per mark against the guilty parties. ln India, however, cyber-squatting can be opposed by relying on the provisions of the Trade Marks Act, 1999. The Act is not applicable to negotiable instruments, power of attorney, trusts, testamentary dispositions (wills), contracts for sale or conveyance of immovable property or any interest in such property. The non- applicability of the Act to negotiable instruments would result in e-commerce in India being limited to payment systems that are non- traditional or credit card-based. The banks cannot extend their services to the online medium of payments. The IT Act, 2000, is silent as regards taxation of goods and services traded through ecommerce. The IT Act makes no provision for jurisdictional aspects of electronic contracts, i.e., jurisdiction of courts and tax authorities. No provision has been made for payment of stamp duty on electronic documents. .