MB0051: Legal Aspects of Business Q1. What are the sources of Indian law?

Discuss any one important source of law and justify why it is important. Ans. The main sources of modern Indian law may be divided into two broad categories: Primary sources 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.

1|P a ge

MB0051: Legal Aspects of Business Personal Law Many times, a point of issue between the parties to a dispute is not covered by any statute or custom. In such cases, courts are required to apply the personal law of the parties. Thus, in certain matters, we follow the personal laws of Hindus, Mohammedans and Christians.

Q2. What is a contract? Which test would you apply to ascertain whether an agreement is a contract?

Ans. 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 created for both parties. If the party who had agreed to do something fails to do that, then the other party has a remedy in law. Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai to Bangalore on 10 January. The airline is under an obligation or duty to take X from Mumbai to Bangalore on 10 January. In case the airline fails to fulfil its promise, X has the right to sue the airlines for breach of contract. Agreement Section 2 (e) of the Contracts Act defines an agreement as every promise and every set of promises forming a consideration for each other. For an agreement, a promise becomes essential. The word promise is defined by Section 2 (b) of the Contracts Act. In a contract, there are at least two parties. One of them makes a proposal (or offer) to the other to do something with a view of getting approval of the other to such an act. When the person to whom the proposal is made provides his/her assent, the proposal is said to be accepted. A proposal, when accepted, becomes a promise according to Section 2 (b). Enforceability by law: The agreement must be enforceable by law to become a contract. Thus, there are certain agreements that do not become contracts as the element of enforceability by law is absent. Essentials of a contract Section 10 of the Contracts Act provides that all agreements are contracts if they are made by free consent of parties competent to contract for a lawful consideration with a lawful object and are not expressly declared by law to be void. To constitute a contract, there must be an agreement between two or more parties. One cannot enter into a contract with oneself. An agreement is composed of two elements offer or proposal by one party and acceptance thereof by the other party. Effect of
2|P a ge

MB0051: Legal Aspects of Business absence of one or more essential elements of a valid contract: If one or more essentials of a valid contract are missing, then the contract may be voidable, void, illegal or non-enforceable. Classification of contracts Contracts may be classified as follows: Classification according to formation: A contract may be made: In 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 best example 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 wil of one or more parties, but not by others. In the next section, we wil discuss offer and acceptance.

3|P a ge

MB0051: Legal Aspects of Business Q3. Write short notes on: Ans. a. Agent and agency According to Section 182, an agent is defined as a person employed to do any act for another or to represent another in dealings with a third person. Thus, an agent is a person who acts in place of another. The person for whom or on whose behalf he acts is called the principal. For example, Anil appoints Bharat, a broker, to sell his Maruti car on his behalf. Anil is the principal and Bharat is his agent. The relationship between Anil and Bharat is called an agency and is based on an agreement whereby one person acts for another in transaction with a third person. Who can employ an agent? Any person who is attained majority according to the law to which he is subject and who is of sound mind, may employ agent (Section 183). No qualifications as such are prescribed for a person to appoint an agent, except that he has attained majority and is of sound mind. Thus, a minor or a lunatic cannot contract through an agent since they cannot contract themselves personally either. If agent acts for a minor or lunatic, he wil be personally liable to the third party. 5.2.2 Who may be an agent? Since an agent is a mere connecting link or a conduit pipe between the principal and the third party, it is immaterial whether or not the agent islegally competent to contract. There is no bar to the appointment of a minor as agent. Section 184 mentions the term any person, indicating that minors can also be considered as agents. However, in considering the contract of an agency itself (i.e., the relation between principal and agent), the contractual capacity of the agent becomes important. Thus, a person who attained majority and is of sound mind can become an agent, as to be responsible to his principal. Example: Rahim appoints Kiran, a minor, to sell his car for not less than Rs. 90,000. Kiran sells it for Rs. 80,000. Rahim wil be held bound by the transaction and further shal have no rights against Kiran for claiming the compensation for having not obeyed instructions, since Kiran is a minor and a contract with a minor is void ab initio. In the next section, we wil discuss about kinds of agencies. b. Bailor and bailee In the previous section, we have seen the kinds of bailment. Now let us discuss the duties of a bailor and bailee.

4|P a ge

MB0051: Legal Aspects of Business 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. If 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 bailor 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 In 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., shal 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) In 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. In case the bailee has taken proper care of the goods, he shal 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) In 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 of the bailor with his own and the goods cannot be separated or divided, the bailee shal bear the expenses of separation or division and any damages arising from the mixture. Example: A bails 100 bales of cotton marked with a special mark to B. B, without As consent, mixes the 100 bales with other bales of his own bearing a different mark. A is entitled to have his
5|P a ge

MB0051: Legal Aspects of Business 100 bales returned and B is bound to bear all expenses incurred in the separation of the bales and any other incidental damage. However, in case the goods are mixed in such a manner that it is impossible to separate the goods bailed from the other goods and deliver them, the bailor is entitled to be compensated by the bailee for the loss of goods. To return goods bailed without demand (Section 160) It is the duty of the bailee to return, or deliver according to the bailors directions, the goods bailed without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished. If 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 onwards (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 the 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 cow gives birth to a calf. B is bound to deliver the cow as well as the calf to A.

6|P a ge

MB0051: Legal Aspects of Business Q4. What is the meaning of dissolution of firm? Is it different from dissolution of partnership? Ans. When the relationship between all the partners of the firm comes to an end, it is called dissolution of the firm. It naturally involves closing down the business. There is no question of reconstituted firm in such a case. A firm may be dissolved in any of the following ways: By mutual consent Section 40 provides that a firm may, at any time, be dissolved with the consent of all the partners. This applies to all cases whether the firm is for a fixed period or otherwise. By agreement Section 40 also provides for the dissolution of a firm in accordance with a contract between the partners. The contract providing for dissolution may have been incorporated in the partnership deed itself or in a separate agreement. By the insolvency of all the partners but one If all the partners or all the partners but one become insolvent, it leads to dissolution of the firm. Section 41 calls this as compulsory dissolution. By business becoming illegal Section 41 provides that a firm is dissolved by the happening of any event that makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership. However, if the partnership relates to more than one adventure, the il egality of one or more of them does not prevent the lawful adventure from being carried on by the firm. Partners becoming alien enemies Section 41 also covers cases of partnership between persons who become alien enemies by a subsequent declaration of war. In such a case, the partnership is dissolved because trading with an alien enemy is against public policy. Dissolution by court (Section 44) At the suit of a partner, the court may dissolve a firm on any of the following grounds: Unsound mind of partner The application in this case may be made by any of the partners or by the next friend of the insane partner. In the case of insanity of a dormant partner, the court wil not order dissolution, unless a very special case is made out for dissolution. Permanent incapacity of a partner The court may order for dissolution of a partnership, if a partner becomes permanently incapable of performing his duties as a partner. The application for dissolution, in such a case, may be made by any of the partners and not by the incapacitated partner. Misconduct of a partner affecting the business If a partner is guilty of conduct that is likely to affect prejudicially the carrying on of the business of the firm, the court may order dissolution. Willful and persistent disregard of partnership agreement by a partner If a partner wil fully and persistently commits a breach of the partnership agreement regarding management, or
7|P a ge

MB0051: Legal Aspects of Business otherwise conducts himself/herself in such a way that is not reasonably practicable for the other partners to carry on business in partnership with him/her, the court may order a dissolution. Continuous refusal by a partner to attend tohis/her duties in the partnership business, the fact of hostility between the partners that makes cooperation between them impossible, have been held to be sufficient reasons for dissolution. The suit for dissolution under this ground can be brought by a partner other than the guilty partner. Transfer of interest or share by a partner If a partner transfers (by sale, mortgage or charge) his/her whole interest in the partnership to a third party or allows his/her shares to be charged in execution of a decree against him/her or allows the same to be sold for arrears of land revenue or for charges recoverable as land revenue, the court may dissolve the partnership. The transfer of a part of his share by a partner to a third party is not permissible unless otherwise agreed. A partner can, however, transfer his entire share to a partner in the firm because no new partner is introduced thereby. Business at a loss by a partner The court can also dissolve a partnership where the business of the firm cannot be carried on save at a loss. The court can order dissolution even though the partnership is for a fixed period [Rehmat-un-nisa-v. Price, 42 Bom. 380]. Just and equitable grounds The court can order dissolution on any other ground which in the opinion of the court is a fit ground for dissolution of partnership. Dissolution on this ground has been granted in case of deadlock of the management, disappearance of the substratum of the business, partners not on speaking terms, etc.

8|P a ge

MB0051: Legal Aspects of Business

Q5. What do you mean by negotiable instruments? Explain the difference between bill of exchange and promissory note. Ans. negotiable instruments: Documents that are freely used in commercial transactions and monetary dealings are known as negotiable instruments, if they satisfy certain conditions. The term negotiable instrument refers to a written document transferable by mere delivery or by indorsement and delivery to enable the transferee to get a title in the instrument. An instrument may possess the characteristics of negotiability either by statute or usage. Laws relating to negotiable instruments are contained in the Negotiable Instruments Act,1881. This Act deals exclusively with promissory notes, cheques and bil s of exchange, as defined under Section 13. There are certain instruments that are recognised as negotiable instruments by usage. Thus, bank notes, bank drafts, share warrants, bearer debentures, dividend warrants, scripts and treasury bil s are negotiable by usage. the difference between bill of exchange and promissory note. The following are the points of distinction between a promissory note and a bill of exchange: There are three parties to a bill of exchange, namely, the drawer, the drawee and the payee, while in a promissory note there are only two parties - maker and payee. In a bill of exchange there is an unconditional order to pay, while in a promissory note there is an unconditional promise to pay. A bill of exchange requires an acceptance of the drawee before it is presented for payment, while a promissory note does not require any acceptance since it is signed by the person who is liable to pay. The liability of a maker of a bill of exchange is primary and while the liability of a drawer of a bill of exchange is secondary and conditional. It arises only when the drawee fails to pay that the drawer would be liable as a surety. A bill of exchange can be drawn in sets; but promissory note cannot be drawn in sets.

9|P a ge

MB0051: Legal Aspects of Business

Q6. Discuss the provisions of Right to information act, 2005 and information technology act, 2000. Ans. In the previous section, we have had a brief introduction to the Right to Information Act (RTI) and the Information Technology Act, 2000. In this section, we shall discuss the same in detail. Right to information is a part of fundamental rights of an Indian citizen under Article 19 (1) of the Constitution. Article 19 (1) states that every citizen has freedom of speech and expression. Until 1976, the Supreme Court ruled that people cannot express themselves unless they know. India is a democratic country where people are the masters and have the right to know the method of functioning of the Government of India, which is meant to serve them. In the Indian democratic system, the right to information for every citizen is a revolutionary step. Officials, in the name of administrative secrecy, hesitated to disclose information and kept the general public in darkness about important decisions of the Government and other administrative bodies. This has, in turn, led to the increase of corruption, under the cloak of secrecy. The main aim of this Act is to eradicate the existing practice of concealing facts and events and to empower every citizen to exercise their legal right inobtaining information under the RTI Act, 2005. The ideal objectives of the RTI Act are to promote transparency and accountability in the working of public authority and to set up a practical regime for giving citizens access to information under the control of public authorities. RTI Act, 2005, was implemented in our country on 15 June 2005 and became operational on 12 October 2005. The Act extends to the whole of India except the State of Jammu and Kashmir. Information Technology Act, 2000 In the previous section, we have discussed RTI and its benefits. In this section, we shall discuss the Information Technology Act, 2000. Preamble of the Act: At the height of the dotcom boom, India enacted the Information Technology Act, 2000, in May 2000 and became part of a select group of countries to have cyber laws. This Act was enacted so as to provide legal infrastructure for e-commerce and alternatives to paper-based methods of information storage and communication. The Act aims to provide legal sanctity to all electronic records and was instrumental in pioneering corresponding changes in other legislations such as the Indian Penal Code, Indian Evidence
10 | P a g e

MB0051: Legal Aspects of Business Act, Bankers Book Evidence Act and Reserve Bank of India Act. Hurdles in the Act: Hurdles in the implementation of the Act are: Despite the growing crime rate in the cyber world, less than 25 cases have been registered under the IT Act, 2000, and no final verdict has been passed in any of these cases, as they are pending with various courts in the country. Although the law became operational on 17 October 2000, it stil has an element of mystery around it, from the perception of the common man, lawyers, law enforcing agencies and even the judiciary. The prime reason for this is the fact that the IT Act is a set of technical laws. Another major hurdle is the reluctance on the part of companies to report instances of cyber crimes, as they want to avoid negative publicity or worse get entangled in legal proceedings. A major hurdle in cracking down on the perpetrators of cyber crimes such as hacking is the fact that most of them are not in India. The IT Act does give extra-territorial jurisdiction to law enforcement agencies, but such powers are largely inefficient. This is because India does not have reciprocity and extradition treaties with a large number of countries. The Indian IT Act needs to evolve with the rapidly changing technology environment that breeds new forms of crimes and criminals. We are now beginning to see new categories and varieties of cyber crimes, which have not been addressed in the IT Act. This includes cyber stalking, cyber nuisance, cyber harassment, cyber defamation and the like. Though Section 67 of the Information Technology Act, 2000, provides for punishment to whoever transmits or publishes or causes to be published or transmitted, any material that is obscene in the electronic form with imprisonment. The term for imprisonment may extend to two years and with a fine that may extend to Rs. 25,000 on first conviction and in the event of a second, it may extend to five years and with fine that may extend to Rs. 50,000. It does not expressly talk of cyber defamation. The above provision chiefly aims at curbing the increasing number of child pornography cases and does not encompass other crimes that could have been expressly brought within its ambit such as cyber defamation.

11 | P a g e

MB0051: Legal Aspects of Business

12 | P a g e