Legal Aspects of Business

Fundamentals of Law and

Legal Systems
2015-16
Dr. R. Rajesh Babu
rajeshbabu@iimcal.ac.in

The reason why [Law] is a profession, why people will pay

lawyers to argue for them or to advise them, is that in
societies like ours the command of the public force is
entrusted to the judges in certain cases, and the whole
power of the state will be put forth, if necessary, to carry
out their judgments and decrees. People want to know
under what circumstances and how far they will run the
risk of coming against what is so much stronger than
themselves, and hence it becomes a business to find out
when this danger is to be feared. The object of our study,
then, is prediction, the prediction of the incidence of the
public force through the instrumentality of the courts.

Oliver W. Holmes, The Path of the Law, 10 Harvard Law

Review 457 (1897)
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Outline of the Sessions

Fundamentals of Law and Legal Systems
Law of Contract and special contracts
Company law
Product Liability and Consumer Protection
Laws
Intellectual Property Rights
Commercial Dispute Resolution

Contents
Law and Legal Systems
Indian Legal System
Constitution as a framework for Indian
Legal System
Fundamental Rights and Freedoms
Constitutional Remedies
Hierarchy of Laws and Courts

Law, like war, appears to be an inescapable

fact of the human condition
Law defined no agreed definition

Law is an officially recognized, enforceable

system of rules.
Natural law vs. Positive law

General characteristic of Law

1.
2.
3.

System of rules made by the state,

To regulate behavior in a society
Imposed and enforcement by the Sovereign
(State)

Are all rules law?

Rules made by the Sovereign/State:

Acts of the Parliament/legislature. Are Order,

bylaws, etc., law?

Rules made outside the legal system:

Contract; Memorandum and Articles of

association of a company; Rules of a trade
unions; Rules of cooperative societies etc.

Rules that are not part of law:

Rules of private clubs; cricket rules, Rules within

family etc.

Law vs. Morality

Law as the collective morality of society
Can there be law devoid of morality?
Universally recognized values/HR?

Apartheid?
Nuremberg trial: crime against humanity!

Can law encroach on right to privacy

in the name of morality/religion?
Abortion; homosexuality; euthanasia!!!

Car: 2000 lbs for $2000

Nothing else would compete with Datsun & VW

Product Objectives:
23 months to roll-out (not 45)
1. True Subcompact : Size & Weight
2. Low Cost of Ownership
Initial price, Fuel consumption, Reliability
Serviceability
3. Clear Product Superiority
Appearance, Comfort, Features, Ride and Handling,
Performance
https://www.youtube.com/watch?v=PAI5T8UecEY

Gas Tank
Behind Rear-Axle Tank
Pros:

More Luggage space

Industry standard felt it was safer

Con:

Not as safe in rear-end collisions

Over-the-axle-tank
Pro: Performed well in rear-end collisions
Cons:
Long round-about filler pipe
Closer to passengers in back seat
Higher center of gravity
Reduced trunk space

Cost/Benefit Analysis: Ford Pinto

Savings:

$200,000 per death, $67,000 per

injury, $700 per vehicle

Total Benefit

180 burn deaths, 180 serious burn

injuries, 2100 burned vehicles

Unit Cost

(180 X $200,000) + (180 X $67,000)

+ (2,100 X $700) = $49.5 million

$137.5 million
$49.5 Million
Difference $ 88.0 mil

Sales
11 million cars, 1.5
million light trucks
Unit Cost
$11 per car, $11 per
truck
Total Cost
12.5 million X $11 =
$137.5 million

Ford Pinto, Lees Car:

2000 lbs for $2000

Grimshaw v. Ford Motor Co.

(1981) 119 CA3d 757

Richard Grimshaw

13-year old passenger in Sandra Gillespies 1971 Pinto

Struck from behind; exploded; badly burned over 90% of
his body; 20 years reconstructive surgery.
Awarded $125 million in punitive damages
$124 million profits made since Ford Pintos introduction

What is a legal system?

Set of legal principles and norms to protect and

promote a secure living in a society.

It recognizes rights and duties of people and

provides the ways and means of enforcing the
same.

192+ countries = 192+ legal systems

Different legal systems may have different sets of
principles and values, making it different from one
another.

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Different types of legal systems

Common law: case-centred and hence judgecentred, allowing scope for a discretionary,
pragmatic approach to the particular problems
that appear before the courts (UK and US)

Civil law: statute based - codified body of

general abstract principles which control the
exercise of judicial discretion (Continental
Europe, Japan etc)

Religious law ("Sharia"): Religious law (KSA)

International Legal system: Law of nations Res Nullius (Terra Nullius) and Res Communis
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Civil law
Common law
Bijuridical (civil and common law)
Customary law
Islamic Law

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Foundation of Legal Systems

1.Ignorantia Juris Non Excusat
2. Presumption of Innocence
3. Double Jeopardy
4. Self incrimination
5. Ex Post Facto law
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Indian Legal System

Common Law traditions, and

religious/customary norms in personal law.

Indian Constitution provides the general
Framework for the distribution of the power
between three branches of Government;
between States; and
Rights and Duties of the citizens vis--vis
the State, and Remedies for violations
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Indian Constitution: Division of Powers and

the power to enact laws

Union List. Parliament competent to make laws.

State list: exception where Parliament could legislate:

Appointment of Governors (Arts. 155 and 156); National
Interest (Art. 249), Form new State, alter boundaries (Art.
3) and Emergency Powers (Arts, 352, 356 and 360)

Concurrent list: Laws passed by parliament shall prevail

over law made by State (doctrine of eclipse).

Residue list: On matters not included in the State List or

the Concurrent List, only Parliament can legislate.
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Hierarchy of Laws
The Constitution

Act/Rules
ultra virus the
Constitution is
VOID

Acts of Parliament and States

Subordinate legislation
Executive Laws through delegated Power
(Rules, Bylaws, Regulations, Orders)
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Applicability of Laws
Laws made by Parliament may extend
throughout or in any part of the territory of
India
State laws apply only within its territory.
Hence, variations are likely to exist between
State in provisions of law relating to matters
falling in the State and Concurrent Lists.
Whether law made by Parliament applicable
to the State of J&K?

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Rights and Duties of Individuals (Part III and

IV)

Fundamental Rights (Part III) Prohibition against

the State from taking away or abridging any of these
rights

Directive Principles of State Policy (Part IV)

contains the aim and objectives to be taken up by the
states in the governance of the country

Fundamental Duties of the Citizens (Part IVA)

Justifiable and non-justifiable

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Fundamental Rights (Part III)

Right to equality (Arts 14-18):

Right to freedoms (Arts 19-22)
Right against Exploitation (Arts 23-24)
Right to freedom of Religion (Arts 25- 28)
Cultural and educational rights (Arts 29-30)
Right to Constitutional Remedies (Arts 32-35)

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Equality before law (Arts 14-18):

Among equals, the law should be equal and

should be equally administered like
should be treated alike.

Permits reasonable classification

Eg. Reservations in public employment;
education; special provisions for women
Does a Company enjoy fundamental right?
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Freedom of Trade or Business (Art 19(1)(g))

Guarantees all citizens the right to practice any

profession, or to carry on any occupation, trade or
business.

Available only for citizens not persons

Freedom of Trade, Commerce and Intercourse

(Art. 301-307) ensures removal of impediments
in the way of inter-state and intra-state trade (can
be claimed by anyone, including corporate person)
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Reasonable restrictions Art 19 (6)

In the interest of general public - public order,

public health, public security, morals, economic
welfare of the community and the objects
mentioned in Part IV of the constitution

prescribing professional or technical

qualifications

State monopolies: enabling the State to carry on

any trade or business to the exclusion of citizens
wholly or partially (added by the 1st Amendment)
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Some illustrations/cases were freedom of

trade or business was involved.
Regulation and prohibition of liquor
Closure of non-profit making industry
State lotteries not trade or business, but
gambling
Act guaranteeing minimum wages or
closing of shops for a day in a week;
clean environment MC Mehta cases

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Constitutional Remedies or Enforcement of

Fundamental Rights

Writ Jurisdiction

Any person could approach the Supreme Court

(Art. 32) or the High Court (Art. 226) on
violation of fundamental rights.

Habeas corpus, Mandamus, Prohibition, Quo

warranto and Certiorari

Remedies are available against the State not

against Individuals or companies etc.
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Supreme Court

Jurisdiction
1. Pecuniary, Subject matter,
and Territorial
2. Original, Appellate and
Advisory

Precedent

High Courts

Stare decisis
Obiter dicta

District and Sessions Courts

Civil Judge (Senior Division)

Chief Judicial Magistrate

Civil Judge (Junior Division)

Judicial Magistrate

(CPC)

(CrPC)

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Special Courts and Tribunals

Company Law Board

Central Administrative Tribunals (CAT)
State Administrative Tribunals
Consumer Courts
Motor Vehicle Claims Tribunal (MACT)
Family Courts
Debts Recovery Tribunal
Inter-State Water Dispute Tribunal (Cauvary)

Article 136, Supreme Court can entertain Special Leave Petition

(SLP)
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Right to Property

Article 19f of the Constitution guaranteed a citizen, the

fundamental right to acquire hold and dispose of property.

Article 31 - Cannot be deprived of property unless it was

acquired by the State, under a law (Eminent Domain).

Property owned by an individual or a firm could be

acquired by the State only for public purposes and upon
payment of compensation determined by the law.

Article 31 has been modified six times -- beginning with

the First amendment in 1951 -- progressively curtailing
this fundamental right. Finally in 1978, Article 19f was
omitted and Article 31 repealed by the 44th Amendment
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Article 300A was introduced in Part XII making

the right to property only a legal right (no more a
fundamental right).

This provision implies that the executive arm of

the government (civil servants and the police)
could not interfere with the citizen's right to
property.

However, Parliament and state legislatures had the

power to make laws affecting the citizens' right to
property.

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Why?

Article 39 (b) and (c) of the Directive Principles

of State Policy that required equitable distribution
of resources of production among all citizens and
prevention of concentration of wealth in the hands
of a few.
The SC struck down the land reforms laws saying
that they transgressed the fundamental right to
property guaranteed by the Constitution.
Parliament reacted by relegating property rights
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Further readings:
1.
2.
3.

J.N. Pandey, Constitution of India (2006) (for basic

understanding)
Indian Legal System, Indian Law Institute 2007
D.D. Basu, Shorter Constitution of India, 1994.

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