Unit 1- Introduction to Indian Business Law

No business can operate without being bound by laws.

The laws passed by the government for regulating business operations are called the
legal environment of business.
Business transactions are mostly based on promises to perform on a future date.
The enforceability of these promises is essential for the business work.
In every country the government regulates business activities.
Laws regulate all areas of business and set the limits for business operations and are
also considered as a legal environment.
All business policies and decisions are influenced by the legal environment and
therefore the organization should have through knowledge of these laws and
regulations.
Non implementation of legal policies results in heavy fines, penalties and punishments

.DEFINITION OF LAW - Law is a set of rules and regulations prescribed, recognized

and enforced by the state to control the conduct of people, to protect property and
contractual rights in order to secure justice, peaceful living and social security.

NEED FOR LAW

1) For establishing order: Law helps create rules and guidelines that everyone must
follow. This way, people know what behavior is expected of them, which leads to
a more orderly and predictable society.

2) For ensuring justice: Law provides a framework for resolving disputes and
punishing wrongdoing. It ensures that everyone is treated fairly and equally
under the law, regardless of their background or status.

3) For resolving conflicts: When disagreements arise between people, laws provide
a way to settle disputes peacefully and fairly.

ESSENTIALS OF LAW-
1. Laws must be certain- It should be clear and definite.
2. Laws must be stable- Stability in laws ensures consistency and predictability in
how they are enforced.
3. Laws must not be rigid and should change as society changes culturally,
politically and economically.
4. Laws must ensure equality, liberty and justice.
5. Law must be simple, clear and unambiguous.
6. Laws must be reasonable.
 CLASSIFICATION OF LAW
International Law National Laws
1. Public 1. Public Law 2. Private Laws
International Law a. Constitutional a. Law of person
2. Private b. Administrative b. Law of Property
International Law c. Criminal c. Law of Obligation
i. Contract
ii. Quasi Contract
iii. Tort

INDIAN LEGAL SYSTEM

Comprises of following parts: (Separation of Powers)
1. Legislature 2. Executive 3. Judiciary
BICAMERAL Head: President Supreme Court
Rajya Lok Acts on advice of PM. (Apex Court)
Sabha Sabha High
Court
Subordinate Courts
[Makes Laws] [Enforces Laws] [Protects Laws]

The Constitution Of India is the main source for the Indian legal system.

CONSTITUTION OF INDIA
FUNDAMENTAL RIGHTS
1. Right to Equality
2. Right to Freedom
3. Right against Exploitation
4. Right to Freedom of Religion
5. Right to Constitutional Remedies
6. Cultural and Educational Rights

IMPORTANCE OF CONSTITUTION TO BUSINESS AND BUSINESS LAWS

1. The Constitution of India ensures uniformity for all businesses.
2. It safeguards the interests of business organizations.
3. The COI provides the Fundamental Right against Exploitation.
This protects consumers against exploitation by businesses.
Makes businesses take measures to avoid consumer exploitation.
The Consumer Protection Act was passed.
 4. Helps resolve any business related conflicts (Indian Contract Act).
This protects contractual rights.
This helps businesses thrive.
5. The Constitution provides for rights to equality, right against exploitation and
directive principles provide for safeguarding life.
Therefore, the Minimum Wage Act, 1948 was passed and various Labour Laws
have been passed.
Therefore, Businesses have to:
Provide equal job opportunities irrespective of gender, caste, religion etc.
Provide safe working conditions.
Ensures there is no bonded labour, child labour, etc.
Allows formation of labor unions.
Provides equal pay to men and women.
Ensures diversity- gender, culture,etc.
Ensures no discrimination.

6. DPSP provides for encouraging removal of regional disparity. Businesses are

encouraged to set up or expand into rural and backward regions by being
provided subsidies, tax incentives and various benefits.
7. DPSP ensures survival of businesses that are environmentally friendly.
8. The Constitution provides a stable and predictable environment to businesses.
9. DPSP provides for equitable distribution of income and wealth and prevents
concentration of wealth.
[Wealth implies concentration of power.]
For this the Monopolistic and Restrictive Trade Practices Act was passed which
was later replaced as Competition Act.
10. The constitution provides and protects freedom to engage in any profession and
occupation.

SOURCES OF INDIAN LAWS

1. Statutes- It includes the acts made by the parliament. E.g Partnership Act.
2. Judicial Precedents- Various decisions taken by the courts fall under Judicial
Precedents. It also includes pre independent decisions made by Britishers.
3. Customs and Trade Usages eg. Bills of Exchange
4. Personal Laws eg. inheritance laws
5. Common Laws rg. Based on principles of equality
6. English Mercantile Law

Statutory Laws governing business activities

1. Indian Contract Law, 1872
2. Sale of Goods Act, 1930
3. Partnership Act, 1932
4. Companies Act, 2013
5. Consumer Protection Act, 2019
6. Competition Act, 2002
7. Intellectual Property Rights
Patents Act
Copyright Act
Trade Marks Act, 1999
Designs Act
Geographical Indication Act
 Unit 2- Indian Contract Act 1872
Promise- An accepted offer is a promise
Agreement- When there is Lawful consideration for each other (Something in
return) in a proposal , it is agreement.
Contract- A contract is an agreement between two or more parties that creates
mutual legal obligations that are enforceable by the law.
Contact = Agreement + Enforceability by law. For enforceability of law, essentials
of contract must be met.
Offer- An offer is a specific proposal to enter into an agreement with another,
which is essential to the formation of an enforceable contract. It is a part of a
contract where a party agrees to do or not do something in exchange for
consideration. It can be Oral or written.
ESSENTIALS OF A VALID CONTRACT- From Section 10 of Indian Contract Act
1) Agreement- Contract cannot be made without agreement. One cannot
make a contract with himself.
2) Legal Obligation- is the responsibility that must be fulfilled and its covered
by the law but social responsibility is voluntary obligation and it is not
covered by the law.
3) Lawful consideration-Consideration is something of value that is
exchanged between the parties. Consideration can be a act to do
something or abstain from doing.
4) Capacity of parties to contract- It includes who can enter the contract.
Parties should have mental capacity to enter the contract. Mentally ill,
Drunk people, Minors cannot enter into a contract.
5) Free consent- Both parties must agree to the same thing in the same
manner and not forcibly.
6) Legal object- A contract can be made only for objects considered legaL.
Contract must take care of what is considered prohibited, fraudulent and
unlawful. It should not cause any injury to others and the society.
7) Agreement not to oppose public policy.
8) Certainty- It should be clear and specific.
9) Possibility of performance- The agreement should be capable of being
performed. If the act is impossible in itself, it cannot be enforced at law.
 10) Legal Formalities- Requirements of specific law under which contract is
being made must be fulfilled. The Motor Vehicle Act is required for sale of a
Car.
11) Two Parties- A valid contract has minimum two parties involved in it.

#BALFOUR vs BALFOUR- Case 1919- Example 2) In this case the defendant

who was employed on a government job went to England with his wife on leave
for health reasons. The wife was unable to accompany the husband, so the
husband promised to pay £30 per month to his wife as maintenance for the
period she had to live apart. The husband, having failed to pay the amount, was
sued by his wife for the same.
Decision- It was held that in this case there was no intention to create legal
relationships therefore the husband was not liable.

Types of contract- On the basis of Validity or Enforceability

1) Valid Contract
2) Void Agreement
3) Voidable Contract
4) Void Contract

Valid Contract- A valid contract is a contract that fulfills all the essentials of a
valid contract mentioned above.
Void Agreement- (Void Ab Initio) - These agreements are invalid from the
beginning due to being against public policy. E.g. Agreement to commit a crime, if
two individuals agree to smuggle goods across borders, their agreement would
be void.
Voidable Contract- An agreement which is enforceable by the law at the option
of one party but not at the option of other party is a Voidable contract. Contracts
signed forcefully, under influence, by fraud or signed by minors are considered
voidable. E.g. A agrees to pay B, who is a minor, Rupees 1000 for his bicycle.
~At conception- (i) No free consent- Voidable at option of party whose consent
was not free. (ii) Contract with a minor is voidable. (iii) Object is not legal, but
this is unknown to one party.

~Subsequently- (i) One party does not perform it within a specified period of
time. It is voidable at the option of another party. (ii) One party offers to perform
but the other party refuses to accept the performance. (iii) One party prevents
the other party from performing their obligation.

Void Contract- This contract was once valid and enforceable when entered into,
but becomes void and unenforceable subsequently.
Examples of void contract- (i) Contingent contracts- Where the performance of
the contract depends on the happening or non-happening of an uncertain future
event. E.g A contracts with B to sell his house for 30 Lakh Rupees next month.
A’s house is destroyed by fire, so contracts become void.
(ii) Subsequent Impossibility- When one party is not able to perform as promised
and no one else can perform it in its place, the contract becomes void. E.g. A
popular dancer meets an injury and is not able to perform a show next month.
(iii) Subsequent Illegality- When a perfectly normal valid thing, becomes illegal
due to change in laws and policies, so the contract becomes void. E.g. A person
enters into a contract to supply good to Pakistan but then there is a war between
the countries so import and export becomes illegal.

TYPES OF OFFER-
1) Express offer- An express offer is one that is made clearly either in writing
or verbally. A person offers to sell his car for a certain amount of money.
2) Implied Offer- An Implied offer is not made clearly but it is inferred from the
circumstances of the parties. If a person walks into a bar, an implied offer
is created for the bar to provide drinks in exchange of payment.
3) Specific offer- A specific offer is one that is made to a specific person or
group of people. A person offers to sell his car to a friend.
4) General offer- A general offer is made to the public at large. If a company
advertises a sale on a website, this is a general offer.
#Case- Mrs.Carlill vs Carbolic Smoke Ball company in England- The Carbolic
Smoke Ball Company made a product called the "smoke ball" which they claimed
could prevent influenza. They advertised that they would pay £100 to anyone
who used the product as directed and still got the flu. Mrs. Carlill used the smoke
ball as instructed but still got sick. When she requested the £100, the company
refused. Mrs. Carlill sued the company. The court ruled in her favor, stating that
the company's advertisement constituted a legally binding contract, and Mrs.
Carlill was entitled to the reward because she had fulfilled the conditions outlined
in the advertisement. This case is often cited in contract law as an example of
unilateral contracts.
#Case- Lalman Shukla vs Gauri Dutt- Gauri Dutt’s nephew wents missing. She
orders her servant Lalman Shukla to go and find her nephew. Now, Gauri Dutt
generally offered that whoever will find her nephew will be rewarded Rs.501.
Lalman Shukla finds her nephew being unaware about the General offer made by
Gauri Dutt. He tries to claim Rs.501 and files a case; But the court denied his
request because award could only be claimed if there was a contract. In this case
there was no acceptance of the offer. In General offer, Knowledge of offer and
fulfillment of terms and consideration is necessary.

Characteristics of an Offer-
1) A complete offer must be communicated.
2) An offer must be certain and not vague.
3) Offer must be made with the intention of creating legal relations.
4) Cross offers do not conclude a contract.
5) Offer must not thrust the burden of communication on the Offeree. i.e.
Offer should not have any condition whose non fulfillment is considered
acceptance.
6) Offer must be made to obtain assent / acceptance.
7) Offer must be distinguished from invitation to offer.
#Case- Pharmaceutical society of Great Britain vs. Boots Cash Chemist- Goods
were displayed in the shop for sale with price tags attached to them, there was a
self service system. One customer selected the goods, but the shop owner
refused to sell. It was held that the display of goods was only an invitation to offer
and the selection of the goods was to buy.The contract was made when the
cashier accepted the offer to buy and received a price. Refusal by the shop
owner amounted to rejection of the offer and no contract was completed between
the parties so the customer had no right to sue the shop owner.
#Case- Felthouse vs Bindley- Felthouse offered his nephew to buy his horse for
30 sterling pounds, his nephew kept silent. His nephew told the auctioneer to
keep the horse in reserve, but the auctioneer mistakenly sold the horse. Felt
house sued his nephew but it was held that mere silence is not acceptance and
the decision did not come in the favor of Felthouse.

Discharge of a contract- It means the termination of the contractual relationship

between the parties.
~Modes of discharge-
1) Performance- discharges a contract. (i) Actual performance- Both parties
complete the contract so it is discharged simply. (ii) Attempted
performance- When a party does not accept an offer or it is hindered from
performing, provided it should be offered to the proper person, at the
proper place and time.
2) Mutual agreement- (i) Novation- New contract replaces original contract.
(ii) Alteration- Changes are made to contracts but parties remain the same.
(iii) Remission- Either time period is extended, a lesser amount to be
accepted, another consideration other than originally agreed on will be
accepted, or a Part of performance is accepted. (iv) Rescission- Mutually
prescient the contract. (v) Merger- A superior offer is provided.
3) Discharge by lapse of time- Contract is discharged by non performance
within specified period of time, Provided, contract MMust contain a
condition that contract will be discharged by non-performance
4) Discharge by operation of law- (i) Death- When contract is dependent on
personal skill, knowledge or ability. (ii) Insolvency- All contracts are
discharged when a person is declared insolvent.
5) Discharge by supervening impossibility of performance- Change in law,
change in circumstances, outbreak of war, not happening of certain events,
etc. E.g. CNG Car resale gets banned so contracts based on it are
discharged.
6) Discharge by Breach of contract- When one party fails to perform the
contract or conducts himself in a manner that makes it impossible to
perform it. (i) Actual breach- Fails to perform or refuses to perform. (ii)
 Anticipatory breach- When one party informs that it will not be able to fulfill
the contract before the time mentioned in contract.

Remedies for Breach of contract-

1) Damages: If one party breaches the contract, the other party may seek
compensation for any losses incurred as a result of the breach.
2) Sue for Specific Performance: In some cases, the court may order the
breaching party to fulfill their contractual obligations as originally agreed
upon.
3) Sue for Injunction: This remedy involves seeking a court order to prevent
the breaching party from taking certain actions that would violate the terms
of the contract. For example, if a landlord tries to evict a tenant illegally, the
tenant can ask the court to stop the eviction until the matter is resolved.
4) Rescission: This remedy involves canceling the contract altogether,
returning both parties to their pre-contractual positions.
5) Sue for Quantum Meruit: If one party has provided goods or services under
the contract but hasn't been paid due to the breach, they may be entitled to
a reasonable payment for the value of those goods or services rendered.

SPECIAL CONTRACTS-
1) Contract of Indemnity- A contract of Indemnity is a contract by which one
person promises to save others from losses caused to him by the conduct
of the promiser or by the conduct of any other person. It may be express or
implied. E.g. Insurance policies.
~Essentials of a valid contract of Indemnity-
1) A contract of indemnity is like any other contract and must fulfill all the
essentials of a valid contract, e.g. consideration, free consent, lawful
object, etc.
2) Existence of Loss- There should be loss suffered by one party due to
certain events.
3) Covers only loss caused by- Promisor himself or any other person.
4) Does not include acts of god, such as floods, earthquakes.
5) In includes Indemnifier (the party which protects from losses, such as
Insurance company) and Indemnitee (the party which experiences loss
2) Contract of Guarantee- It is a contract to perform the promise or discharge
the liability of a third person in case of his default.
Parties involved- 1) Surety- Person who gives the guarantee. 2) Principal debtor-
Person on behalf, whose promise or liability guarantee is given. 3) Creditor- Party
to whom guarantee is given.
~Essentials of a valid contract of Guarantee-
1) A contract of Guarantee must fulfill all the essentials of a valid contract,
e.g. consideration, free consent, lawful object, etc.
2) Primary liability is the Principal debtor.
3) Liability of Surety is secondary and the contract must be conditional.
4) It may be oral or written.
5) It is a three party contract. There are a total of three contracts made
between all the three parties.
~Types of Guarantee- 1) Specific guarantee- A guarantee where the surety
agrees to be responsible for a particular liability. It's limited to a specific contract
or agreement between the principal debtor and creditor.
2) Continuing guarantee- The creditor provides ongoing assurance for all present
and future debts or obligations of the principal debtor. There are a series of
different transactions. It can be revoked by- Notice of revocation or By the death
of surety.

~Difference between Contract of Indemnity and Guarantee-

Contract of Indemnity Contract of Guarantee

Meaning A contract of Indemnity is a It is a contract to perform the

contract by which one promise or discharge the
person promises to save liability of a third person in
others from losses caused to case of his default.
him by the conduct of the
promiser or by the conduct
of any other person.

Parties 2 Parties- Indemnifier and 3 Parties- Surety, Creditor,

 Indemnitee. Principal debtor.

No.of contract 1 3

Liability Primary liability but Secondary liability but

conditional. conditional.

Right to sue No right to sue Indemnifier. Surety can sue the principal
debtor after performing his
promise or discharging his
liability.

3) Bailment Contract- It is the delivery of goods by one person to another

person upon a contract. Once the purpose is accomplished goods are returned
or disposed as per the instructions of the person delivering them.

~Essentials of a Bailment contract-

1) All essentials of a valid contract must exist.
2) Goods cannot be humans or animals.
3) Delivery of goods may be actual, symbolic or constructive.
4) Purpose of delivery- Goods must be delivered for some purpose which
may be expressed or implied.
5) There must be return or disposal of goods.
6) 2 Parties are involved- Bailor (who owns a property) and Bailee(who
receives a good).
~Types of Bailment-
1) Gratuitous Bailment- It is free, No hiring or custody charges are applied
and Baior has to tell only the known defects of the goods. It may be for the
exclusive benefit of Bailor or the exclusive benefit of Bailee.
2) Non-Gratuitous Bailment- It is done for mutual benefit of Bailor or Bailee,
there are fee charges, hiring and custody charges involved, and the Bailor
has to tell about known/unknown defects of the goods.

Unit 3- Business Structures

 Business Structures-
1)Sole Proprietorship 2) Partnership 3)LLP 4) Company- Public company
(Listed and Unlisted) & Private company 5)Cooperative Society

1)Sole Proprietorship- A single individual carries on the business and is solely

responsible for the profit or loss.
-Sole proprietor’s liability is unlimited. He is the only owner and is responsible for
the debt of the business.
Advantages- 1) Quick decision making.
1) No need to share profits.
2) No or minimal legal requirements. Does not have to be registered. No
requirement to hold annual meetings and file annual returns.
3) Taxation- The promoter is taxed as an individual on the income of the Sole
proprietorship.
Disadvantages-
1) Sole proprietorship is not a separate legal entity.
2) Sole- proprietor has unlimited liability- Owner is liable for the debts.
3) Existence of Business- Existence of business depends on the survival of
the sole proprietor.
4) Limited availability of finance.
5) Restricted by sole proprieter’s capabilities.

2) Partnership- Partnership deed is a written document on stamp paper

containing the respective rights and obligations of the partners of a partnership
business.

Advantages -
 1) Ease of Formation: Partnerships are easy and inexpensive to establish as
compared to companies. They require minimal formalities and paperwork,
making them accessible to small businesses and startups.
2) Shared Decision making: Partnerships allow for shared decision-making
among the partners, pooling their skills and resources to make collective
decisions.
3) Flexibility: Partnerships offer flexibility in terms of exiting the partnership.
Partnerships can be dissolved or restructured easily, allowing partners to
exit the partnership or bring in new partners as needed.
4) Minimal Regulatory Compliance: Partnerships generally have fewer
regulatory compliance requirements compared to companies.
Disadvantages-
1) It is not a separate legal entity.
2) The partners have unlimited liability- Partners are liable for debts.
3) Partners are jointly responsible for all the activities undertaken in the name
of partnership and on the behalf of other partners.
4) Non- transferable ownership.
5) Existence of Partnership- depends on partners. It can be dissolved at will
or upon the death of the partners.
6) Limited resources and capital in comparison to a company.
7) Difficult to raise funds.

3) Limited liability partnership- It combines features of both corporations and

partnerships. Like corporations, they offer limited liability protection to their
owners but they are taxed as partnerships.
-LLP is not dependent on partners and can continue to exist irrespective of
change of partners.
-Registration- LLP has to be registered with the Ministry of Corporate Affairs
under the LLP Act 2008.
-Taxation- Profits of LLP are taxed as per applicable rate similar to Partnership
firms.
-Ownership can be transferred.
-Comparatively less legal requirements- Annual statements of account and
solvency and Annual returns are required.

~Requirements of Startup to be registered as LLP- 2nd point complete

1) Registered office of LLP must be located in India.
2) LLP must have a minimum 2 partners who shall be individuals and at least
one of whom shall be resident of India. Designated partners are
accountable for the legal rules and regulations of an LLP.
3) Every designated partner must obtain a DPIN- Designated partner’s
identification number.
4) Dissolution of LLP- It can be dissolved voluntarily by making an application
and declaring it as a defunct.

Advantages-
1) Separate legal entity- Unlike Sole proprietorship or Partnership, LLP is a
separate entity from their owner.
2) Lower cost of registration as compared to a company.
3) Limited liability- Partners enjoy limited liability protection, which means that
their personal assets are protected from the liabilities of the partnership.

Disadvantages-
1) Compulsory filing of returns- It is required to annual return to MCA each
year even if an LLP does not have any activity, otherwise it has to pay a
heavy penalty.
2) Restriction on transfer of ownership by partners- Requires consent of all
partners.
3) Number of partners- Must have a minimum of 2 partners. If one leaves,
LLP has to be dissolved.
4) Foreign direct investment is allowed only on approval of RBI.
4) Company- It is an association of shareholders who contribute money to the
common share capital of the company.
-It is a separate legal entity with perpetual existence
- Limited liability of shareholders.
- Companies may be- Private or Public.
~Private company- It is a company which (i) restricts the right to transfer its
shares. (ii) Minimum Shareholders are 2 and maximum are 200 (except for OPC)
(iii) Prohibits any invitation to the public to subscribe for shares, securities,
debentures, etc. (iv) Has PVT LTD suffixed to its name. (v) More rules and
regulations than Partnership & LLP.
Advantages-
1) Limited liability.
2) Separate legal entity
3) Easy transferability of ownership- By selling the shares ownership is
transferred.
4) Uninterrupted existence- Even on death or departure of any member.
Company of any member.

Disadvantages-
1) Slower decision making than Sole proprietorship
2) Difficult to windup company- Expensive & Time consuming.
3) Limit on number of shareholders- 200
4) More legal requirements to start and run a Private company.

~Public company- A company which is not a Private Ltd. company. (i) Does not
restrict transfers of shares. (ii) Does not have a maximum limit on the number of
members. (iii) Can invite the public to subscribe to its securities such as shares,
debentures, bonds. (iv) Has “Limited” suffixed after its name. (v) Minimum
number of members - 7 and Maximum is no limit.
5) One Person company- It is a company having only one person as a
member.
-Number of members- Minimum- 1 & Maximum-1
-Number of directors- Minimum- 1
-Nominee- Name of the nominee should be mentioned in MOA. Nominee is
the other person who shall, in the event of the sole member’s death or his
incapacity to contract, become the member of the company.
-His gives his prior written consent in the prescribed form and consent is
filled with the Registrar.