15

PROJECT REPORT

TOPIC: POSITIVE LAW IN COMMERCIAL SECTOR WITH REFERENCE TO ETHICAL STATUTE AND SHAREHOLDER RIGHTSSUBJECT: CPC

SUBMITTED TO: PROJECT BY:Mr. ANIMESH DAS SACHIN PATEL(FACULTY OF JURISPUDENCE) SEC. B, 5th SEMESTERROLL ID: 201293

DECLARATION

The project submitted to the Damodram Sanjivvya National Law University, Vizag for Jurispudence 1stas part of internal assessment is my original work carried out under the guidance of Mr. Animesh Das sir. The research work has not been submitted elsewhere for award of any publication or degree. The material borrowed from other sources and incorporated in the work has been duly acknowledged.

Signature of the candidateDate:

ACKNOWLEDGMENT

I owe a great many thanks to a great many people who helped and supported me during the completion of the project. My deepest thanks to Mr. Animesh Das sir the Guide of the project for guiding and correcting various documents of mine with attention and care. He has taken pain to go through the project and make necessary correction as and when needed. I would also thank my Institution and my faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.

INDEXINTRODUCTIONRELEVENCE WITH MINORITY SHAREHOLDERS RIGHTSSHAREHOLDERSMINORITYSREASON TO PROVIDE RIGHTS TO MINORITY SHARE HOLDEREQUAL TREATMENT OF THE SHAREHOLDERSRELATION OF ETHICS AND POSITIVE LAW WITH REFRENCE TO COMERCEIAL SECTORCASE ANALYSIS CASE STUDYCONCLUSIONREFERENCES AND FURTHER READING

INTRODUCTIONLegal positivism is a philosophy of law that emphasizes the conventional nature of law, that it is socially constructed. According to legal positivism, law is synonymous with positive norms, that is, norms made by the legislator or considered as common law or case law. Formal criteria of laws origin, law enforcement and legal effectiveness are all sufficient for social norms to be considered law. Legal positivism does not base law on divine commandments, reason, or human rights. As an historical matter, positivism arose in opposition to classical natural law theory, according to which there are necessary moral constraints on the content of law.[footnoteRef:2] [2: H. L. A. Hart, The Concept of Law (Oxford: Clarendon Press, 1961), 124]

Legal positivism does not imply an ethical justification for the content of the law, nor a decision for or against the obedience to law. Positivists do not judge laws by questions of justice or humanity, but merely by the ways in which the laws have been created. This includes the view that judges make new law in deciding cases not falling clearly under a legal rule. Practicing, deciding or tolerating certain practices of law can each be considered a way of creating law.[footnoteRef:3] [3: Ibid., 132]

Within legal doctrine, legal positivism would be opposed to sociological jurisprudence and hermeneutics of law, which study the concrete prevailing circumstances of statutory interpretation in society.The word positivism was probably first used to draw attention to the idea that law is positive as opposed to being natural in the sense of being derived from natural law and ethics.Legal positivism is the thesis that the existence and content of law depends on social facts and not on its merits. What laws are in force in that system depends on what social standards its officials recognize as authoritative, for example, legislative enactments, judicial decisions, or social customs. The fact that a policy would be just, wise, efficient, or prudent is never sufficient reason for thinking that it is actually the law, and the fact that it is unjust, unwise, inefficient or imprudent is never sufficient reason for doubting it. According to positivism, law is a matter of what has been posited (ordered, decided, practiced, tolerated, etc.), as we might say in a more modern idiom, positivism is the view that law is a social construction.[footnoteRef:4] [4: Ibid., 156]

RELEVENCE WITH MINORITY SHAREHOLDERS RIGHTSIn the matter of protection of minority shareholders the differences between the various legal systems are numerous. Whether these rights are positively and ethically correct. In any case, The whole issue is quite intricate, as there are no complete or coherent national "systems" of minority protection, and the relevant material is not easy to collect and compare.However, that the idea of the limited company, as contract, institution, "instrument", "mechanism", or just "vehicle", has been promoted by all capitalistic economies in the world and its variables are less important than its constants. The idea of protection of minority is also a common objective. Social norms may contribute to protection, but it is clearly the law that is most decisive and ethically incorrect. The law can operate preventively (for example through disclosure requirements), but this, if alone, is insufficient. The problems created by the majority rule need to be addressed by general remedial rights of the minority (such as the remedy against oppression) or special rights of shareholders to intervene in the company's life (such as the right to call an extraordinary general meeting). This can be positively and ethically correct.[footnoteRef:5] [5: Kraus JS & Walt SD (eds) (2000) Jurisprudential foundations of corporate and commercial law Cambridge: Cambridge University Press, pg: 226 ]

SHAREHOLDERSShareholders are the members of the company. Technically, they hold a participation interest in its capital (equity holders), composed of relatively small units called "shares". The rights accruing from each share are in principle the same for all shareholders. Such rights are for example the right to be and stay to be a member of the company, to collect a dividend, to vote at shareholders' meetings, to recollect surplus remaining capital on a winding-up. However, special categories of shares are often provided for, especially the so-called "preferred" shares with or without special voting rights, which confer on the shareholder some additional rights (usually of a pecuniary nature, such as priority to receive dividend, cumulative dividend, preferred payment of the liquidation proceeds etc.).[footnoteRef:6] [6: Ibid., pg: 230]

MINORITYS1. Minority is a relational legal concept, whose definition needs the notion of majority. Majority is often defined by reference to the voting power , or to the capital prevalence . The two parameters do not necessarily coincide, as it is shown by such devices as the non-voting shares, or, at the other extreme, shares with overwhelming power, such as the much-disputed "golden share". Therefore "minority" is a floating concept.[footnoteRef:7] [7: Ibid., pg: 236]

2. The majority power is usually visible at general meetings. The general meeting is the institutional gathering of shareholders. It is the "legislative" forum of the company, where decisions are taken. It is often regarded as the "supreme" organ of the company, although the laws vary in what concerns the division of power between this body and the board of directors. The fact remains that the general meeting elects the board, approves the accounts, amends the articles of association and decides on major matters of the company life.[footnoteRef:8] [8: Ibid., pg: 238]

REASON TO PROVIDE RIGHTS TO MINORITY SHARE HOLDERThe majority power in general meetings is defined by the rules regarding the passing of resolutions. The usual majority is 50%+1% of the capital attending the meeting . There are variations to this rule, such as the English rule of the majority of the voting members (but subject to the right of members "to demand a poll"), the casting vote of the chairman , the "relative majority" provided for the election of officers , and of course any different provisions in the articles, which may increase the 50%+51% majority or limit the maximum votes that each shareholder can cast, mainly in order to avoid excessive concentration of power [footnoteRef:9]. [9: Ibid.]

1) It has been noted, that a higher majority gives a stronger legitimacy to resolutions. This would be in favour of high majority rates, but on the other hand would put the operation of the company in jeopardy. Therefore higher majority rates (like 2/3 or 3/4) are only provided by the law for extraordinary decisions, like the amendment of the articles, the merger, the division or the dissolution of the company, the issue of bonds, the change of the company's nationality etc. Here again, the articles can increase the percentages, but usually not up to unanimity. Higher rates reach an extreme, when unanimity is exceptionally needed by law. Examples usually include the increase of shareholders' liability, the variation of any particular statutory rights granted to them or the abolishment of "individual" rights. Another case of unanimity is the so-called "plenary" general meeting, which can exceptionally meet and deliberate without notice, if all shareholders are present and consent to it , or the so-called "paper-meetings" or "action by consent", when resolutions are taken without meeting , . The majority rates define the powers of the majority in general meetings and the corresponding blocking power of the minority. It is clear that the higher the majority rates the easier it is for a minority to block decisions.[footnoteRef:10] [10: Ibid., 239]

2) The majority power is also exercised outside of shareholders' meetings. For example, when the board is identified with the controlling shareholders, the majority power is constantly exercised by the board itself. Conversely, minority protection and minority rights do need a general meeting to materialize, although some. Many minority rights can be exercised outside of meetings.[footnoteRef:11] [11: Schmidt CWH & Rademeyer H (2000) Bewysreg Durban: Butterworths, Pg: 153]

3) Minority is not only a floating legal concept- it is also a fact depending on contingency. No member or share of a company are born or are bound to remain in a minority position. Anybody is potentially a majority or a minority shareholder. It is significant that in some jurisdictions, like the US, Canada or France, the term "minority" is hardly mentioned in the law.[footnoteRef:12] [12: Ibid., 154]

The main question is how to treat "individual" or "personal" rights that every shareholder is entitled to exercise (for example the right to collect a dividend or to vote, the preferential right to subscribe to new shares, etc.) . The problem is that, by definition, these rights are available to all shareholders, whether having a majority or a minority position. However, they will be presented in this report together with the minority rights in narrow sense, for two reasons: Firstly, because in some countries, certain rights are granted to all shareholders, while in other countries the same are granted to minorities in a narrow sense.[footnoteRef:13] [13: Alston P (1999) The United Nations: A critical appraisal Oxford: Clarendon Press, Pg: 322]

Minority rights are closely connected with, and are in fact part of the more general theme of minority protection. The latter is a complex normative web, in which a variety of methods are used in order to restrict the all-embracing power of the majority.That the entire company law may be relevant to minority protection is beyond any doubt. As a matter of fact, the rules regarding the structure, the operation and the control of a limited company constitute a full set of checks and balances that, directly or indirectly, can protect minority. Thus the rules on the raising and maintenance of the capital, the duties of the board, the role of outside directors or the auditors, the rules on the conduct of the assemblies, the general rules on disclosure, accounting standards and the "true and fair view" principle

EQUAL TREATMENT OF THE SHAREHOLDERS Equality of shareholders is one of the most "popular" bases for the protection of minority. Since the legal system has to ensure a "level playing field" allowing all individuals to play by the same rules, any discriminatory act against a share holder goes against the very mechanism of the limited company and can destroy shareholders' expectations. Equal treatment is not considered to prohibit exceptions provided by the law, for example preferred shares , multiple voting rights , special privileges or loyalty bonuses . Equality is also largely defeated, when the company's control is soldtransferred through a private sale. "de minimis" rule is likely to apply. In England a minimal breach of equal treatment is not taken into consideration. According to the British reporter, "if discrimination is to be a ground for interference it will have to be some very clear, perhaps vindictive discrimination that is alleged before the court will be moved to upset the normal voting patterns of the company and declare a resolution invalid" .[footnoteRef:14] [14: Ibid]

It is even considered, that equal treatment has practical disadvantages: It can bear costs (for example in order to ensure that equal information to reaches all shareholders), it can be in conflict with measures able to transfer resources to more highly valued uses, and it is not sufficient by itself to prevent practices that are equally harmful to all shareholders (co inversely shareholders may prefer a "larger pie", even if not shared equally ).[footnoteRef:15] [15: Blackstone, William, Commentaries on the Law of England (Chicago: The University of Chicago Press, 1979), Pg: 238]

It should be noted that in shareholders' democracy, equality is understood as proportional to the capital held. However, this applies only to rights, which are susceptible to be proportionally apportioned, such as the right to vote or to collect a dividend, it does not apply to other indivisible rights, such as the right of information.[footnoteRef:16] [16: Ibid., 254]

RELATION OF ETHICS AND POSITIVE LAW WITH REFRENCE TO COMERCEIAL SECTOR: Ethics is mainly concerned with what is good versus bad, what is right versus bad, what is fair versus unfair, and what is praise versus blame. Deontology is an ethical theory that holds that actions are right or wrong independent of their consequences[footnoteRef:17]. Utilitarianism is an ethical theory that holds that actions are right if they produce the greatest amount of good for the greatest number of people. Justice based on giving each individual his or her due, treating equals equally and unequal unequally. Fairness focus on individuals, and giving them what they deserve based on merit that can be distributive, procedural, compensatory, and retributive.[footnoteRef:18] [17: Jennings,Foundations of the Legal Environment of Business, edition 2010, p. 27] [18: Raz, Joseph, Legal Principles and the Limits of Law, 81 Yale Law Review 823 (1972)]

Business ethics is the moral principles and standards that guide behaviour in the commercial sector. Corporate social responsibility is the obligation toward society assumed by business. The business maximizes it positive effects on society and minimizes it negative effects. An illustration of an ethical and social responsibility issue related to the textile manufacturing business. In todays global business, where large multinational corporations like the textile industry face charges of violating human rights in third world countries. Using child labour questions the human rights, ethics, and social responsibility of the textile manufacturing industry. An analysis of how the textile manufacturing illustration applies to decision-making and operations in an ethical and social responsible business. The economic responsibilities of the business would produce products and services that society wants at a price that perpetuates the textile business. The textile manufacturing business decides on legal responsibilities where they obey local, state, federal, and global laws. The textile manufacturing business makes decisions based on their ethical responsibilities of meeting other societal expectations, written and not written by laws.[footnoteRef:19] [19: Raz, Joseph, Legal Principles and the Limits of Law, 81 Yale Law Review 823 (1972) Pg: ]

CASE ANALYSISFor Presence of positivism in ethical statutes thecase of EEOC v. FREEMAN[footnoteRef:20], explains it clearly.The EEOC filed a law suit against Freeman and alleged the companys hiring policy which includes criminal background and credit history checks, has a disparate impact on African-American, Hispanic, and male applicants. And the material fact of this case is whether Defendants hiring criteria of conducting criminal background and credit history checks is consistent with business necessity. Since the Defendant was charged by the EEOC with unlawful discrimination in this case. [20: Bennett- Alexander, D. D., & Hartman, L. P. (2011). Employment Law for Business. New York: McGraw-Hill Companies, Inc.]

However, the conciliation was not reached between Vaughn and Freeman, and the EECO eventually filed the suit in the federal district court..Undoubtedly, the courts decision was made upon several legal bases, the court decided to grant summary judgment in favor of Defendant. There is no deny that the courts decision was correct, because the EEOC really failed to provide reliable and sufficient evidence to support the claim that Freemans criminal and credit background checks created disparate impact. Also, Plaintiff didnt make a Prima facie to demonstrate the practice of disparate impact. Besides, based on the evidences of using incomplete data sets and inadequate statistical techniques, making plethora of errors and analytical fallacies, and using data from irrelevant time period.To sum up, after analyzing this case, the first lesson which came up from the courts decision is sufficient evidence really plays an important role and can influence the outcome of the case. Secondly, although the EEOC has responsibility to enforce laws against discrimination in workplace, the expert testimony can be precluded without providing reliable and accurate statistical records. In addition, in order to avoid negligent hiring and further issues, it is ethical for employers to conduct criminal and credit background checks during hiring. Finally, employers have to prove criminal and credit background checks are job related based on the disparate impact claim.[footnoteRef:21] [21: Ibid.]

CASE STUDYProviders and health care professionals, there will be many times when they will be faced with decisions that need to be made in the best interest of the patient. Moreover, there may be rare occasions when we will have to make decisions in order to protect a patients dignity or self esteem. Although the primary goal as providers and health care professionals is to deliver quality healthcare to patients while honouring autonomy and honesty and keeping the patient thoroughly informed, in special cases such as this one, it is a more beneficial to the patient for the provider to refrain from disclosing his current health condition to him.[footnoteRef:22] [22: Himma, Kenneth E., Judicial Discretion and the Concept of Law, forthcoming in Oxford Journal of Legal Studies vol. 18, no. 1 (1999), Pg: 133]

This case was about a 69 year old male that is diagnosed with cancer of the prostate, at which point, is inoperable and incurable. He has no living relatives, his wife is passed away, and he estranged from his children. This patient has proven incapable of making sound decisions when he is presented with devastating news. He is neurotic and has a history of psychiatric disease. He had previously attempted suicide and suffered from serious depression for a long period of time both after receiving news of his wifes death and anytime he is informed of any serious health problems.Under normal circumstances, a physician or any healthcare provider is required to keep the patient fully informed of their health condition, whether it is to be good or bad. They as professionals are required to respect a patients autonomy, especially through informed consent, no matter what a physicians decision may be as to provide or withhold treatment for whatever appropriate reason. However, every patient, hence, every case will be different. In this case the patient, first and foremost, has a condition at which point is deemed incurable, inoperable and essentially untreatable at this point. I support the physicians decision in not telling the patient of his true health condition. Had I been placed in his position, I would have done the same myself. The physician made a decision in the patients best interest based on his professional judgment. Moreover, there was no one else in relation to the patient that the physician could contact, or that the patient would want him to attempt to contact.[footnoteRef:23] [23: Ibid., Pg: 157]

In essence, although we as health professionals are always required to uphold the ethical principles of healthcare, cases will where we will have to make exceptions while we make decisions in the best interest of the patient. While some actions in the midst of those decisions may be deemed unethical, the end result will still be of greater benefit to the patient in an attempt to first do no harm.

CONCLUSIONLaws create a guideline for a way a company must run and how it needs to conduct itself. Ethics of a company are a guideline for how the management and employees of a company should conduct themselves regardless of their own personal views and ethics. Laws explain on what we are able to do whereas ethics explains about what one should always do.Both laws and ethics allow a company to run properly. If a company does not run by the laws that are in place they are likely to be ethically unstable as well.[footnoteRef:24] [24: Raz, Joseph, Authority, Law and Morality, The Monist, vol. 68, 295-324]

Within each company there is a legal system set up made of legal guidelines and regulations that handle different areas of commerce, this set-up helps in controlling risk, debts and obligations. These laws have the ability to provide members of management with recommendations on how the company should be run. Laws are laws and are set in place. No company has special treatment from these laws. The principles and restrictions that are in position legalize all areas of a businessits investments, employees, and production, because there are laws set forth for companies to follow they are not afforded the ability to fun their company completely in a way they want to. These laws offer regulations for companies to conduct their business which allows for ethical standards to be put in place. These ethical standards are to be followed by all within a company and dont afford special treatment foranyone in higher power. Laws also assist in the actions of companies in a public way.[footnoteRef:25] [25: Ibid.]

Companies must comply with the guidelines of the law that are set up, and this offers the framework for a legally ethical strategy. Public and private laws are controlled by commercial low or business law. These set laws can help companies clearly address problems that may arise.[footnoteRef:26] [26: Ibid.]

Common ground and trust of values among a companies personnel help an organization work together. When employees have a trust not only in each other but with the organization it forms a smooth operation and the ability to serve the public in the proper way. Ethics and values are not learned within in a business, but each individuals personal ethics together for good or bad values.[footnoteRef:27] [27: Ibid.]

Corporate social responsibility describes the ethical rights/obligations that exist between an organization and society. A relationship between organizations can sometimes be regarded with moral concern. The higher companies regulations should be distributed to all and performed with an ethical approach. Ethics within an organization are an attempt to support private attributes and capabilities. Espionage or one company trying to take over another they have a relationship with would be an ethical concern. This is why having a code of ethics is important, so that questions and concerns can be handled properly. Individuals within a company are ethically accountable for their own conduct and attitude. While an individuals views may be different from those they have to project within their work related requirements, they need to accept the difference and conduct themselves in a way that complies with the views of the company. In public approach, people are considered not in exclusion, but as part of groups which are partly accountable for the conduct of their total associates. Within an organization each individual forms a group with which need to conform to the ethics laid out. Moral complication within an organization could come from many places such as leaders, employees, regulators and media.[footnoteRef:28] [28: Ibid.]

In order for a company to have the most effective method of function they require a set ground of ethical standards. These standards allow the corporation to have a sense of community and organizational integrity amongst its employees. Having a code of ethics within a company has the ability to result in an increased understanding and trust between employees and with the company. Organizational ethics are en attempt to support the intentions of an organization and their capabilities. This allows a company to expand their potential allowing for disagreements to be settled peacefully. Ethics are what we consider to be a set of principles or social conducts and behavioral acts of groups and individuals.[footnoteRef:29] [29: Ibid.]

Trust, honestly and respect are base values of the foundation of ethical standards. On an organizational level true ethics can move beyond the personal ethics and viewpoints of an organizations employees. The process of ethical perceptive is achievable when negativity is avoided and positive actions or acceptability is performed. Personal ethics vary from person to person which is why in an organization is best making a clear identification of its ethical views which allows employees to follow these known procedures regardless of their own personal ethics.[footnoteRef:30] [30: Ibid.]

Perfection in decision-making, communications, teamwork, strategic insight, problem solving and process capability is usually enhanced via applying ethical values into the organizations.

References and Further ReadingAustin, John, Lectures on Jurisprudence and the Philosophy of Positive Law (St. Clair Shores, MI: Scholarly Press, 1977)Austin, John, The Province of Jurisprudence Determined (Cambridge: Cambridge University Press, 1995)Bentham, Jeremy, Of Laws In General (London: Athlone Press, 1970)Blackstone, William, Commentaries on the Law of England (Chicago: The University of Chicago Press, 1979)Coleman, Jules, Negative and Positive Positivism, 11 Journal of Legal Studies 139 (1982)Dworkin, Ronald M., Laws Empire (Cambridge: Harvard University Press, 1986)Dworkin, Ronald M., Taking Rights Seriously (Cambridge: Harvard University Press, 1977)Finnis, John, Natural Law and Natural Rights (Oxford: Clarendon Press, 1980)Fuller, Lon L., The Morality of Law, Revised Edition (New Haven: Yale University Press, 1969)Fuller, Lon L., Positivism and Fidelity to LawA Reply to Professor Hart, 71 Harvard Law Review 630 (1958)Faber, Klaus, Farewell to Legal Positivism: The Separation Thesis Unraveling, in George, Robert P., The Autonomy of Law: Essays on Legal Positivism (Oxford: Clarendon Press, 1996), 119-162George, Robert P., Natural Law and Positive Law, in George, Robert P., The Autonomy of Law: Essays on Legal Positivism (Oxford: Clarendon Press, 1996), 321-334Hart, H.L.A., The Concept of Law, Second Edition (Oxford: Clarendon Press, 1994)Hart, H.L.A., American Jurisprudence through English Eyes: The Nightmare and the Noble Dream, reprinted in Hart, H.L.A., Essays in Jurisprudence and Philosophy (Oxford: Clarendon Press, 1983), 123-144.Hart, H.L.A., Book Review of The Morality of Law 78 Harvard Law Review 1281 (1965)Hart, H.L.A., Essays on Bentham (Oxford: Clarendon Press, 1982)Hart, H.L.A., Positivism and the Separation of Law and Morals, 71 Harvard Law Review 593 (1958)Himma, Kenneth E., Judicial Discretion and the Concept of Law, forthcoming in Oxford Journal of Legal Studies vol. 18, no. 1 (1999)Mackie, J.L., The Third Theory of Law, Philosophy & Public Affairs, vol. 7, no. 1 (Fall 1977)Moore, Michael, Law as a Functional Kind, in George, Robert P. (ed.), Natural Law Theory: Contemporary Essays (Oxford: Clarendon Press, 1992), 188-242Raz, Joseph, The Authority of Law: Essays on Law and Morality (Oxford: Clarendon Press, 1979)Raz, Joseph, Authority, Law and Morality, The Monist, vol. 68, 295-324Raz, Joseph, Legal Principles and the Limits of Law, 81 Yale Law Review 823 (1972)Raz, Joseph, Two Views of the Nature of the Theory of Law: A Partial Comparison, Legal Theory, vol. 4, no. 3 (September 1998), 249-282Waluchow, W.J., Inclusive Legal Positivism (Oxford: Clarendon Press, 1994)