Unit 1

Legal Aspects of Business

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Unit 1Structure: 1.1 Introduction Objectives 1.2 Meaning and Nature of Law Characteristics of law Law and morality Ignorance of law is no excuse 1.3 Sources of Indian Law Primary sources of Indian law Secondary sources of Indian law 1.4 Legal Environment of Business 1.5 Mercantile Law Meaning and nature Objectives Sources of Indian business law 1.6 Some Basic Legal Concepts Concept of legal entity Concept of legal rights Concept of property Intellectual Property Rights (IPR) Concept of ownership Concept of possession 1.7 Essentials of Law 1.8 Summary 1.9 Terminal Questions 1.10 Answers

Law

1.1 IntroductionThis unit, you begin by answering the question, What is law? This the meaning and nature of law. The classification of law, such as and criminal law; substantive and procedure law is illustrated. In you also study the different sources of Indian law such as precedents and the legislation. involves civil law this unit custom,

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Objectives This introductory unit on law will help you get familiar with the concept of business law and other basic legal concepts related to law. After studying this unit, you should be able to:

Explain the nature of law Describe sources of Indian law Define business legal environment and mercantile law Analyze the essentials of law

1.2 Meaning and Nature of LawThe term law is used in many senses: you may speak of the law of physics, mathematics, science, or the laws of the football or health. In its widest sense, law means any rule of conduct, standard or pattern, to which actions are required to conform; if not conformed, sanctions are imposed. When we speak of the law of a State, we use the term law in a special and strict sense. 1.2.1 Characteristics of law 1. Law is a body of rules. These rules prescribe the conduct, standard or pattern to which actions of the persons in the state are required to conform. However, all rules of conduct do not become law in the strict sense. We resort to various kinds of rules to guide our lives. For example, our conduct may be guided by a rule such as do not be arrogant or do not be disrespectful to elders or women. These are ethical or moral rules by which our daily lives are guided. If we do not follow them, we may lose our friends and their respect, but no legal action can be taken against us. 2. Law is for the guidance or conduct of persons both human and artificial. The law is not made just for the sake of making it. The rules embodied in the law are made, so as to ensure that actions of the persons in the society conform to some predetermined standard or pattern. This is necessary so as to ensure continuance of the society. No doubt, if citizens are self-enlightened or self-controlled, disputes may be minimized, but will not be eliminated. Rules are, therefore, drawn up to ensure that members of the society may live and work together in an orderly manner. Therefore, if the rules embodied in the law are broken,Sikkim Manipal University Page No. 2


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compulsion is used to enforce obedience, and certain consequences ensue. Law is imposed. Law is imposed on the members to bring about an order in the group, enabling it to continue and prosper. It is not something which may or may not be obeyed at the sweet will of the members of society. If you cannot impose a rule it is better not to have it. Thus, law is made obligatory on the members of the society. Law is enforced by the executive. Obviously, unless a law is enforced it ceases to be a law and those persons subject to it will regard it as dead. For example, if A steals Bs bicycle, he may be prosecuted by a court and may be punished. Also, the court may order the restitution of the bicycle to its rightful owner i.e., B. If the government passes many laws but does not attempt to enforce them, the citizens lose their respect for government and law, and society is greatly weakened. The force used is known as sanction which the state administers to secure obedience to its laws. The state. A state is a territorial division, with people therein subject to a uniform system of law administered by some authority of the state. Thus, law presupposes a state. Content of law. The law is a living thing and changes throughout the course of history. Law responds to public opinion and changes accordingly. Law can never be static. Therefore, amendments are made in different laws from time to time. For example, the Monopolistic and Restrictive Trade Practices Act, 1969, has been subjected to many amendments since its inception in 1969. Two basic ideas involved in law. The two basic ideas involved in any law are: (i) to maintain some form of social order in a group and (ii) to compel members of the group to be within that order. These basic ideas underlie formulation of any rules for the members of a group. A group is created because first, there is a social instinct in the people to live together and secondly, it helps them in self-preservation. Rules are made by the members of the group, so that the group doesnt whither away. Law is made to serve some purpose which may be social, economic or political. Some examples of law in the widest sense of the term. Law in its widest sense may include: (i) Moral rules orPage No. 3



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etiquettes, the non-observance of which may lead to public ridicule, (ii) Law of the Land the non-observance of which may lead to arrest, imprisonment, fines, etc., (iii) Rules of international law, the non-observance of which may lead to social boycott, trade-sanctions, cold war, hot war, proxy war, etc. 1.2.2 Law and morality It was stated earlier that one of the characteristics of law is that it is for the guidance or conduct of persons. This is so in the case of morality also as there is a close relationship between the two. In fact law not only has its origin in morality, but also is easier to enforce when people yield to government for moral reasons. However, a person may be morally bound but not legally. Thus, if a young person does not show respect for an elderly person on the street, the law will take no action, although he stands condemned by the moral judgment of people on the street. On the other hand, the law occasionally has to decide on a person who is not morally at fault. For example, X appoints Y as his agent. Y enters into contact with Z on behalf of X. Y commits fraud in the transaction and thereby injures Z. X is bound to compensate Z. Further, there are some actions in which both morality and legality are involved.

Figure 1.1

1.2.3 Ignorance of law is no excuse This is the literal translation of maxim ignorantia juris non excusat. Every member of the society is expected that his actions conform to a set patternSikkim Manipal University Page No. 4


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or standard as reflected in legal rules. For this purpose, he is presumed to know the legal rules. He cannot take the plea that he did not know them. No doubt, in practice, he cannot learn and know all the laws of the land, but he can obtain expert guidance from those who possess legal knowledge. Thus, he has access to books on law and to those persons who are experts in legal matters. Therefore, the maxim ignorantia juris non excusat places a burden on every member of the society with the knowledge of law. In other words, Ignorance of law is not a good excuse. Self Assessment Questions 1. Which one of the following possess the power of supreme legislation in India: (a) The President; (b) The Lok Sabha; (c) The Rajya Sabha; (d) The Parliament; (e) The Supreme Court. 2. A _______________ is a territorial division, with people therein subject to a uniform system of law administered by some authority of the state.

1.3 Sources of Indian LawThe main sources of modern Indian Law, as administered by Indian courts, may be divided into two broad categories: (i) Primary sources and, (ii) Secondary sources. 1.3.1 Primary sources of Indian law The primary sources of Indian law are: (a) customs, (b) judicial precedents (stare decisis), (c) statutes and (d) personal law. Customary law Customs have played an important role in making the law and therefore is also known as customary law. Customary Law, in the words of Keeton, 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 the uniformity of conduct of all persons under likeSikkim Manipal University Page No. 5


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circumstances. 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 precedents are an important source of law Judicial precedents are another important source of law. It is based on the principle that a rule of law which has been settled by a series of decisions generally should be binding on the court and should be followed in similar cases. These rules of law are known as judicial precedents. However, only such decisions which lay down some new rules or principles are treated as judicial precedents. Thus, were there is a settled rule of law, it is the duty of the judges to follow the same; they cannot substitute their opinions for the established rule of law. This is known as the doctrine of stare decisis. The literal meaning of this phrase is stand by the decision. Statute an important source of law The statutes or the statutory law or the legislation is the main source of law. This law is created by legislation such as Parliament. In India, the Constitution empowers the Parliament and state legislatures to promulgate law for the guidance or conduct of persons to whom the statute is, expressly or by implication, made applicable. It is sometimes called enacted law as it is brought into existence by getting Acts passed by the legislative body. It is called Statute Law because it is the writ of the state and is in written form (jus scriptum). 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, the courts are required to apply the personal law of the parties. Thus in certain matters, we follow the personal laws of Hindus, Mohammedan and Christians. 1.3.2 Secondary sources of Indian law The secondary sources of Indian Law are English Law and Justice, Equity and Good Conscience. English law The chief sources of English Law are: (i) the Common Law (ii) Equity, (iii) The law Merchant and (iv) The Statute Law.


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Nowadays, English law is not very important source of Indian law. The English law, in its application to India, has to conform to the peculiar circumstances and conditions prevailing in this country. Even though the bulk of our law is based on and follows the English law, yet in its application our courts have to be selective. It is only when the courts do not find a provision on a particular problem in the primary sources of Indian Law that it my look to subsidiary sources such as the English Law. For example, the greater part of the Law Merchant has been codified in India. The Indian Contract Act, 1872, the Indian Partnership Act, 1932, the Scale of Goods Act 1930 and the Negotiable Instruments Act, 1882, are some of the very important Acts relating to business transactions. Where, however, there is some doubt as to the interpretation of any provisions of these Acts or where certain branches of the Law Merchant have not been codified, the courts in India look to English decisions on the point, for guidance. Justice, equity and good conscience In India we do not have, no did we ever had separate courts (as in England) administering equity. But the equitable principles of law, i.e., justice, equity and good conscience, are the guiding force behind most of the statutes in our country and the decisions of the courts. Especially, where law is silent on any point or there is some lacuna in a statute, the principles of equity come handy to the judges who exercise their discretion often on equitable considerations. The frequent use of terms such as good faith, public interest, public policy, in statutes and by the judges in their judgements is based on principles of equity. Now we shall briefly describe the main sources of English law: 1. Common law. This source consists of all those unwritten legal doctrines embodying customs and traditions developed over centuries by the English courts. Thus, the common law is found in the collected cases of the various courts of law and is sometimes known as case law. 2. Equity. The literal meaning of the term equity is natural justice. The development of equity as a source of law occurred due to rigours and hardships of the Common Law. Therefore, in its technical and narrower sense, equity means a body of legal doctrines and rules emanating from the administrations of justice, developed to enlarge, supplement or override a narrow rigid system of existing law of the land. However, likeSikkim Manipal University Page No. 7


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the common law, the equity is unwritten and is a supplement to common law as a source of law. 3. Statute law. The Statute law consists of the law passed by the Parliament and therefore, is written law. The authority of parliament is supreme but is subject to natural limitations and those laid down by the Constitution. It can pass any law it pleases and can override its own previous Acts and the decisions of the courts. Statute law, therefore, is superior to and can override any rule of Common Law or equity. 4. The law merchant or lex mercatoria. It is another important source of law and is based to a great extent on customs and usages prevalent among merchants and traders of the middle ages. Its evolution like that of equity can be traced to unsuitability of Common Law so far as the commercial transactions were concerned. The Common Law was found to be unsatisfactory in dealing with disputes between merchants. The merchants, therefore, developed certain rules based upon customs and usages to govern their mercantile transactions. These rules were known as Lex Mercatoria or the Law Merchant. Activity 1: Identify a recent change in the law which will have a significant impact on business organizations in general. The change in the law may be in the form of an Act of Parliament, delegated legislation or judicial decision. Self Assessment Questions 3. The doctrine of judicial precedent is also known as the doctrine of: (a) Stare decisis; (b) Obiter dicta. 4. The important sources of law are custom, precedent, and legislation. Their appearance in the legal history has been in the following order: (a) Legislation, custom and precedent; (b) Custom, precedent and legislation; (c) Precedent, custom and legislation. 5. _____________ means a body of legal doctrines and rules emanating from the administrations of justice, developed to enlarge, supplement or override a narrow rigid system of existing law of the land.Sikkim Manipal University Page No. 8


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1.4 Legal Environment of BusinessThe law is almost a universal human need. No society can exist without a legal order. We need institutions and a framework of rules and regulations to provide firmness to our mutual relations. Without law, there would be complete anarchy in society. That is why we regard rule of law as the essence of civilised society. It provides certainty to our relationships. It emphasizes that laws ought to be general in character so that there is no arbitrariness in their exercise. It also emphasizes complete equality before law and equal conformity to law by officials and individuals. Law and business are closely related disciplines. They complement each other. Law is a major factor in business decision making. Almost every aspect of business is regulated by law. Even the installation of a business unit itself may involve observance of some legal provision or the other. For instance, in the case of a company, the various provisions of the Companies Act, 1956 and other allied laws are to be complied with for incorporation and commencement of business. The contracts entered into by business with others may be held to be void or may be against public policy. Certain business practices may amount to monopolistic, restrictive or unfair trade practices. Products supplied may be defective. There may be deficiency in the service provided by business. The agreement between a manufacturer and his dealers may defeat the provisions of some law or the other. Sometimes the law may require business to provide certain facilities to its employees, even when the contract does not provide therefore. For instance, the provisions of labour welfare laws impose a legal obligation on employers to provide certain benefits to their workers. Sometime ago, the Central Government gave complete freedom to Banks to fix interest rates, which was obviously aimed at triggering off competition in the Indian economy. But all nationalized banks in India tried to keep the prime lending rate artificially high by resorting to cartelisation which is violative of the MRTP Act, 1969. The banks arrived at the particular interest rate at the behest of the Indian Banks Association (IBA) and not by taking into consideration the cost of raising funds. Thus, the legal environment of business is one of the major factors in regulating its conduct though some of the laws may act as facilitators forSikkim Manipal University Page No. 9


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some segment of the business at some time or the other. Almost every aspect of business is controlled by law. Sometimes even the nature of the business organization itself imposes legal fetters right from the time of its formation. The buying and selling, production, marketing and other functions of the business enterprise are to be conducted within a certain framework of legal environment. The decision making process of business, right from its very inception, will be guided by law. Certain conduct is illegal, and business which commits acts or omissions declared to be illegal is subject to sanctions. There may be fines or imprisonment if the conduct is declared a crime. The sanctions may include liability for damage if the conduct amounts to a breach of contract. In addition, the law and legal sanctions may be used to prevent certain conduct or to require that certain acts be done or to make business to comply to some requirement. Thus, business people must take decisions within the framework of law otherwise sanctions will be imposed. In this way, law is the foundation for the regulation of all business conduct and decisions. Self Assessment Questions 6. Law and business are ______________ other. 7. Every aspect of business is controlled by _________________.

1.5 Mercantile Law1.5.1 Meaning and nature Business Law may be defined as that branch of law which prescribes a set of rules for the governance of certain transactions and relations between: (i) business persons themselves, (ii) business persons and their customers, dealers, suppliers, etc., and (iii) business persons and the state. In the context of Indian business some of these transactions and relations concern the following:

Regulation of restrictive and unfair business practices, Foreign exchange management and regulation, Insolvency of business persons, Promotion of conciliation, and arbitration for settlement of business disputes, Regulation of companies incorporated under the Companies Act, 1956,Page No. 10



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Negotiable instruments, Patents, trade marks and copyrights, Actionable claims, factoring and forfaiting, Import and export regulation, Contracts, sale of goods, guarantee, indemnity, bailment, pledge, charge, mortgage, partnerships, insurance, carriage of goods, Prevention of food adulteration, regulation of essential commodities, Regulation of stock exchange and financial securities, Regulation and development of industries, Economic offences, Conservation of foreign exchange and prevention of smuggling activities, Regulation of foreign contributions, foreign capital, Excise, import and export duties, tax on income, wealth, etc.

1.5.2 Objectives From the description of the nature and meaning of business law, it can be inferred that the subject has many objectives to achieve. Firstly, law lays down the framework within which business activities shall be carried out. For example, X company issues an advertisement disparaging the products of its rival Y company. Further X company prohibits its dealers to deal in the products of Y company. These acts of X company are not in conformity with some legal rules prescribed by some statute or the other. Thus Y company can enforce its right which have been infringed by the X company. Secondly, a businessperson can resort to various judicial and quasi-judicial authorities against the government in case his legal rights have been violated. Thirdly, some laws are made to facilitate the business persons to achieve their goals smoothly. For example, business has been extended the facility of doing business by getting a company incorporated, deriving all the advantages of incorporation, such as separate legal entity, limited liability, etc.


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Fourthly, business law has social objectives too. The anti-competition laws, the pollution control laws, etc., are some of the examples. Further, laws concerning regulation of essential commodities and prevention of food adulteration in the interest of the consumers go a long way in serving social objectives. Lastly, business laws aim to prevent concentration of economic power and help in the adjustment of claims of individuals against each other. 1.5.3 Sources of Indian business law The sources of Indian business law are: 1. Statutes such as the Indian Contract Act, 1872, the Sale of Goods Act, 1930, the Partnership Act, 1932, the Negotiable Instruments Act, 1881, the Insurance Act, 1938. 2. Common law: In the absence of a legal provision on a subject, the Indian courts apply English Common Law. Even in interpreting Indian law, the Indian courts refer to English decisions. 3. Custom and usages: The Indian business customs and trade usages, unless excluded by a statute, are allowed to govern business transactions. The Negotiable Instruments Act, 1881, has not excluded the trade usage of hundis as negotiable instruments. 4. Precedents: Courts make law too. Their main contribution comes in the form of decisions in law suits. The cases decided by the Supreme Court and other courts have served as precedents to follow by the lower courts. 5. Justice, equity and good conscience: The equitable principles of law developed by the English equity courts are the guiding force behind most of the Indian statutes on business laws. Also as and when necessary, the Indian courts make use of these principles of equity in interpreting the Indian law. Activity 2: The concept of ownership does not permit any vacuum. Whats your opinion on this? Self Assessment Questions 8. Statutes, common law, precedents, etc. are ______________ of Indian business law.Sikkim Manipal University Page No. 12


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9. Business law prescribes a set of rules for the governance of transactions and relations between ____________________.

1.6 Some Basic Legal Concepts1.6.1 Concept of legal entity Law applies only to persons. Thus, persons are the subjects of law. A person is an entity which is clothed with rights and duties. There are two kinds of persons. A person may be a natural or an artificial person. All human beings are natural persons. They are tangible and visible. On the other hand, an artificial person is a metaphysical body, intangible and invisible. An artificial person is brought into existence by following a procedure given in some law. For example, a public company is an artificial person and is brought into existence by following the procedure given in the Companies Act, 1956. Thus there must be at least seven persons for bringing a public company into existence. In this way, an artificial person comes into existence when law confers such a status upon a group of persons or any object or institution. An artificial person is also known as a legal entity when it comes into existence. It has one corpus or body in law, distinct from the members who constitute it. In addition to Companies Act, 1956, there are some other laws under which artificial persons can be brought into existence. Some such laws are: Societies Registration Act, 1860; Co-operative Societies Act, 1912. 1.6.2 Concept of legal rights We have mentioned earlier that a person is an entity clothed with certain rights and duties. The sources of different rights may be customary, statutory, contractual, personal laws, etc. Some of the rights, which a person has, are interest in life, or liberty or property or extending over domestic relations and even to contractual relations. Some of these interests are not recognised or protected by law. The rights recognised or protected by law alone are enforceable. These rights have their origin in some source or the other, such as custom, statutes, personal law, law of tort. 1.6.3 Concept of property There could be no such thing as business law, or even business, if there were no such thing as property. Thus the concept of property is very important in business law. In a laymans restricted sense property meansSikkim Manipal University Page No. 13


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movable (personal property such as furniture) or immovable assets (real property such as land and buildings.) This is what is known as tangible property. Legally, however, the term property refers neither to objects nor to land alone. In its legal sense, property refers to legally protected rights to use, possess, enjoy and dispose of a thing. Land and other physical objects can exist where there is no law, for example, rocks on the moon. However, property rights can exist only where there is some law to define and enforce them. Law protects people in the exercise of property rights. In this way, the law contributes to the value of things. 1.6.4 Intellectual Property Rights (IPR) A trademark, a copyright, or a patent right are incorporeal assets. These are known as IPR. For instance, musical copyright in respect of songs, tunes and literary and artistic copyright belong to the author as his property. Thus, in this case of IPR, the subject matter of proprietary interest is not the product (such as a book, a cassette), but the exclusive right of the author or singer or inventor to publish a book, record music, or manufacture a particular thing or allow others to do so only at his behest. 1.6.5 Concept of ownership The term ownership may be described as a bundle of rights in rem (against the whole world), having certain characteristics namely the right of unspecified duration, and use, and generally being inheritable and transferable. 1.6.6 Concept of possession It is said that law attaches great importance to mere possession even without ownership. Even a wrongful possession is protected. For example, an owner of property (say X) dispossess an occupant (say Y) without Ys consent. X is liable to restore possession even though the occupant is unable to show any right to be in possession. Thus, even a trespasser, if allowed to be in occupation by negligence, cannot be disturbed even by the true owner. This is so as the trespasser is treated as a person having settled position. A wrong possession of property for a period of 12 years is known as adverse possession. It destroys the right of the owner vis--vis the occupant. A person acquires title to anything which is previously unowned. It is known as res-nullius.


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Self Assessment Questions 10. Custom is: (a) Neither written nor unwritten law; (b) Both written and unwritten law; (c) Unwritten law (d) Written law. 11. The rights which pertain to the realm of status which indicates the proposition of person in the eye of law in the society is known as. (a) Property rights (b) Information rights (c) Personal rights (d) None 12. Out of the following, which one is not the source of English law? (a) Common law (b) Business law (c) Equity (d) Statute law

1.7 Essentials of LawThere are certain essentials which must be present in law in order to make it effective. These are: (i) Predictability, (ii) Flexibility and (iii) Reasonable application and coverage. Law must be such that one is enabled to predict with some accuracy the legal consequences of an action. For example, business people enter into contracts on the premise that if the other party fails to keep its promise, they would have certain remedies under the law. Law must be flexible in the sense that it must not be so rigid and unchanging as to be impossible to mould to the present. The world is changing. New inventions are being made. Law must be flexible enough to meet changing conditions. And, if at a later stage, it is found that the existing law is incapable of tackling certain changes, then it must accommodate them by amendments thereto. Law must be reasonable both in its application and coverage. Wide publicity should be given to the law enacted so as to give an opportunity to those affected by it to know its requirements, and consequences for nonSikkim Manipal University Page No. 15


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compliance of those requirements. However, the old doctrine of ignorance of law is no excuse stands on its own feet. As regards reasonableness of laws coverage, the subject matter thereof must be considered reasonable by the people at large. Therefore, a law that a large number of persons consider to be unreasonable will soon become ineffective. Activity 3: Suggest your overview on The right has a source either in a contract, or in a customs, or in natural law. Self Assessment Questions 13. The Indian Legal System handles cases in two separate ways _______________ and criminal. (a) Business law (b) Personal law (c) Substantive law (d) Civil law 14. Private law include (a) Family laws (b) Law of property (c) Law of contract (d) All of the above 15. All the following laws include in public law EXCEPT a) Criminal law b) Constitutional law c) Law of tort d) Municipal law 16. IPR stands for (a) Intellectual Promising Rights (b) Intellectual Property Rights (c) Indian Property Rights (d) International Property Rights

1.8 SummaryBusiness laws are essential for the students of management to understand the legal rules and aspects of business. Just like any other study evenSikkim Manipal University Page No. 16


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business management is incomplete without a proper study of its laws. Any form of business needs legal sanction. Therefore, it is imperative that a manager understands the various ways in which businesses can be organized. This subject introduces some of the common forms of business organizations, including some forms unique to India like the Joint Hindu Undivided Family firm. Different types of organizations like Sole Ownership, Partnership, Private Limited Company, Public Limited Company, Joint Stock Company along with the rationale for adopting these forms are explored. What form of business organization is the best under a particular set of conditions? What advantage or disadvantage does it have over other forms of business? Glossary English Common Law: English common law is a system of law based upon English customs, usages and traditions which were developed over centuries by the English Courts. Equity: It refers to that branch of the English law which developed separately from the common law. Law: Law is a body of principles recognized and applied by the state in the administration of justice. Statute Law: The statute law refers to the law laid down in the Acts of Parliament. State: A state is a territorial division, with people therein subject to a uniform system of law administered by some authority of the state.

1.9 Terminal Questions1. The legal constraints tend to control or limit the discretion of the business on the grounds that. Absolute rights cannot be conferred in the modern society. Comment. 2. You must have come across some law or the other which has either been amended or enacted recently. Describe its (i) Objectives (ii) Legal provisions (iii) Impact on business and society. 3. What are the sources of Indian law? Discuss any one important source of law and justify why it is important. 4. What are the nature and significance of business law?Sikkim Manipal University Page No. 17


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5. Possession, right or wrong, is protected by law. Explain 6. The study of law is not limited to learning legal rules, knowledge of the legal environment of business is very necessary. Comment.

1.10 AnswersAnswers to Self Assessment Questions 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. (d) State (a) (b) Equity Complement Law sources business entities (c) (c) (b) (d) (d) (c) (b)

Answers to Terminal Questions 1. Refer 1.4 Explain the various legal constraints of business in todays scenario. 2. Refer 1.2 How legal provisions affect the business what are their objectives. 3. Refer 1.3 The main sources of modern Indian Law, as administered by Indian courts, may be divided into two broad categories: (i) Primary sources and, (ii) Secondary sources. 4. Refer 1.2 Business Law may be defined as that branch of law which prescribes a set of rules for the governance of certain transactions and relations between: (i) business persons themselves, (ii) businessSikkim Manipal University Page No. 18


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persons and their customers, (iii) business persons and the state.

dealers,

suppliers,

etc.,

and

5. Refer 1.6 Effect of possession in the business. 6. Refer 1.4 The legal environment of business is one of the major factors in regulating its conduct though some of the laws may act as facilitators for some segment of the business at some time or the other. Mini-case The Enron Development Corporation of USA, which is one of the largest integrated natural gas companies in the world, started construction in Maharashtra, in April 1995, on the 695, MW gas fired plant. But the new government of Maharashtra-the Shiv Sena - BJP combine ordered a review of the project. The BJP had opposed the deal on various counts when it was being struck between Enron and then the government of Maharashtra headed by Congress party. Some of the counts on which the project was criticised were: (i) the social and environmental aspects of the project, (ii) the alleged bribes paid by Enron, (iii) the high cost of the project, (iv) the lack of transparency, and (v) the absence of competitive bidding. The Congress leaders alleged that cancelling the project was a politicallymotivated decision. Also, it is pertinent to refer to the ruling by the Bombay High Court in 1994, when it threw out a petition filed against the project by one of the leaders of BJP. In a strongly worded verdict the court had said, The proposal was deliberated at length for two and a half years, draft agreements were prepared from time to time, and it was ultimately the eighth or ninth draft which was finalised. Nothing was done secretly. There was total transparency at every stage of negotiation. There is nothing to show that anybody was being favoured for any specific reason. Also the Government of India had taken a series of decisions concerning inviting private sector participation in the power sector and announcing a list of incentives. Firstly, the first few private sector projects were to be given the status of pioneer projects what later came to be known as fast track ones, and were to be given every facility by the government. Secondly, for the first few projects, the government would not go in for public tendering. Naturally, Enron cannot be blamed for government policies.


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Question Describe various reasons behind the increment in cost of Enron plant in Maharashtra. (Hint: Due to the political reasons)


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Documents

Transcript of Unit 1