Question No. 5 - MMPC 013 - Business Law - MBA and MBA (Banking & Finance)

Solutions to Assignments

                            MBA and MBA (Banking & Finance)

                            MMPC- 013 - Business Law

MMPC-013/TMA/JAN/2022

Question No. 5 Discuss the evolution of Environmental Protection Legislation and its framework in India. 

India’s approach towards environmental protection was piecemeal and reactive in nature. In response to Stockholm declaration 1972, Air (Prevention and Control of Pollution) Act, 1981, and Water (Prevention and Control of Pollution) Act, 1974, were introduced. Further, Art 48 A and 51(g) were incorporated in Indian Constitution by way of 42nd amendment in 1976.

It is unfortunate to note that beyond causing continual environmental harms industries can also be responsible for severe and large-scale disasters resulting in the deaths of millions of people. India was ill fated to witness one of the world’s worst industrial disasters in the form of Bhopal gas tragedy in 1984 killing thousands of people.

This incident was a turning point for environmental jurisprudence in India. Several prominent legislations, rules, notifications were adopted after this incidenttaking into account issues and challenges that increasingly emerged as part of modernday developments. India experienced a virtual explosion of public interest litigations specifically on environmental issues and courts also assumed a more pro-active role in the form of public educator, policy maker11and administrator. India even started contemplating on having a specialized tribunal dealing specifically with environmental matters as the Supreme Court stressed on its importance in numerous instances.Finally after much deliberation and failed attempts, National Green Tribunal was established in 2010. Since its inception, it has played an important role in shaping the environmental litigation in India.

Thus, India started adopting a more holistic and comprehensive approach towards environmental protection and regulating the pollution emanating from industries.

Constitutional provisions for Environmental Protection: 

The Indian Constitution is a living document which has evolved and grown with time. Substantive provisions for environmental rights and duties were lacking in our original Constitution. However, its landscape was changed by way of 42nd amendment which introduced specific provisions for environmental protection in the form of Directive Principles of State Policy and Fundamental Duties. With the introduction of these two Articles, both the State and the Citizens are now under the constitutional obligation to protect, preserve and safeguard the environment. Article 21 of the Indian Constitution states that, “no person shall be deprived of his life or personal liberty except according to procedure established by law”. Supreme Court in the case of Virender Gaur Ors. vs. State of Haryana interpreted the word ‘life’ in a liberal manner and stated that,

‘Article 21 protects right to life as a fundamental right. Enjoyment of life and its attainment including their right to life with human dignity encompasses within its ambit, the protection and preservation of environment, ecological balance free from pollution of air and water, sanitation without which life cannot be enjoyed. Any contra acts or actions that would cause environmental, ecological, air, water, pollution, etc. should be regarded as amounting to violation of Article 21.”

Further, in the case of M.C Mehta v. Union of India19the Supreme Court treated the right to live in healthy and pollution-free environment as a part of fundamental right to “life” under Article 21 of the Constitution. Public Interest Litigations under art. 32 and art 226 also resulted in a wave of environmental litigations, producing a rich environmental jurisprudence in India. Thus, India’s Constitution now guarantees a right to healthy environment, right to clean air, right to clean water etc. Article 19 (1) (g) of the Indian constitution confers fundamental right on every citizen to practice any profession or to carry on any occupation, trade or business. However, it is subject to reasonable restrictions. In the case of Burra bazar Fireworks Dealers Association v. Commissioner of police, Calcutta it was held that,

“Art. 19(1)(g) of the Constitution of India does not guarantee the fundamental right to carry on trade or business which creates pollution or which takes away that community’s safety, health and peace.”

ENVIRONMENTAL FRAMEWORK IN INDIA AND ITS IMPACT ON BUSINESSES AND INDUSTRIES

In the present section we will be dealing with Environment Protection Act 1986, Water (Prevention and Control of Pollution) Act 1974, Air (Prevention and Control of Pollution) Act 1981, Forest Conservation Act 1980 and The Wildlife (Protection) Act, 1972, etc.

a) Water (Prevention and Control of Pollution) Act 1974 

In order to deal with the issue of water pollution, the Water Act was enacted in 1974 with the primary objective of prevention and control of water pollution and maintaining or restoring the wholesomeness of water. The Act specifically prohibits the disposal of any poisonous, noxious or polluting matter directly or indirectly into any stream, well, sewer or land.24 In order to achieve its objective, it established Central and State Pollution Control Boards with the function of developing standards for effluents and sewage as well as the quality of water etc. It empowers the State Boards to obtain information from any establishment regarding its construction, installation or operation with a view to prevent and control water pollution.25 It also authorizes the State Boards to take water samples from any stream, well, sewage or trade effluent passing through any plant or vessel. The act further authorises the State Boards27 to enter and inspect any plant, record, register, or document in order to determine whether the orders or directions of Boards have been complied with or not. With regard to the power of entry and inspection, the State Boards shall have the powers of district magistrate under section 94 of CRPC relating to search and seizure. It is important to point that if an offence is committed under this Act by a company, then every person who at the time of offence, was responsible for the affairs of the company or in charge thereof shall be guilty of the offence and punished accordingly. The Act provides for a wide array of penalties ranging from imprisonment of 3 months to 6 years and daily fines as well in case of continuous violations. Consent to Establish and Consent to Operate-Establishment of any industry, operation or process, which is likely to discharge sewage or trade effluent into a stream, well, sewer, well or land requires prior consent of the Board.

b) Air (Prevention and Control of Pollution) Act 1981 

The Act was enacted in 1981 to provide for the prevention, control and abatement of air pollution in India. In the case of New Era High School v. State of Bihar30it was stated that, “Statute mandates board to inspect air pollution control areas at intervals, assess quality of air therein and take steps for prevention, control and abatement of air pollution in such areas” The Act includes noise pollution. It specifically prohibits the industries from emitting air pollutants in excess of the standards laid down by the State Boards.31 Similar to the Water Act, the Air Act also authorises the State Boards with the power to obtain information32, power of entry and inspection33, power to take samples from air emissions34 and permits action against company officials in case of contravention of its provisions by a company35. The Air Act as well provides for a wide array of penalties ranging from imprisonment of 3 months to 6 years and daily fines in case of continuous violations. Consent to Establish and Consent to Operate- The Act requires certain industrial plants to apply for consent from the State Boards before establishing or operating any industrial plant in an air pollution control area.

The Board while granting consent may also impose certain conditions, which are required to be followed by the concerned industry. Failure to comply with conditions or operating without appropriate consent could result in the closure of the industry. Supreme Court in the case of M.C Mehta v. Union of India held that,

“Carrying of mining operation of stones on the border of Rajasthan and U.P without obtaining necessary permission from competent authority was held to be illegal and persons were restrained from working out mining activities”

c) Environment (Protection) Act 1986 

Even though there were existing laws in India dealing directly or indirectly with a vast array of environmental issues, India still lacked a general legislation for environmental protection in India. Due to constantly changing paradigms in the field of environmental law, a need was felt to have an umbrella legislation for environmental protection in India, which would enable better coordination between regulatory authorities and provide for speedy and adequate responses to varying environmental issues. Further, Bhopal Gas tragedy also exacerbated the loopholes in the existing system of environmental protection and highlighted the need for an all-encompassing legislation for the protection of environment in India. In view of these issues the Environment (Protection)Act was enacted in 1986. The Act gave sweeping powers to the Central Government38, providing that it could take, “all such measures as it deems necessary or expedient for the purpose of protecting and improving the quality of the environment and preventing, controlling and abating environmental pollution.” In particular, for instance, measures could include restriction of areas in which any industries, operations or processes shall not be carried out or shall be carried out subject to certain safeguards; laying down procedures and safeguards for prevention of accidents which may cause environmental pollution and remedial measures for such accidents; laying down procedures and safeguards for handling of hazardous substances; examination of such manufacturing processes, materials and substances as are likely to cause environment.39 The Act also empowered the Central Government to make rules by notification on specific issues pertaining to environmental conservation and protection.40 However, each rule made under the Act, is required to be laid before each House of the Parliament.41 In light of this power, Central Government has been able to issue notifications on a plethora of environmental issues in India such as waste management, environmental impact assessment, Coastal Regulation Zone (CRZ) etc.

The Act also provides for a penalty of imprisonment ranging from five years to seven years along with fines which may extend to Rs. one lakh and daily fines of Rs.5000 in case of continuous contravention.

i) Coastal Regulation Zones Notification: The first CRZ Notification was issued in 1991, since then there have been several changes and amendments in these notifications. 

The most recent notification was implemented in 2019. As per the 2019 notification, CRZ’s have been classified as follows: 

 CRZ I A- Ecologically Sensitive Areas, which play an important role in maintaining the integrity of coast such as mangroves, coral reefs, salt marshes, nesting grounds for birds and animals etc. 

 CRZ I B- Inter- tidal zone i.e., area between High tide line and low tide line 

 CRZ II- developed areas upto or close to shoreline. 

 CRZ III- Land areas that are relatively undisturbed, have further been classified as A and B based on population density. 

 CRZ IV- deals with water areas and sea bed areas and further classified into A and B on the basis of distance from Low tide line. 

The new notification has certain provisions which are favourable for industries and businesses such as:

• Clearance procedures for projects or activities located in CRZ-I and CRZ-IV to be dealt with by the Ministry of Environment, Forests & Climate Change. Whereas, powers for clearance under CRZ-II and CRZIII have been delegated to State level with necessary guidance. 
• There is a boost for the tourism industry as temporary tourism facilities like shacks, toilets, change rooms, drinking water facilities have been permitted in the No Development Zone of CRZ-III areas with a minimum distance of 10m from the HTL. 
• The notification also lifted the prohibition on construction in the previously-protected 200-metre no-development zone in rural areas and 100-metre no-development zone along the tidal-influenced water bodies, reducing it to 50 meters for these water bodies and densely populated rural areas. This will make way for more real estate, Hotels and resorts. 
• As per the 1991 Development Control Regulation, Floor Area Ratio had been frozen. As of now it stands defreezed and Floor Space Index is permitted for construction projects which imply a boost for the real estate sector.

ii) Waste Management Rules: 

In a developing country like India with high consumption pattern and huge quantities of different kinds of waste, lack of proper management and disposal system can be a serious issue. Several rules have been notified in India dealing with different kinds of waste such as municipal solid waste, plastic waste, hazardous waste, bio- medical waste, etc. These rules are based on the principle of making stakeholders accountable for the management of waste. Most importantly, the rules stipulate that it is the responsibility of the producers to ensure that the waste generated from their products is disposed of in an environmentally friendly manner. It can be defined as,”a policy principle to promote total life cycle environmental improvements of product systems by extending the responsibilities of the manufacturer of the product to various parts of the entire life cycle of the product, and especially the take-back, recycling and final disposal of the product.42"In India, the principle of Extended Producers Responsibility (EPR) has been an integral part of the waste management rules. The Batteries (Management and Handling) Rules (BMHR), 2001, was the first to be based on the concept of EPR without explicitly mentioning it. Thereafter, the rules made for plastic waste (Plastic Waste [Management and Handling] Rules, 2011) and e-waste (E-Waste [Management and Handling] Rules, 2011) explicitly laid down the provisions for EPR in managing waste.

The concept of EPR has received much-needed attention in the recent rules formulated for effective management of solid waste. It is one of the most important parts of the e- waste rules 2016 and Plastic Waste Management Rules, 2016. For the first time, it has also been included in the Solid Waste Management Rules, 2016 as well. Plastic Waste Management Rules, 2016, illustrates that the primary responsibility for collection of used multi-layered plastic sachet or pouches or packaging is of Producers, Importers and Brand Owners who introduce the products in the market. They need to establish a system for collecting back the plastic waste generated due to their products. There are different approaches for successful implementation of EPR. Indore adopted a ward wise approach, and in one year achieved 100% segregation of waste at source from households and commercial establishments. The sorted waste is easily saleable to the recyclers. The recyclers are queuing up daily for collecting their category of waste with an assured quantity and quality.

iii) Environment Impact Assessment (EIA) Notification: 

Initiated formally in 1994, the current EIA Notification 2006 lays out a detailed process for obtaining Prior Environment Clearance for any new projects or activities, or the expansion or modernisation of existing projects and projects seeking capacity addition with change in process or technology. Category A projects acquire their clearance from the Ministry of Environment, Forest and Climate Change (MoEFCC) while category B projects apply for clearances to the State Environment Impact Assessment Authority (SEIAA). Category B projects can be further broken down to B1 and B2, thereby determining which projects and activities will require an EIA before approval. Since January 2016, institutions have been created at the District level as well and they too have been included in the EIA Notification for approving certain instances of mining of minor minerals. These are the District Environmental Impact Assessment Authority (DEIAA) and District Level Expert Appraisal Committee (DEAC).

Since March 2016, Ministry of Environment, Forest and Climate Change, has adopted a new method of classifying each type of industry. A concept of ‘white industries’ has been introduced to denote ‘non polluting’ industries. They do not need permit or consent and just require to notify the relevant State Pollution Control Board. For other colour coded industries (red, orange, green) environmental permits are needed according to kind of activity and size of activity being conducted. A Pollution Index (PI) score is given to each industry, depending on utilization of resources, air emissions, hazardous waste generated, etc. (e.g., red category – PI score of 60 and above including but not restricted to asbestos, nuclear power plants, ship breaking, oil and gas extraction; orange category- PI score of 41 to 59 including food processing, pharmaceutical formulations; green category- PI score of 21 to 40 including sawmills, tyres/tubes retreading; white category- PI score upto 20 including wind power, mini hydel electric power less than 25 megawatts). No red category of industries shall normally be permitted in ecologically fragile area/protected area.43 An integrated permit system can be submitted to relevant State Pollution Control Board to obtain consent to establish and consent to operate, authorisation under various Acts/Rules- submit a combined consent application to relevant SPCB/CPCB. In August 2018, a new online environmental portal was launched by MoEFCC named Parivesh which stands for Pro-Active and Responsive facilitation by Interactive, Virtuous and Environmental Single window Hub.- to facilitate online submission and tracking of various environmental clearance applications. It allows a single registration and single sign in for all types of clearances (environment, forest, wildlife, CRZ) and create a unique ID for each project.

iv) Forest (Conservation) Act, 1980: 

The Forest (Conservation) Act, 1980 lays down the provisions that regulate the diversion of forestland for non-forest purposes. This is with the stated objective of ensuring longterm conservation of the forests in India, and reducing forest degradation. Any user agency (both government and non-government) has to seek prior permission from the Central Government before de-reserving any forest land, felling of trees or before diverting any forestland for nonforest use. The application for the same is moved through the Forest Department of the State Government, which is the final point of approval for forest diversion under this legislation. Non-forest use implies the breaking up or clearing of any forest land for the cultivation of tea, spices, rubber, palms, oil-bearing plants, horticultural crops or medicinal plants and for any purpose other than re-afforestation. Proposals involving forest land upto 40 hectares (not including activities related to mining and encroachments) are handled by the regional office of the MoEFCC. Proposals involving forest land above 40 hectares and those related to mining and encroachments are handled by the MoEFCC.

v) The Wildlife (Protection) Act, 1972: 

The Wildlife (Protection) Act, 1972, is a statute to provide for the protection of wild animals, birds and plants. It provides for declaration of national parks and sanctuaries and prohibits hunting and harm of wild animals and uprooting of specified plants in general. A permit is required in case any activity including industrial, mining or infrastructure is likely to destroy, exploit or remove any wildlife including forest produce from a Protected Area. A Protected Area includes a Sanctuary, National Park, Conservation Reserve or a Community Reserve. It is also required in case an activity could destroy, damage or divert the habitat of any wild animal and in cases where activities are likely to divert, stop or enhance the flow of water into or outside the protected area. This is granted through the Chief Wildlife Warden only after the state government in consultation with the National Board for Wild Life (NBWL) is satisfied that such an action is necessary for the improvement and better management of the wild life. In case of non-compliance the permits can be cancelled and punishment can be imposed through imprisonment and/or fine.

Question No. 3 - MMPC 013 - Business Law - MBA and MBA (Banking & Finance)

Solutions to Assignments

                            MBA and MBA (Banking & Finance)

                            MMPC- 013 - Business Law

Question No. 3. 
What is a ‘Contract’? Discuss the essentials of a Valid Contract. 

Solution: 

A contract is an agreement enforceable in a court of law. An agreement is a set of reciprocal promises between the parties to the contract. These set of promises arises from an offer and acceptance from the parties to the contract. The contract may be express or implied i.e., it may be oral words or in writing and even inferred from the conduct of the parties.2 It may be bilateral or unilateral contract. The former one refers to the involvement of two parties and the latter refers one party alone can perform without the other.

Generally, the contract completes when the acceptance of the offeree is posted or put in to transmission. It was made at the place where the acceptance is received by the offeror. It was easy to determine the completion of contract when the parties negotiate in person. But it will be difficult to determine in case of negotiation by post, telegram, telephone and mail, etc. The contract in case of instantaneous contracts completes only when the communication of the acceptance is received by the offeror. In other words, the contract is said to be made at the place where the acceptance received but not at the place where it is transmitted.

The United Nations Commission on International Trade Law (UNCITRAL) adopted the Model Law on Electronic Commerce in 1996. As a result the Information Technology Act, 2000, governs the rules relating to the e-commerce contracts. The offeror and acceptor are substituted by expression soriginato15 and addressee. The electronic record sent by the originator may be received intact or it may vary. The addressee has to acknowledge the receipt of electronic record by communication automated or any mode or by conduct.16 The contract completes where the principal place of business of the originator, in case of more than one place of business of originator or addressee the principal place of business of the originator or addressee and in case of no place of business his usual place of residence will be considered as the completion of the contract for the purpose of jurisdiction.

Essentials of a valid Contract

Consideration, capacity to contract, free consent, and legality of consideration and object are some of the essentials of a valid contract. These are explained in detail below: 

1) Consideration: Consideration is one of the essential conditions for the validity of contract.18 The essential condition for the enforceability of simple contacts is consideration, and the rule is expressed by the Latin maxim: ex-nudopacto non orituractio which means out of nude pact no cause of action arises. It can be understood in the sense quid pro quo. “ A valuable consideration in the sense of the law may consist either some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility, given suffered undertaken by the other.”19 “An act or forbearance of one party or the promise thereof, is the price for which the promise of the other is brought and the promise thus given for value is enforceable.” “When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promise to do or abstain from doing something, such act or abstinence or promise is called a consideration for the promise.”

The analysis of the above definitions says that the consideration may be executed or executory. In a contract to deliver a watch by A to B for Rs.100, A and B gained money and watch and in another stand point A and B lost watch and Rs.100, respectively. The law insists more upon the presence of the element of detriment to the promisee B and then the presence of benefit to the promisor A.

A promise from one party to the other and a promise from the other to the former support the consideration. In other words, the reciprocity of promises between the parties establishes the consideration. The absence of consideration makes the contract void. This principle has certain exceptions recognized under the provisions of law. They are: 

i) Where the contract reduced in to writing and registered and made out of natural love and affection between the parties standing in near relationship to each other. 

ii) Where the contract is to compensate the person who voluntarily rendered services in past. In other words, past services rendered at the desire of the promisor constitute a valid consideration in India. But under English law past consideration is not valid. 

iii) Where a promise is made to pay a time-barred debt does not require a fresh consideration. 

iv) Where a gift between the donor and donee is not affected for want of consideration if it is registered and attested by two witnesses. 

Though consideration is necessary it need not be adequate. The adequacy and sufficiency of consideration is immaterial. It is said that pepper corn is sufficient for purchase of an elephant. The consideration is to move from whom is the question to be determined for the enforceability of the contract. It must proceed or move from the promisee. Under English law a stranger to a consideration cannot sue. In other words, the promisee cannot sue the promisor if the consideration doesn’t move from him. But under Indian law, a stranger to consideration can sue.

The doctrine of consideration is not extended to the discharge of contract. The reciprocal promises between the parties constitute consideration. Subsequently if both the parties agree not to enforce the contract also constitute consideration in India. But it is not so in English law. Till 1947 the law of England applied the doctrine of consideration not only to the formation of a contract, but also to its discharge. It was pointed out that a creditor ‘might accept anything in satisfaction of his debt except a less amount of money’ A canary or pepper corn may be accepted in full discharge of a debt, but a part payment of the debt cannot be accepted so as to operate as full discharge of the debt. The following are the exceptions to the rule in Pinnel’s case. 

a) Under the scheme of composition if the debtor agrees to pay a portion of the debt discharges liability without application of the doctrine of consideration under English law. 

b) In case a third party pays a part of the amount less than the amount due from the debtor discharges the debtor without application of the doctrine of consideration under English law. 

c) The doctrine of estoppel or quasi-estoppel neutralized the rule in Pinnel’s case. 

Under Indian law, a contract may be discharged by what is called “an accord and satisfaction” i.e., mutually agreed settlement. The English law allows the delivery of horse against the payment of debt but not accept the delivery in future to discharge the debt. The part payment of debt is also not accepted as accord and satisfaction.

2) Capacity to Contract: There are certain persons in law who are incapable wholly or in part, of binding themselves by a promise or of enforcing a promise made to them. In mercantile contracts lexloci contractus i.e., the law of the place will prevail whereas in case of land lexsitus i.e., the law of the place where the land situate will be applicable. The incapacity of a party to enter into a contract will arise in two ways namely, on account of status, or on account of mental deficiency. The former would occur on the grounds of political consideration and expediency, the latter is imposed to protect the interest of the disabled person. 

The incapacity of a party is broadly divided into two; one which arises out of status of an individual for the following reasons: 

a) Political or Civil status e.g., where the contracting party is a ruler of a foreign state, Ambassador or envoy or alien enemy, or a convict or a bankrupt. 

b) Profession of the contracting person e.g., barrister 

c) Incorporation d) Marriage 

The other which arises from mental deficiency (soundness of mind) of the person contracting in case of: a) Minors 

b) Insane persons 

c) Idiots 

d) Drunken persons

The person below the age of 21 is called as an infant as per the Infant Relief Act, 1874 under the Common Law and the person below the age of 18 is a minor as per the Family Reforms Act, 1969, under English law and Indian law respectively. He is a person who is not a major. The Infant Relief Act, 1874 which modified the Common Law of England allows an infant to enter into a contract for the following: 

a) For necessaries 

b) Beneficial contracts of service 

c) Contracts involving recurring rights and duties e.g., an interest in property binding on him unless he rescind them either during infancy or within reasonable time of becoming a major 

d) An isolated act or a contract to pay for goods supplied other than necessaries, were voidable and not binding on him unless he ratified them within reasonable time after attaining majority.

Mutuality of mind: The parties to the contract must have consensus-ad-idem35 which means mutuality of mind as to the subject matter of the contract. The lack of mutuality of mind makes the contract void. ‘A’ had two houses namely ‘X’ and ‘Y’. ‘A’ enters into contract with ‘B’ to sell keeping ‘X’ house in his mind and ‘B’ entered into contract with ‘A’ by keeping ‘Y’ house in his mind. This results the contract void due to lack of consensus-ad-idem on the subject matter of the contract.

3) Free Consent: “The consent of the party to the contract is said to be free if it is not caused by; coercion, undue influence, fraud, misrepresentation and mistake. These are explained hereunder: 

i) Coercion: “The committing, or threatening to commit, any act forbidden by the Indian Penal code, or the unlawful detaining, or threatening to detain, any property to the prejudice, of any person whatever, with the intention of causing any person to enter in to an agreement.” The term duress in English law defined as causing, threatening to cause, bodily violence or imprisonment, with a view to obtain the consent of the other party to the contract. Coercion in Indian law has a much wider connotation than duress in English law. The main distinction between coercion and duress as the first denotes the offense forbidden by Indian Penal Code whereas the latter confined only to bodily violence and imprisonment. The presence of coercion or duressin both Indian and English law was an invalidating element for the enforceability of contract. 

ii) Undue Influence: This was also called as constructive fraud. It covers all the contracts where one party will be in a position to dominate the will of the other because of relationship while entering the contract. This influence can be presumed in existence among the following relationships: 

a. Parent and child 

b. Guardian and ward 

c. Trustee and beneficiary 

d. Spiritual master and Disciple 

e. Lawyer and client 

f. Doctor and patient 

The contract between the parties with above relationship turns it voidable by presuming the existence of undue influence of the former against the other. It is the burden on the former party to prove that he was not in dominating position and that his position was not used to obtain the consent of the other.

iii) Fraud: The following acts of a party to a contract establish fraud while entering into a contract with the other: 

a) the suggestion of a fact, of that which is not true by one who does not believe it to be true 

b) the active concealment of a fact by one having knowledge or belief of the fact 

c) a promise made without intention of performing it; 

d) any other act fitted to deceive 

e) any such act or omission as the law specially declares as fraudulent.  

The mere silence on the part of party does not amount to fraud. But silence amount to fraud where there is a duty on the party to speak. 

iv) Misrepresentation: A party may give his consent to enter into a contract because of misrepresentation of the other. These false statements or misrepresentations may be either inducing cause of contract. These statements may be called as innocent misrepresentation and willful or actionable misrepresentation which amounts to fraud. A misrepresentation consists of the following ingredients: 

a) Failure to disclosure of a fact 

b) Such non-disclosure must relate to a fact not to an opinion 

c) Such representation must be untrue 

d) It must be material to influence the other to enter into a contract.

Any representation made by a party with full knowledge of the fact that it is not true, or without belief in its truth or recklessly, not caring whether it is true or false, it is said to be fraudulent. Whenever the consent of the party is obtained in the absence of free consent the contract is voidable at the option of the party whose consent is not free because of the presence of coercion, or fraud, or misrepresentation. The aggrieved party of such voidable contract had an option to continue the contract or rescind the contract and entitled for damages. Further, the contract induced by undue influence can be set side or it is voidable at the option of the party whose consent was obtained by dominating the will of the aggrieved party. 

v) Mistake: While entering into a contract the parties to the contract may be under a mistake. This mistake may be as to a fact or law. Mistake of fact may be as to subject matter of the contract e.g., regarding the existence, quality or quantity etc.; nature of contract; person entering into contract. Mistake of law may be regarding foreign law, or ordinary law, law of our country, or private rights of the contracting parties. Another classification of these mistakes is bilateral and unilateral. A mistake of fact in the minds of both the parties negatives the consensus ad idem and the contract in such cases is void. Where both parties to an agreement are at mistake as to a matter of fact essential to the agreement, the agreement is void. This will come under the classification of bilateral mistake. In case of unilateral mistake, i.e., where only one party to a contract is under a mistake, the contract, generally speaking, is not valid. A contract is not merely voidable because it was caused by one of the parties to it being under mistake as to a matter of fact. A contract is not voidable because it was caused by mistake as to any law in force in India but a mistake as to a law not in force in India has the same effect as a mistake of fact.

4) Legality of Consideration and Object: Apart from the above essentials for the formation of a valid contract the legality of consideration and object48 is must. The unlawful agreements may be classified as follows: 

1) Illegal-where the agreement is contrary to the statute law 

2) Immoral- where it is opposed to public morals e.g., agreement for illicit cohabitation, or separation between husband and wife 

3) Opposed to public policy- where the agreement is forbidden as conflicting with the well-being of the state e.g., agreements tending to the abuse of legal process, agreements in restraint of trade, agreements in restraint of marriage, agreements in restraint of parental rights, etc.

Where a part of consideration or object of an agreement is unlawful the agreement is void. In case of non-separation of the unlawful part from the agreement the total transaction will be void. The rule applicable to separate the unlawful and lawful part is known as blue pencil rule. In such cases the lawful part which separated by drawing blue pencil lining from the unlawful part can be enforceable. A contract without consideration is said to be void with certain exceptions;

a) Every agreement in restraint of marriage of any person, other than a minor is void. 

b) An agreement in restraint of trade is void with an exception where goodwill is sold or as per the provisions of the Partnership Act, 1932. 

c) Any agreement in restraint of legal proceeding is void with an exception of arbitration agreement. 

d) Where the meaning of an agreement is not certain, or capable of being certain are void,

e) Agreement by way of wager is void.

f) The performance of the contract is depending on the happening or non-happening of an event at a future date is called as contingent contract. If the happening of the event is impossible the contract becomes void.

g) The enforcement of a contingent contract is possible before the impossibility of its occurrence. The promise of A to pay B a sum of money if B marries C. C marries D. Marriage between B and C is impossible during the life time of A makes the agreement void.

h) The contingent contract to do or not to do within a specified becomes void after the expiry of the time.

i) Any agreement contingent on impossible events is void.

Question No. 4 - MMPC 013 - Business Law - MBA and MBA (Banking & Finance)

Solutions to Assignments

                            MBA and MBA (Banking & Finance)

                            MMPC- 013 - Business Law

Question No. 4. 

Describe the process of Corporate Insolvency Resolution with the help of an example. 

Solution: 

The Corporate Insolvency Resolution Process (‘CIRP’) is a recovery mechanism for the creditors of a corporate debtor. A corporate debtor means a company or Limited Liability Partnership (‘LLP’) that owes a debt to its creditors.

The Insolvency and Bankruptcy Code, 2016 (‘IBC’) lays down the provisions for conducting insolvency or bankruptcy of individuals, partnership firms, LLP and companies. However, the process of insolvency and liquidation of corporate debtors under the IBC applies where the minimum default amount is Rs.1 crore only.

Creditors Under IBC

When a company or LLP becomes insolvent or commits a default, the financial creditor, operational creditor or the corporate debtor can file an application to initiate the CIRP by the Adjudicating Authority, i.e. National Company Law Tribunal (‘NCLT’). 

A financial creditor is a person to whom the business owes a financial debt and includes a person to whom such debt is legally transmitted or assigned. A financial debt means a debt along with interest disbursed against the consideration for the value of money and includes- 

• The amount borrowed against the payment of interest.
• The amount raised by acceptance under the acceptance credit facility or its dematerialised equivalent.
• The amount raised under the note purchase facility or the issue of notes, bonds, loan stock, debentures or any other similar instrument. 
• The amount of the liability relating to a lease or hire purchase contract that is deemed as capital or finance lease under the Indian Accounting Standards or such other accounting standards.
• Receivables discounted or sold other than the receivables sold on a non-recourse basis.
• The amount raised under any other transaction, including any purchase agreement or forward sale having the commercial effect of a borrowing.
• Any derivative transaction entered in connection with benefit from or protection against fluctuation in any price or rate.
• Any counter-indemnity obligation relating to a bond, indemnity, guarantee, documentary letter of credit or other instrument issued by a financial institution or bank.
• The amount of liability relating to any of the indemnity or guarantee for any of the points mentioned above.

An operational creditor is a person to whom the business owes an operational debt and includes persons to whom such amount has been legally transferred or assigned for services or goods given by them. 

An operational debt means a claim relating to the provision of services or goods, including debt or employment regarding payment of dues arising under any law in force and payable to the Central Government, State Government or local authority.

Process of Corporate Insolvency Resolution

The conduct of the CIRP (CIRP) of a corporate debtor is provided in Part II of the IBC, which are as follows-

Initiation of CIRP

The financial creditor can initiate the CIRP against the corporate debtor by applying to NCLT. The operational creditor should first give a demand notice of an unpaid invoice to the corporate debtor demanding the default payment amount. When the operational creditor does not receive payment from the corporate debtor after the expiry of ten days of delivery of the demand notice or invoice demanding payment, he can apply to NCLT for initiating the CIRP.

A partner or member of the corporate debtor authorised to initiate CIRP or a person in charge of managing the affairs or who has control and supervision over the financial affairs of the corporate debtor can initiate the CIRP with NCLT. 

NCLT will pass an order within fourteen days of either admitting or denying the CIRP application. The CIRP will commence from the admission date of the application by NCLT. The CIRP completion period is 180 days from the admission date of the CIRP application. 

Declaration of Moratorium and Public Announcement

After the admission of the CIRP application, NCLT will pass an order- 

• Declaring a moratorium for prohibiting certain actions and transactions.
• Causing a public announcement of initiating the CIRP and call for the submission of claims.
• Appointing an interim resolution professional. 

NCLT orders on the CIRP commencement date declaring the moratorium for prohibiting the following- 

• Continuation or institution of suits or proceedings against the corporate debtor.
• Encumbering, transferring, disposing of or alienating by the corporate debtor of its assets or beneficial interest or legal right.
• Any action to recover, foreclose or enforce any security interest created by the corporate debtor relating to its property, including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. 
• Recovery of any property by a lessor or owner, where the property is in possession or occupied by the corporate debtor.

The public announcement of the CIRP should contain the following information- 

• Name and address of the corporate debtor. 
• Name of the authority under which the corporate debtor is registered or incorporated.
• Last date for submission of claims.
• Details of the interim resolution professional who will be responsible for receiving claims and take over the management of the corporate debtor.
• Penalties for misleading or false claims.
• The date of closure of the CIRP, i.e. 180th day from the admission date of the CIRP application.

The interim resolution professional appointed will have the following powers relating to the corporate debtor from the date of his appointment-

• Management of the affairs of the corporate debtor.
• Exercise the powers of the board of directors or partners of the corporate debtor and suspension of the powers of the director or partner of the corporate debtor.
• Officers and managers of the corporate debtor will have to report to the interim resolution professional and give access to the records and documents of the corporate debtor.
• Financial institutions having and maintaining accounts of the corporate debtor will act on the instructions of the interim resolution professional and furnish all available information relating to the corporate debtor.

Committee of Creditors

The interim resolution professional will constitute a committee of creditors after collating all received claims against the corporate debtor and determining its financial position. The committee of creditors will consist of all the financial creditors of the corporate debtor. 

The committee of creditors should hold the first meeting within seven days of the constitution of the committee. The committee of creditors in their first meeting should decide to either appoint or replace the interim resolution professional through a majority vote of not less than 66% of the voting share of the financial creditors.

Appointment of Resolution Professional

When the committee of creditors decide to continue with the interim resolution professional appointed by NCLT as the resolution professional, it should communicate its decisions to NCLT, the interim resolution professional and the corporate debtor.

When the committee of creditors decides to replace the interim resolution professional, it should file an application to NCLT to appoint the proposed resolution professional along with his written consent. 

NCLT should forward the name of the proposed resolution professional submitted by the committee of creditors to the Insolvency and Bankruptcy Board of India (‘Board’) for its confirmation. NCLT shall appoint the proposed resolution professional after receiving confirmation from the Board. 

The resolution professional will conduct the entire CIRP and manage and control the operations of the corporate debtor during the CIRP.

Preparation of Information Memorandum

The resolution professional should prepare an information memorandum in the form and manner containing the relevant information as specified by the Board to formulate a resolution plan. A resolution applicant should submit a resolution plan prepared on the basis of the information memorandum to the resolution professional. 

The resolution applicant is the person who submits a resolution plan either individually or jointly with any other person. The resolution professional will examine each resolution plan submitted to him for confirming that each resolution plan-

• Provides for the payment of the insolvency resolution process costs as specified by the Board prioritising the payment of all other debts of the corporate debtor.
• Provides for the payment of debts of the operational creditors as specified by the Board.
• Provides for managing the affairs of the corporate debtor after approval of the resolution plan.
• Supervision and implementation of the resolution plan.
• It does not contradict the provisions of the law(s) in force. 
• Confirms to such other requirements specified by the Board.

The resolution professional will present the resolution plan after its examination to the committee of creditors for its approval. The committee of creditors can approve the resolution plan by a vote of not less than 66% of the voting share of the financial creditors.

Approval of Resolution Plan

The resolution plan for the revival of the company or LLP should be approved within 180 days from the commencement of the CIRP by the creditors. However, NCLT can extend the period of 180 days by another 90 days. 

NCLT will pass an order approving the resolution plan approved by the committee of creditors after being satisfied that the resolution plan meets the requirements of the IBC. NCLT order of approval of the resolution plan will be binding on the corporate debtor and its employees and members.

NCLT order of approval of the resolution plan will also be binding on the guarantors and stakeholders involved in the resolution plan and the creditors, including the Central or State Government or any local authority.

NCLT can pass an order to reject the resolution plan if it is satisfied that the resolution plan does not meet the requirements laid down under the IBC. When NCLT passes the order of rejection of the resolution plan, it will pass an order of the liquidation of the corporate debtor. 

After the approval of the liquidation of the corporate debtor, the committee of creditors will appoint the liquidator to sell the corporate debtor’s assets and share them among the stakeholders. The distribution of the assets will be made as per the provisions of the IBC.

Question No. 2 - MMPC 013 - Business Law - MBA and MBA (Banking & Finance)

Solutions to Assignments

                            MBA and MBA (Banking & Finance)

                            MMPC- 013 - Business Law

Question No. 2. 
Explain the process of formation and registration of a Partnership Firm.

Solution: 

The development of business and growth in business transactions lead to the replacement of the proprietary form of organizations with partnership enterprises. Partnership is a form of business organization, where two or more persons come together for jointly carrying on some business. In partnership two or more persons pool their resources; both money and material, to their mutual advantage and thus share the business risk. Towards the end of 19th century it was considered absolutely crucial to regulate the partnership form of business, so as to control the evils (many evils crept in over passage of time) from spreading and contaminating the business organization and mercantile transactions.

Partnership is a mere voluntary collective and has no force of law to its constitution. Thus, the concept of partnership is that a firm is not an entity or a person in law but is merely an association of persons and the firm name is only a collective name for individuals who have agreed to carry on business in partnership. A Partnership arises from a contract, and therefore, such a contract is governed not only by the provisions of the Partnership Act in that regard, but also by the general law of contract in such matters, where the Partnership Act does not specifically make any provision. Thus, the rules relating to offer and acceptance, consideration, free consent, legality of object, etc, as contained in the Indian Contract Act, are applicable to a contract of Partnership also.

Section 4, The Indian Partnership Act, 1932, lays down the definition of “Partnership”, “Partner”, “Firm” and “Firm-Name”. “Partnership” is the relationship between persons who have agreed to share the profits of the business carried on by all or any of them acting for all”. There are three aspects to partnership: partners, firm, and the firm name. Persons who have entered into partnership with one another are called individually ‘partners’ and collectively ‘a firm’, and the name under which the business is carried on is called the ‘firm’s name’.

Formation of Partnership 

Partnership comes into existence by contract and this contract may be written or oral- or implied, which is inferred from the conduct of the parties in business circumstances. According to the definition of partnership under the Indian Partnership Act, 1932, there must be an agreement between the partners of a partnership firm. To constitute a valid contract, the parties to the contract must be competent to contract, their consent must be free and objective should not be forbidden by law or immoral or opposed to public policy. However, two exceptions may be noted: 

i) A minor may be admitted to the benefits of an existing partnership firm with the consent of all other partners. 

ii) As relations of partners inter se are that of agency, no consideration is required to create the partnership.

Partnership Deed 

As already stated the agreement of partnership may be oral. But it is advisable to have it in writing so as to avoid any future disputes. The written document that contains the mutual rights and obligations of partners is known as partnership deed. The deed must be stamped according to the provisions of the Indian Stamp Act and copy of the same must be given to each partner and at the time of registration, a copy of the deed should be filed with the Registrar of Firms. The partnership deed is not a public document and therefore binds only third parties so far as they have notice of it. 

Contents of Partnership Deed The exact terms of the partnership deed (or agreement) will depend upon the circumstances but generally a partnership deed contains the following covenants: 

i) The firm name, date of establishment, duration of partnership . 

ii) Full names and permanent addresses of all the partners and the date when each partner joined the firm. 

iii) Nature and scope of business; the place or principal place of business of the firm,. 

iv) Total capital and the contribution by each partner. 

v) Provision for further capital and loans by partners to the firm. 

vi) Partner’s drawings, 

vii) Interest on capital, loans, drawings and current account

viii) Salaries, commission and remuneration to partners, 

ix) Profit sharing ratio of partners. 

x) Guideline for maintaining proper books of accounts, inspection and audit, Bank Accounts and their operation.

xi) Rights and duties of the partners. 

xii) Whether and in what circumstances, notice of retirement or dissolution can be given by a partner. xiii) Provision that death or retirement of a partner will not bring about dissolution of partnership, 

xiv) Valuation of goodwill on retirement, death, dissolution, etc. 

xv) The method of valuation of assets (and liabilities) on retirement or death of any partner. 

xvi) Provision for expulsion of a partner. 

xvii) Provision regarding the allocation of business activities to be performed by individual partners xviii) The arbitration clause for the settlement of disputes. The terms contained in the partnership deed may be varied with the consent of all the parties, and such consent may be express or implied by a course of dealing. [Section 11(1)]

Registration of Partnership 

Registration of Partnership in not mandatory in India. But registering with a document deed puts into black and white all the intentions and the purposes of the partnership as well as its functioning. However, it is to be noted that registration only creates an instance or evidence of the existence of partnership, and not a creation of a legal entity. 

Registration means getting the firm registered with the Registrar of the firm in the area where the business is situated or proposed to be situated. 

Application for Registration The registration of a firm may be affected at any time by sending by post or delivering to the Registrar of the area in which any place of business of the firm is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed fee, stating: 

a) the name of the firm; 

b) the place or principal place of business of the firm; 

c) the names of any other places where the firm carries on business; 

d) the date when each partner joined the firm; 

e) the names in full and permanent addresses of the partners; and 

f) the duration of the firm The statement shall be signed and verified by all the partners or by their agents specially authorised in this behalf. (Section 58)

Registrar on being duly satisfied, record an entry of the statement in “Register of Firm” and then issue a certificate of registration. The firm, which is registered, shall use the brackets and word (Registered) immediately after its name. If, any change is made in points (a) to (f) above same should be duly notified to the registrar so that the same is incorporated in the register of the firm.

Effects of Non-Registration 

Non-registration (section 69) leads to following effects: 

i) The partners of a firm cannot sue each other or the firm for enforcing any right arising from a contract or conferred by the Partnership Act, 

ii) The firm cannot institute a suit against a third party. Thus the firm cannot sue but can be sued. 

iii) The third party can sue the firm as well as any partner.

However, the Act allows the following suits: 

a) A suit for the dissolution of a firm. 

b) A suit for rendering of accounts of a dissolved firm. 

c) A suit for realisation of the property of a dissolved firm. 

d) A suit or claim of set-off, the value of which does not exceed one hundred rupees, 

e) A proceeding in execution or other proceeding incidental to or arising from a suit or claim for not exceeding one hundred rupees in value. 

f) A suit by a firm which has no place of business in the territories to which the Indian Partnership Act extends. 

g) A suit for the realisation of the property of an insolvent partner. 

h) A suit by a firm whose places of business are situated in areas which are exempted from the application of Chapter VII of the Indian Partnership Act, 1932.

Exceptions: Non-registration of a firm does not, however affect the following rights: 

a) The right of third parties to sue the firm or any partner. 

b) The right of partners to sue for the dissolution of the firm or for the settlement of the accounts of a dissolved firm, or for realization of the property of a dissolved firm. 

c) The power of an Official Assignees, Receiver of Court to release the property of the insolvent partner and to bring an action. 

d) The right to sue or claim a set-off if the value of suit does not exceed Rs. 100 in value. 

e) The right to suit and proceeding instituted by legal representatives or heirs of the deceased partner of a firm for accounts of the firm or to realise the property of the firm.

Question No. 1 - MMPC 013 - Business Law - MBA and MBA (Banking & Finance)

Solutions to Assignments

                            MBA and MBA (Banking & Finance)

                            MMPC- 013 - Business Law

Question No. 1. 
What is the significance of ‘Business Law’? Discuss the objectives of Business Law. 

Solution:

All the laws which pertain to how, what and why of how businesses are legally allowed to and supposed to function are encompassed by what is business law. Business law meaning includes contract laws, manufacturing and sales laws, and also hiring practices and ethics. In simple words, it refers to and pertains to the legal laws of business and commerce in the public as well as the private sector. Note that it is also known as commercial law and corporate law, due to its nature of regulating these worlds of business.

Businesses vary in size, as measured by the number of employees or by sales volume etc. But all businesses share one common purpose that is to earn profits. The purposes of business that goes beyond earning profits are -an important institution in society, for the supply of goods and services, creating job opportunities, offering better quality of life, contributing to the economic growth of the country, etc.”

Business law, also commonly known as commercial or mercantile law, is that branch of law that conducts the relationship between the enterprises, companies and individuals engaged in commercial matters. This section of law governs issues in relation to the legal rights, duties and liabilities of the entities engaged in business transactions. 

Business Law has attained a significant position in the current era, due to the formidable position held by the business enterprises and corporations in contributing to the economy and by the supply of abundant job positions boosting the employment sector, thereby contributing towards the generation of revenues. “Business law consists of the enforceable rules of conduct that govern commercial relationships. In other words, buyers and sellers interact in market exchanges within the rules that indicate the boundaries of legal business behavior. Constitutions, legislatures, regulatory bodies, and courts spell out what market participants may or may not legally do. Understanding business law is necessary for future businesspeople because, there simply is no market transaction that occurs outside legal guidelines. All contracts, employment decisions, and payments to a supplier are limited and protected by business law. Each of the six functional areas of business - management, production and transportation, marketing, research and development, accounting and finance, and human resource management - sits on a foundation of business law. 

Business law, also known as mercantile law or commercial law refers to a set of laws that govern the dealings regarding commercial matters, namely business organisations. It encompasses all laws that guide on how to set up a business and then how to run it. This includes all the laws that govern on how to set up, start, manage, run, close or sell a business. It includes contracts, laws of corporations, other business organisations, commercial papers, income tax, secured transactions, intellectual properties, and other transactions and dealings related to the business.
Why is Business Law important?
The prime purpose of business law is to maintain order, resolve disputes, establish generally accepted standards, protect rights and liberties when it comes to business and its relation to other businesses, government authorities, and the customers.

• A Universal set of standards: Earlier, the customer had to suffer a lot due to the absence of a proper law that could safeguard their interests and money invested in a particular business. As there was no such law regarding maintenance of order, rights, and liabilities, etc., the business owners made their own standards and made the customers suffer just because of the greed to make more money. With the establishment of business law, many standards have been established which have to be followed by businesses worldwide.
  
• Maintenance of Equilibrium: This creates a sense of satisfaction among customers. In the absence of the law, different countries had different laws regarding the business dealings which made it difficult for the customers as well as the seller to establish a deal. But now every country has the same standards, and the deal between buyer and seller is easily established. This brings ease in business dealings and transactions all across the globe.
  
• Less chances of frauds: Business law helps the owners itself to get aware of the laws against other businesses and individuals. It also helps the individuals, to be aware of the rights against the businesses so that they can use them in case they fall prey to the frauds and misery of the business.
  
• Presence of Ethical conduct: With the help of business law, business owners may make better decisions, and also know when to seek legal help. Every business has to maintain an ethical conduct but most businesses, in the greed to earn more profits; do not follow such conducts. Business law makes it mandatory for all the businesses to maintain an ethical conduct which in turn pleases the buyers and they form a good image of the business.
  

In a nutshell, business law is of immense importance to both the business as well as consumers in protecting their rights and get a better service.

Objectives Of Business Law

We enter into contracts every day. Some of these contracts are made consciously, for example, for the purchase or sale of any goods, purchase of a share of a company or a plot of land. Entering into contracts determines the legal rights of each party giving rise to legal obligations as well. People who are engaged in business activities such as business owners enter into a contract on a daily basis to further the business transactions. All business activities include a variety of transactions which give rise to contracts on a daily basis. Some of these contracts are as simple as purchasing goods from a shop thus giving rise to a legal right and legal obligation. 

Business law serves a variety of purposes some of which are listed below:

i) A comprehensive set of standards established universally: Business laws are comprehensive and uniform set of standards that are applicable to all business entities. Uniformity in laws helps in maintaining smooth relations between the businesses and its various stakeholders including consumers, suppliers, etc. It provides an environment where the businesses can function smoothly and efficiently as the same rule shall be applicable to all the business organisations falling in a particular category. However, there can be different compliances for different kinds of business organisations depending upon the size, nature of business activity or certain threshold limits. It also helps in identifying and establishing the rights and liabilities of the various parties interacting with each other. It provides a framework for reducing the harm caused to either party due to fraudulent or unethical activities. Business law also provides for steps that needs to be followed while conducting due diligence before engaging with a particular company. 

ii) Promoting industrial growth: Business laws not only provides different provisions for compliance for the business but also facilitate industrial growth by protecting and promoting the rights of businesses. Adherence to the rules prescribed by the range of laws falling under the domain of business facilitates businesses to achieve growth and success. Thus, business laws enable; capital formation, promote industrial relations, facilitation of licensing, ease of doing business, financial inclusion, etc. which promote economic growth. 

iii) Laying down the procedure for the establishment of business: The laws dealing with business provide the necessary framework required for the commencement of a business corporation along with building of a strong foundation for the business entity to thrive in the market. The formal process provided under the laws also facilitates successful conduct throughout the life-cycle of the business. For instance, Companies Act, 2013 lays out the steps involved in the incorporation of a company, and provisions related to the Articles of Association and the Memorandum of Association in detail. 

iv) Enforcement of Rights: Business laws provide provisions for judicially enforcing the rights of all the parties involved in a business transaction. Thus, the businesses can approach the court to enforce the claims against the debtors or right to a patent or copyright or the right to hold property, etc. Businesses also have a right to defend themselves in case actions are filed by the central, state and local bodies. Thus, businesses have been given the power of initiating legal action in case any legal compliance are breached by any outside party and also allowed to defend themselves against the litigation filed by the government for the various stakeholders. Various provisions aiding in carrying out the enforcement action have been provided in statutes for effective regulation of the business practices. 

v) Contributes to the building of healthy business relationships: Laws dealing with business matters are extremely significant in the establishment of secure and effective business relationships amongst the concerned entities as the formation of strong business ties is an absolute must for building a strong economy of a country. For instance, the Partnership Act lists out the rights, duties, and obligations of the partners in a firm for carrying out a successful venture. Business Law also plays an extremely important role in facilitating Mergers and Acquisitions (M&As) between enterprises looking to collaborate and expand their business. Cross-Border M&AS transactions also contribute immensely to the economy of a country by playing a significant role in increasing the revenues generated through the means of Foreign Direct Investment. Cross border M&A occurs between companies situated in two different jurisdictions. If the resulting company is an Indian company, it qualifies as an inbound merger, and if the resulting company is a foreign company, it is christened as an outbound merger. 

vi) Reduced possibilities of fraud: A robust and effective business law framework helps in reducing the possibility of fraud as the parties entering into contracts or dealing with each other are well aware of their rights and liabilities which would prevent them in falling prey to the illegal or fraudulent activities by the other party. The laws associated with Business Law also provides for a highly effective enforcement mechanism, which are further lined with stringent measures that could minimize the possibility of perpetuating fraud. 

vii) Business laws help maintain equilibrium: Business laws help in bringing about uniformity and maintaining equilibrium as there are set rules which have to be followed by each entity. Different forms of business organisations are regulated by different laws. This helps in the ease of dealing and conducting business as the same standards are followed throughout the country. It helps in making the business transactions easier and smoother across the country. 

viii) Ethical conduct: Business laws also help in improving the conduct of the business as the laws have to be followed in letter and spirit. Therefore, the business organisations have a responsibility of maintaining ethical conduct Introduction to Business Law while functioning in the society. As businesses survive in the society and use its resources, there is a responsibility on the businesses to give back by dealing ethically with all its stakeholders. For instance, the multi-billion-dollar scam orchestrated by the promoters of Satyam Computer Services, also referred to as “Satyam Scam”, made the regulators across the country re-examine the then-existing corporate governance standards and the fallacies therein. The scam resulted in the violation of multiple provisions of various statutes, such as, Companies Act, 1956 (Sections 209, 233 and 628), Securities (Contract) Regulation Act 1956 (Sections 23A, 23E), SEBI Act (Sections 15HA and 24, and Criminal law. Under the Companies Act, 1956, the resulting violations included failure to maintain proper books of account, penalty for false statements and noncompliance of auditor duties. However, after this incident, sweeping changes were brought forth in the Companies Act, 2013 to combat any unforeseen deviations that may be resorted by the corporate enterprises. The new Companies Act, 2013 mandated at least one-third of the Board to be comprised of Independent Directors, and that they shall not be eligible to receive any stock options and be remunerated only in fee. The new Act also imposed strict norms on any related party transactions along with providing for class action suit options against the company and auditors, for protecting minority shareholders’ interests. It also brough forth provisions clearly defined demarcating the accountability of auditors.

ix) Social Responsibility: Business laws also lay down the criteria for business to function in a society as the business utilize the resources of the society there arises a responsibility of the business to give back to the various stakeholders. This enables social justice and social responsibility in the form of good employment practices, non-discrimination, sustainable utilization of resources, prevention of environmental damage etc. Thus, it prohibits businesses from entering into practices that are harmful to the society at large. 

x) Laying down law in accordance with the evolving standards: The business environment is ever-changing and dynamic in nature. The laws have to be enacted taking into account the economic and business environment of the country. These laws not only provide uniformity in business operations but also provide clarity to unforeseen situations. Legislative changes in the form of amendments are made to address the occurrence of unforeseen situations. An example for this would be the Indian Competition Act, which handles and regulates antitrust issues in the country. The Competition Act, 2002 is concerned with keeping a check on the prevailing anti-competitive acts in the relevant market being governed. The Act encompasses horizontal and vertical agreements, cases related to abuse of dominance, and regulation of combinations. It must be noted that until now Competition Act only focused on price parameters such as unreasonable increase in prices or reduced output in the supply of the goods. However, the advent of digital technology has ushered an era demanding a change in the traditional methods employed to gauge anti-competitive practices. The Indian Competition regulatory authorities have also initiated investigation into degradation of non-price parameters such as quality, privacy and innovation keeping pace with the changing needs of the society in an era of online platform markets. The Competition Commission of India, which until recently investigated anticompetitive conduct solely based on monetary price increase, has acknowledged the importance of data as a currency in the current business scenario and initiated investigation against data monopolies. 

xi) Providing penalties for violation of laws: Business law serves an extremely important purpose of enlisting the various penalties that may be employed by the regulatory bodies to ensure that the conduct of business activities conforms to the prescribed standards set by the concerned branch of law. The legislations dealing with the various aspects of the business have provided the penalties that may be incurred by the wrongdoers on contravention of the law and the rules provided therein. For instance, chapter VI under the Competition Act, provides for various penalties for contravention of the orders of the Commission or for non-compliance of the directions of the Director-general or the Commission. Similarly, Chapter VII of the Insolvency and Bankruptcy code (IBC) provides for punishment of offences, penalties for acts including falsification of books of corporate debtor, false representations to creditors and transactions for defrauding creditors, etc. 

xii) Insurance against Risks: Every business involves inherent risks that may be related to operations of business, movement or transit of goods, and financial risks, etc. Insurance laws provide mechanisms for insuring against such unforeseen circumstances for the business. Directors and officers of the companies can also take D & O insurance policies for protection against future liabilities.