Fundamentals of Business Laws and Business Communication PDF

Foundation Fundamentals of Business Laws and Business Communication Paper 1 The Institute of Cost Accountants of India Statutory Body under an Act of Parliament www.icmai.in  About the Institute...

Foundation Fundamentals of Business Laws and Business Communication Paper 1 The Institute of Cost Accountants of India Statutory Body under an Act of Parliament www.icmai.in  About the Institute T he Institute of Cost Accountants of India is a Statutory Body set up under an Act of Parliament in the year 1959. The Institute as a part of its obligation, regulates the profession of Cost and Management Accountancy, enrols students for its courses, provides coaching facilities to the students, organizes professional development programmes for the members and undertakes research programmes in the ield of Cost and Management Accountancy. The Institute pursues the vision of cost competitiveness, cost management, ef icient use of resources and structured approach to cost accounting as the key drivers of the profession. With the current emphasis on management of resources, the specialized knowledge of evaluating operating ef iciency and strategic management the professionals are known as ''Cost and Management Accountants (CMAs)''. The Institute is the 2ⁿ largest Cost & Management Accounting body in the world and the largest in Asia, having more than 5,00,000 students and 90,000 members all over the globe. The Institute operates through four regional councils at Kolkata, Delhi, Mumbai and Chennai and 113 Chapters situated at important cities in the country as well as 11 Overseas Centres, headquartered at Kolkata. It is under the administrative control of the Ministry of Corporate Affairs, Government of India. Vision Statement T he Institute of Cost Accountants of India would be the preferred source of resources and professionals for the inancial leadership of enterprises globally.” Mission Statement T he Cost and Management Accountant professionals would ethically drive enterprises globally by creating value to stakeholders in the socio-economic context through competencies drawn from the integration of strategy, management and accounting.” Motto From ignorance, lead me to truth From darkness, lead me to light From death, lead me to immortality Peace, Peace, Peace Cover Image Source: https://www.shutterstock.com/ Behind Every Successful Business Decision, there is always a CMA  FOUNDATION Paper 1 Fundamentals of Business Laws and Business Communication Study Notes SYLLABUS 2022 The Institute of Cost Accountants of India CMA Bhawan, 12, Sudder Street, Kolkata - 700 016 www.icmai.in First Edition : August 2022 Published by : Directorate of Studies The Institute of Cost Accountants of India CMA Bhawan, 12, Sudder Street, Kolkata - 700 016 [email protected] Printed at : M/s. Print Plus Pvt. Ltd. 212, Swastik Chambers S. T. Road, Chembur Mumbai - 400 071 Copyright of these Study Notes is reserved by the Institute of Cost Accountants of India and prior permission from the Institute is necessary for reproduction of the whole or any part thereof. Copyright © 2022 by The Institute of Cost Accountants of India  PAPER 1: FUNDAMENTALS OF BUSINESS LAWS AND BUSINESS COMMUNICATION Syllabus Structure: The syllabus in this paper comprises the following topics and study weightage: Module No. Module Description Weight Section A : Fundamentals of Business Laws 80% 1 Introduction 10% 2 Indian Contracts Act, 1872 30% 3 Sale of Goods Act, 1930 20% 4 Negotiable Instruments Act, 1881 20% Section B : Business Communication 20% 5 Business Communication 20% Contents as per Syllabus SECTION A : FUNDAMENTALS OF BUSINESS LAWS 01 - 148 Module 1. Introduction 01 - 26 1.1 Sources of Law 1.2 Legislative Process in India 1.3 Legal Method and Court System in India 1.4 Primary and Subordinate Legislation Module 2. Indian Contracts Act, 1872 27 - 94 2.1 Essential elements of a Contract, Types of Contract, Offer and Acceptance 2.2 Void and Voidable Agreements, No Consideration No Contract 2.3 Consideration, Legality of Object and Consideration 2.4 Capacity of Parties, Free Consent 2.5 Quasi and Contingent Contracts 2.6 Performance of Contracts 2.7 Meaning of Indemnity, Guarantee, Pledge, Agent 2.8 E-Contracts and E-Signature – Meanings and Requirements 2.9 Discharge of Contracts 2.10 Breach of Contract and Remedies for Breach of Contract Module 3. Sale of Goods Act, 1930 95 - 122 3.1 Definition 3.2 Transfer of Ownership 3.3 Essential Conditions of a Contract of Sale 3.4 Conditions and Warranties 3.5 Performance of the Contract of Sale 3.6 Rights of Unpaid Seller  Contents as per Syllabus Module 4. Negotiable Instruments Act, 1881 123 - 148 4.1 Characteristics of Negotiable Instruments 4.2 Definitions of Promissory Note, Bill of Exchange and Cheque 4.3 Difference between Promissory Note, Bill of Exchange and Cheque 4.4 Crossing – Meaning, Definition and Types of Crossing 4.5 Dishonour of Cheques (Section 138) SECTION B : BUSINESS COMMUNICATION 149 - 214 Module 5. Business Communication 151 - 214 5.1 Introduction to Business Communication 5.2 Features of Effective Business Communication 5.3 Process of Communication 5.4 Types of Business Communication 5.5 Internet Based Business Communication 5.6 Do’s and Don’ts of Communication through Social Media 5.7 Writing and Drafting for Business Audiences 5.8 Intercultural and International Business Communication 5.9 Barriers to Business Communication 5.10 Legal Aspects of Business Communication 5.11 Use of Graphics and References for Business Communication  SECTION - A FUNDAMENTALS OF BUSINESS LAWS  Introduction INTRODUCTION 1 This Module includes: 1.1 Sources of Law 1.2 Legislative Process in India 1.3 Legal Methods and Court System in India 1.4 Primary and Subordinate Legislation The Institute of Cost Accountants of India 1 Fundamentals of Business Laws and Business Communication INTRODUCTION Module Learning Objectives: After studying this module, the students will be able to -  Know the development of legal system in India over the years.  Understand the sources of law and legislative process in India.  Develop and understanding of the court system in India.  Know primary and subordinate legislation prevailing in India with a brief introduction to the alternative dispute resolution process. 2 The Institute of Cost Accountants of India  Introduction Sources of Law 1.1 L aw, as a tool of governance, has been dynamic in nature, expanding its horizons to accommodate the requirements of the society, over centuries. As we trace the sources, let us understand what law is, in the simplest of terms. “Law is a set of rules…” (for the society) – Concept of Law by H.L.A. Hart. In order to understand the law in greater detail, we shall cover the below mentioned modules, beginning from what is construed to be law, to the process of how it is formulated. We shall briefly cover the following topics for a better understanding:  Sources of Law  Sources of Law and Legal System in India before Independence - Brief History  Legislative Process in India  Court System in India  Primary and Subordinate Legislation Introduction The founding stone of source of law in modern India, post Independence, is the Constitution of India, 1950 which provides us the basic principles of law. However, there are various other sources of law, which has been developed with respect to customs, personal beliefs, pre-existing statutes, ordinances, regulations and judicial pronouncements. It sources of law in India can be broadly classified as the below mentioned: 1) All statutes (preceding and proceeding the adoption of the Constitution of India, 1950), 2) Case Laws (judicial precedents) and customary law (personal laws) 3) Ordinances, regulations and other mandates that effect us. Statutes - The statutes are enacted by the Parliament and State Legislatures according to their domain, mentioned in the 7th Schedule of the Constitution of India (the Union List, The State List and the Concurrent List). There are laws known as delegated legislation in the form of rules, and regulations, as well as bye-laws made by Central Government, State Governments and local authorities under the authority conferred or delegated by Parliament or the concerned State Legislature. Laws made by Parliament may extend throughout, or in any part of the territory of India and those by State Legislatures may generally apply only within the territory of the State concerned. This is also inclusive of all the statutes which have already been enacted before the adoption of the Constitution of India, 1950 unless repealed in part or in whole. Judicial Precedents - As, we try and enhance our understanding of the law and its sources, it is very pertinent to know that all laws, go through rigorous scrutiny under the public eye, once it comes into effect. The concerned The Institute of Cost Accountants of India 3 Fundamentals of Business Laws and Business Communication entities therefore, challenge laws, regulations before the court of law accordingly. The Constitution of India, 1950 therefore provides for provision under Article 141 for the same, which illustrates - Law declared by Supreme Court to be binding on all courts.— The law declared by the Supreme Court shall be binding on all courts within the territory of India. Although, the Supreme Court of India or the High Courts of the respective states do not legislate, they have time and again provided with the correct interpretations for our understanding, and thereby acted as a source of law. Personal Laws – Personal Laws are mostly based on individual faith, hence mostly guided by customs and practice. Example – Hindu Marriage Act, 1955, The Indian Christian Marriage Act,1872, The Kazis Act, 1880, etc. Ordinance/Regulations -Article 13.3 (a) on the Constitution of India, 1950 mentions law includes any Ordinance, order, bye-law, rule, regulation, notification, custom or usage having in the territory of India the force of law; Therefore, in times of these exigencies The President of India 123. Power of President to promulgate Ordinances during recess of Parliament. Similar powers have been provided to the Governor of a State, under Article 213 of the Constitution of India, 1950, in territorial limit of the concerned state. The authorities (Panchayati Raj), are notified under Article 243 of the Constitution of India, 1950, have the power delegated, to frame the required regulations for governance as local rural administration along with various institutions/ organisations empowered to legislate rules/regulations. As we delve into law and its sources in the modern times, it is pertinent to know the development of the same over centuries, and what it is today, and how it came to be so in brief. In this module of Indian Legal History we shall try and explore contemporary legal system with the one that already existed over various period of time over the geographical boundaries of present day India. 1.1.1 Sources of Law and Legal System in India before Independence – Brief History The study of Indian legal history can primarily be divided into four periods: 1) The Ancient Period 2) The Medieval Period 3) The British Administrative Period 4) Indian Legal Period 1. The Ancient Period of law and governance can be found in and around the geographical boundaries of modern day India, 1500 years before and after the beginning of approximately the first decade of the Gregorian calendar. This era is mostly ruled and governed by kings having their own territories, and having laws and regulations that were very localized and specific to their geographical boundaries. So, with every passing territory, the set of laws differed. Therefore, bringing the ancient period of law with reference to the geographical idea of modern day India under the same umbrella, is a subject matter of great deliberation in itself. However, there were some underlying texts that have had their universal presence, i.e. Vedas, Smritis (Manu-Smriti being one of the most popular texts to have been in circulation), Upanishads and Arthasastra in the post Mauryan Empire era. One of the salient features of the ancient Indian law was that it was based on the principle of “dharma”, basing righteousness and duty as its guiding principle, which was a conglomeration of both legal and religious duties. The jurisdiction of each was determined by the importance of the dispute, the minor disputes being decided by the lowest court and the most important by the king. The decision of each higher Court superseded that of the court below. Ancient Indian Courts can be divided into six categories based on their rank. 4 The Institute of Cost Accountants of India  Introduction They are as follows:  The Kula - Family Councils or groups  The Shreni - Trade or Professional Councils  The Gana - Village Assembly  Adhikrita - Court appointed by the King  Sasita - King’s Court  Nripa – The King But, as foreign invasions began to rise in numbers along-with the magnitude of these attacks, it became inevitable that the Indian sub-continent continue in the model of governance, that it had for centuries. Alongwith it, came changes to administration and subsequently to the legal system concerned. 2. The Medieval Period begins around the 12th century majorly influenced by foreign invasions and the idea of justice and laws they imported along-with themselves (overlapping with other legal systems under rulers of different faith). In 12th century when Mohammed Ghori defeated Prithviraj Chauhan at the Second Battle of Tarain in 1192 AD, shortly after which Qutubuddin Aibak became the first Sultan of Delhi, belonging to the slave dynasty. The medieval period in India had major influence from Delhi Sultanate ruled by Slave Dynasty to Lodhi Dynasty(1206-1526) after that Zahiruddin Babur defeated Ibrahim Lodhi which started the rule of the Mughal Empire effectively up to A.D. 1707 and then after the death of Bahadur Shah Zafar, the Mughal rule and influence in India practically came to an end. During the Sultanate period, there were several courts of Justice, related to different branches of law. For example- Diwan-i-Mazlim deals with disputes concerning with administration or bureaucracy. During the Mughal period courts were categorized according to the subject and requirement in contention, the central administration of justice was done by the central judicial system. The chief judicial functionary of the state was the Qazi-ul-Quzat who was appointed by the emperor to hear appeals and supervise the provincial courts. He was to be assisted by Mufti and Mir Ad’l: the former was given the duty to expound the law on which the Qazi would deliver the verdict, whereas the latter was associated with the functions of bringing the parties to the court and enforcing the decrees. Similarly, there was a Chief Qadi of the provincial court that dealt with all the cases which were civil and criminal nature and served as the highest forum of appeal within the province. In the capital, the military had its own judge, Qadi-e-Askar, who moved from place to place with the troops and whose office corresponds to the present day Court Martial. With the decline of the of the Mughal Empire, prominence of the European Powers rose in the sub-continent, and the introduction of modern legal system took place. 3. The British Administrative Period lasted for approximately around 200 years. They entered India as traders, during the medieval period, however they were not alone in their endeavour. The Portuguese, the British, the Danes, the Dutch, and the French also reached India. All of these nations came to India for trade, but, out of them, the English people succeeded to establish their presence in India. The East India Company enjoyed more than trade rights, if one is to see the complete picture, and what followed in the aftermath of its arrival in India. The Charter of Elizabeth, 1600 empowered them legislative right, although limited, it led to the establishment of a new judicial system in India. But over time, new charters were executed along with several new powers being granted. The Britishers over a period of time, exercised these powers to set up institutions for administration of disputes, however with limited jurisdiction. The East India Company turned from the perspective of an entity interested in revenue, to one that was invested in The Institute of Cost Accountants of India 5 Fundamentals of Business Laws and Business Communication administrative and political influence over the region, which was strengthened during the Battle of Plassey in 1757, and the subsequent grant of Dewani rights (1765) in Bengal. However, in this process of acquiring territories after territories, the need for resolution of disputes, also arose, and it’s out of this necessity the introduction of British legal system, as suited for the Britishers, was implemented in territories under British occupancy. To name a few reforms that are still prevalent till date: a) Establishment of Mayor’s Court – 1726 b) Warren Hastings with his Judicial Plan of 1772 which is known as The Adalat System now. c) Establishment of High Courts - The Indian High Courts Act, 1861 which suggested the establishment of High Courts in place of Supreme Court in three Presidencies: Calcutta, Madras, and Bombay. d) The Government of India Act, 1935 (alongwith the introduction of the Federal Court in 1937) Along-with the above mentioned introductions, the British have introduced law as a codified subject, which till then, in it’s previous era, was that of an abstract idea of justice. In this course of time, they have also provided us with The Indian Penal Code, 1860, the Indian Contract Act, 1872, the Indian Evidence Act, 1872, etc. An essential set of laws which govern the modern day world. The Indian Contracts Act becomes one of the branches of law, that requires our special attention, which in fact had many more parts than its present version. Over time separate legislations were enacted for the same. They are: i) The Sale of Goods Act, 1930 ii) The Indian Partnership Act, 1932. 4. Indian Legal Period (1950 – Present Day) – The Indian (post Independence) legal history, begins with the Abolition of Privy Council Jurisdiction Act, 1949 (earlier Privy Council seated in England acted as the Highest Court of Appeal, since 1726) which was passed by the Indian Government. This Act accordingly abolished the jurisdiction of Privy Council to entertain new appeals and petitions as well as to dispose of any pending appeals and petitions. It also provided for transfer of all cases filed. The Drafting Committee for the Constitution was formed and appointed with Mr. B.R. Ambedkaras its Chairman on 29th August 1947. On 26 November 1949, the Constitution of India was passed and adopted by the Constituent Assembly (celebrated as Law Day). On 26th January 1950, the Constitution of India was adopted. With this, India gained its autonomy in Independent judicial system and infrastructure under the Constitution of India, 1950 and over the years been empowered with the same, to have a sovereign entity, with segregation of powers at all levels and all branches of administration. With this, the Supreme Court of India was established on 26th January 1950, established under Article 124 (1) of the Constitution of India, 1950 with a strength of 8 (1 + 7) judges. Currently it has a strength of 34 judges (33 judges of the Supreme Court of India and 1 Chief Justice of India). 6 The Institute of Cost Accountants of India  Introduction Legislative Process in India 1.2 T he statutes enacted by the Parliament of India and/or the State Legislature is one of the most important source of law, in present day India. Therefore it becomes important to understand the process of distribution of power to legislate and structure of legislature in the Indian democracy. The legislative process in India derives its authority from the Constitution of India, 1950. The structure of the Indian polity is that of federal (two tier structure - Central and State Government) in nature (S.R. Bommai vs Union of India, Supreme Court of India judgment - (1994 SCC (3) 1). However, India is a federation with a unitary bias and is referred as a quasi federal state because of its strong central machinery. The Indian legislative process has two major law making bodies, The Parliament of India and the State Legislature. Parliament of India and State Legislature - Article 79 of the Constitution of India states that The Parliament for the Union which shall consist of the President and two Houses to be known respectively as the Council of States (Rajya Sabha) and the House of the People (Lok Sabha). Article 168 of The Constitution of India, 1950 - Constitution of Legislatures in States - For every State there shall be a Legislature which shall consist of the Governor and one House (Legislative Assembly). In some states, there are two houses, Article 168 (2) of the Constitution of India, where there are two Houses of the Legislature of a State: 1) Legislative Council and 2) Legislative Assembly. The legislative bodies in India, i.e. at the Central Level (the Parliament) and State Level (Legislative Assembly) derive its power to frame laws from Article 245 of the Constitution of India. Power to Legislate - Part XI of the Constitution of India, Article 245, states- (1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. The power to make laws can further be found in Article 246 of the Indian Constitution which is to be read along-with the Schedule 7 of the Indian Constitution. The Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I. (Seventh Schedule-Union List). (2) The Parliament and the Legislature of any State have power to make laws with respect to any of the matters enumerated in List III. (Seventh Schedule-Concurrent List). The Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II (Seventh Schedule-State List). However, despite demarcations, disputes arise on powers being transgressed between the two law making bodies, Article 254 of the Indian Constitution illustrates: Inconsistency between laws made by Parliament and laws made by the Legislatures of States— The Institute of Cost Accountants of India 7 Fundamentals of Business Laws and Business Communication (1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, (2) Law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail Where a law made by the Legislature of a State with respect to one of the matters enumerated in the Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament if it has been reserved for the consideration of the President and has received his assent, prevail in that State. Introduction of Bill - In order to formulate a law, all legislative proposals have to be brought in the form of bills. The process of law making begins with the introduction of a Bill in either House of Parliament. A bill can be introduced either by a Minister or a member other than a Minister. In the former case, it is called a Government Bill and in the latter case, it is known as a Private Member’s Bill. Article 107 of the Indian Constitution, 1950 specifies the provisions as to introduction and passing of Bills — Subject to the provisions of Articles 109 and 117 with respect to Money Bills and other financial Bills, a Bill may originate in either House of Parliament. (a money bill is not introduced in the Council of States/Rajya Sabha – Article 109 of The Constitution of India, 1950). A bill undergoes readings in each House, i.e., the Lok Sabha and the Rajya Sabha, before it is submitted to the President for assent. Therefore, as every bill goes through several rounds of debates and scrutiny before it becomes a law, therefore the time frame for the same too is one that takes time, weeks or sometimes months. Many times, there are certain exigencies where the time and/or the circumstances do not permit for a law to be passed through the normal procedure, i.e. the legislative procedure vide the Parliament and/or the State Legislature. Article 13.3 (a) on the Constitution of India, 1950 mentions law includes any Ordinance, order, bye-law, rule, regulation, notification, custom or usage having in the territory of India the force of law; Therefore, in times of these exigencies The President of India 123. Power of President to promulgate Ordinances during recess of Parliament — If at any time, except when both Houses of Parliament are in session, the President is satisfied that circumstances exist which render it necessary for him to take immediate action, he may promulgate such Ordinances as the circumstances appear to him to require. (the tenure of an ordinance can vary from six weeks to six months, depending upon the circumstance) Similar powers have been provided to the Governor of a State, under Article 213 of the Constitution of India, 1950, in territorial limit of the concerned state. The Article 243 of the Constitution of India, 1950 illustrates how the power sharing has gone a step down further (w.r.t rural India), in order to incorporate local governance and required adequate support for the same. Alongwith all the power to formulate the laws, what becomes a necessity is to amend the same over time. Article 368 of the Constitution of India, 1950 states that notwithstanding anything in this Constitution, Parliament may in exercise of its constituent power amend by way of addition, variation or repeal any provision of this Constitution in accordance with the procedure laid down in this article. However, with all these powers conferred there remains a risk of introduction/deletion of certain laws, which are in contravention of the rights that are fundamental to human survival with a dignified life and enhancement of the same. The Supreme Court of India, in Keshavananda Bharati vs State of Kerala (AIR 1973 SC 1461), mentioned any amendment which is in contravention of the Fundamental Rights of an individual, will be unconstitutional. However, despite all such checks and balances, powers are transgressed, and disputes arise. In order to seek the correct understanding and validity of the law/bye law concerned, we approach the Court to address the merit in the situation, and decide accordingly. 8 The Institute of Cost Accountants of India  Introduction Legal Methods and Court System in India 1.3 T he judiciary has been established under the Constitution of India, 1950 as an institution of last resort, for common public, as well as all legal entities under law, inclusive of the State Governments and the Government of India. The Supreme Court of India is the apex institution, in its hierarchy, followed by the High Courts in respective States, followed by the Sub-Ordinate Courts. Hierarchy of Courts in India The Constitution of India, 1950 has provided us with a single integrated judicial system with a pyramidal structure which consists of different types of courts each having varying powers depending on their tier and jurisdiction.The framework of the current legal system has been laid down by the Constitution of India, 1950 in Part V (Chapter IV-Supreme Court of India) and Part VI (Chapter V-High Courts) and (chapter VI-Subordinate Courts). Supreme Court Supreme Court is the apex court under the Indian Judicial system governed under Chapter IV of Part V- Art 124-147 of the Constitution comprising of the Chief Justice and other Judges appointed by the President. The Constitution bestows the following powers to the Supreme Court- a. Original Jurisdiction - Art 131 provides for the original jurisdiction whereby the Court can decide disputes between the Government of India and one or more states, between two or more states, between Government of India and State (s) on one side and State(s) on the other side. b. Writ Jurisdiction - Any person has the right to approach the Court against violation of his fundamental rights prescribed under Part-III, as expressly provided under Article 32 which guarantees constitutional remedies in the form of writs. c. Appellate Jurisdiction - Being the highest court of appeal, the Supreme Court has power to hear all appeals against any order of the High Court. d. Advisory Jurisdiction - The Supreme Court can advise the President on any question of public importance etc as desired. e. Punishment for Contempt - Under Article 129 of the Constitution of India, 150 The Supreme Court of India and the High Court of each state under Article 215 of the Constitution of India, 1950 are declared as a Court of record with the power to punish for contempt of itself. f. Review Jurisdiction - The Court under Art 137 can review its own orders or judgments. The Supreme Court of India was established on 26th January 1950, established under Article 124 (1) of the Constitution of India, 1950 with a strength of 8 (1 + 7) judges. Currently it has a strength of 34 judges (33 judges of the Supreme Court of India and 1 Chief Justice of India). The Institute of Cost Accountants of India 9 Fundamentals of Business Laws and Business Communication High Court High Courts are the second highest courts in the hierarchy dealt in Chapter V of Part VI of the Constitution. The Constitution bestows the following powers to the High Court- a. Original Jurisdiction - The Court has original jurisdiction and can decide disputes related to enforcement of fundamental rights, settlement of disputes relating to election to the Union and State Legislatures and jurisdiction over revenue matters. b. Writ Jurisdiction - Any person has the right to approach the Court against violation of his fundamental rights as well as legal rights under Article 226. Thus, it has a wider scope than that with the Supreme Court. c. Appellate Jurisdiction - An appeal against orders of subordinate courts in both civil and criminal matters lies with the High Court. d. Power of superintendence - Article 227 of Constitution empowers all High Courts to practice superintendence over all the courts or tribunals within its territorial jurisdiction. Moreover, under Article 228, the High Court can transfer any case pending before a subordinate court to itself if it involves a substantial question of law. e. Punishment for Contempt - Like the Supreme Court, the High Court is also declared as a Court of record with the power to punish for contempt of itself. Lower/Subordinate Courts Chapter VI of Part VI of the Indian Constitution incorporates provisions related to the subordinate courts. These courts are established and controlled by the High Court taking into account various factors. The Lower/Subordinate court structure can be divided into the following two branches of the legal system- Criminal Court Structure Section 6 of the Criminal Procedure Code, 1973 prescribes for the constitution of following four classes of criminal courts: a) Court of Session - Every State has session divisions with each of them having a Court of Sessions to be presided over by the Sessions Judge who is appointed by the High Court. The court has power to try any criminal matter and pass any punishment authorized by law, but punishment of death penalty has to be confirmed by the High Court. b) Court of Metropolitan Magistrate - This is a special court established by the State Government in consultation with the High Court in metropolitan areas, i.e., areas with population of more than a million. These Courts are subordinate to the Sessions Court. Chief Metropolitan Magistrate can pass any punishment authorized by law, except death penalty, penalty of life imprisonment or imprisonment for a term of more than seven years. c) Court of Chief Judicial Magistrate - The State Government in consultation with the High Court establishes number of Courts of the Judicial Magistrate- Judicial Magistrate of First Class (JMFC) and second class headed by the Chief Judicial Magistrate (CJM). These Courts can pass any punishment authorized by law, except death penalty, penalty of life imprisonment or imprisonment for a term of more than seven years. d) Executive Magistrates - The functions and powers of an Executive Magistrate are more or less administrative in nature and are for maintaining law and order. They are appointed by the respective State Government. Their essential job is not as a judicial officer. 10 The Institute of Cost Accountants of India  Introduction Hierarchy of Courts – Criminal justice system in India Supreme Court High Court District and Sessions Judge & Additional Sessions Judge Assistant Sessions Judge Chief Judicial Magistrate Chief Metropolitan Magistrate Judicial Magistrate of the First Class Metropolitan Magistrate Judicial Magistrate II Class Special Judicial Magistrate Fig. 1.1 : Hierarchy of Courts – Criminal justice system in India Civil Court Structure The district court is the highest civil court in a district and has judicial as well as administrative powers including the power of superintendence with both appellate and original jurisdiction. According to Article 233 of the Constitution the appointment of district judges that shall be done by the Governor in consultation with the High Court in every district or more than one district. Following are the courts subordinate to the district courts which have jurisdiction based on subject matter, pecuniary or territorial jurisdictions- a. Sub-Judge b. Additional Sub-Judge c. Munsif Courts Thus, judiciary comprising of the court system is one of the most vital organs of the state that not only acts as a watchdog of democracy but also as the guardian of the Constitution. It is evident from the strong base and the proven efficiency of the structure of the Indian judiciary being independent and impartial that the existing system is ideal for a big country like India to ensure proper administration of justice at all levels starting from the grass root. Hierarchy of Civil Judicial System Supreme Court High Courts District Courts / Subordinate Court Court of Subordinate Judge Class - I Court of Sub-Judge Class - II Court of Small Causes Munsifs Court or Court for metropolitan cities of Sub-Judge III - Class Fig. 1.2 : Hierarchy of Civil Judicial System The Institute of Cost Accountants of India 11 Fundamentals of Business Laws and Business Communication The Tribunal System in India Key insights  Tribunals are institutions established for discharging judicial or quasi-judicial duties. The objective may be to reduce case load of the judiciary or to bring in subject expertise for technical matters.  The Supreme Court has ruled that tribunals, being quasi-judicial bodies, should have the same level of independence from the executive as the judiciary. Key factors include the mode of selection of members, the composition of tribunals, and the terms and tenure of service.  In order to ensure that tribunals are independent of the executive, the Supreme Court had recommended that all administrative matters be managed by the law ministry rather than the ministry associated with the subject area. Later, the Court recommended creation of an independent National Tribunals Commission for the administration of tribunals. These recommendations have not been implemented.  Whereas the reasoning for setting up some tribunals was to reduce pendency of cases in courts, several tribunals are facing the issue of a large case load and pendency. Evolution of the Tribunal System Tribunals are judicial or quasi-judicial institutions established by law. Currently, tribunals have been created both as substitutes for High Courts and as subordinate to High Courts (see Figure). In the former case, appeals from the decisions of Tribunals (such as the Securities Appellate Tribunal) lie directly with the Supreme Court. In the latter case (such as the Appellate Board under the Copyright Act, 1957), appeals are heard by the corresponding High Court. Structure of Indian tribunal system Supreme Court High Court Tribunals Subordinate Courts Tribunals Fig. 1.3 : Structure of Indian tribunal system  Composition of Tribunals: The Supreme Court has noted that the members of a tribunal may be selected from departments of the central government as well as from various other fields of expertise. The presence of expert members (technical members) along with judicial members is a key feature of tribunals which distinguishes them from traditional courts. Only persons with a judicial background (such as Judges of the High Court and lawyers with the prescribed experience who are eligible for appointment as High Court Judges) may be considered for appointment as Judicial Members. The Tribunals Reforms (Rationalisation and Conditions of Service) Ordinance, 2021 has abolished nine tribunals and transferred their functions to High Courts. This action would add to the pending cases in such High Courts. Appeals from tribunals usually lie with the concerned High Court. However, some laws specify that appeals will be heard by the Supreme Court. Table illustrates some tribunals and the court with appellate jurisdiction over them. 12 The Institute of Cost Accountants of India  Introduction Table: Appellate courts for some Tribunals in India Name of Tribunal Act establishing the Tribunal Appellate Court Industrial Tribunal The Industrial Disputes Act, 1947 High Court Income-Tax Appellate Tribunal The Income-tax Act, 1961 High Court Customs, Excise and Service Tax Appellate The Customs Act, 1962 High Court Tribunal Appellate Tribunal The Smugglers and Foreign Exchange Manipulators High Court (Forfeiture of Property) Act, 1976 Central Administrative Tribunal The Administrative Tribunal Act, 1985 Supreme Court Railway Claims Tribunal The Railway Claims Tribunal Act, 1987 High Court Securities Appellate Tribunal The Securities Exchange Board of India Act, 1992 Supreme Court Debts Recovery Appellate Tribunal The Recovery of Debts Due to Banks and Financial High Court Institutions Act, 1993 Telecom Disputes Settlement and Appellate The Telecom Regulatory Authority of India Act, Supreme Court Tribunal 1997 National Company Law Appellate Tribunal The Companies Act, 2013 Supreme Court National Consumer Disputes Redressal The Consumer Protection Act, 2019 Supreme Court Commission Appellate Tribunal for Electricity The Electricity Act, 2003 Supreme Court Armed Forces Tribunal The Armed Forces Tribunal Act, 2007 Supreme Court National Green Tribunal The National Green Tribunal Act, 2010 Supreme Court Alternate Dispute Resolution (ADR) The process by which disputes between the parties are settled or brought to a result without the intervention of Judicial Institution and without any trial is known as Alternative Dispute Resolution ADR offers to resolve all type of matters including civil, commercial, industrial and family etc., where people are not being able to start any type of negotiation and reach the settlement. Generally, ADR uses neutral third party who helps the parties to communicate, discuss the differences and resolve the dispute. Modes of Alternate Dispute Resolution (ADR) Arbitration The dispute is submitted to an arbitral tribunal which makes a decision (an “award”) on the dispute that is mostly binding on the parties. Except for some interim measures, there is very little scope for judicial intervention in the arbitration process. Conciliation A non-binding procedure in which an impartial third party, the conciliator, assists the parties to a dispute in reaching a mutually satisfactory agreed settlement of the dispute. The parties are free to accept or reject the recommendations of the conciliator. However, if both parties accept the settlement document drawn by the conciliator, it shall be final and binding on both. The Institute of Cost Accountants of India 13 Fundamentals of Business Laws and Business Communication Mediation In mediation, an impartial person called a “Mediator” helps the parties try to reach a mutually acceptable resolution of the dispute. The mediator does not decide the dispute but helps the parties communicate so they can try to settle the dispute themselves. Mediation leaves control of the outcome with the parties. This is more or less an informal way of arriving at a settlement/arrangement. Lok Adalat An interesting feature of the Indian legal system is the existence of voluntary agencies called Lok Adalat (People’s Court). The Legal Services Authorities Act was passed in 1987 to encourage out-of-court settlements. Lok Adalat or “People’s Court” comprises of a forum which facilitates negotiations in the presence of a judicial officer. The order of the Lok-Adalat is final and shall be deemed to be a decree of a civil court and shall be binding on the parties to the dispute. The order of the Lok-Adalat is not appealable in a court of law. Important Provisions Related To ADR Section 89 of the Civil Procedure Code, 1908 provides that opportunity to the people, if it appears to court there exist elements of settlement outside the court then court formulate the terms of the possible settlement and refer the same for: Arbitration, Conciliation, Mediation or Lok Adalat. The Acts which deal with Alternative Dispute Resolution are i. Arbitration and Conciliation Act, 1996 and, ii. The Legal Services Authority Act, 1987 Since courts in India are already burdened by a huge backlog of cases, many statutory provisions make mediation a compulsory prerequisite to filing of a suit in court. Some of these statutes are:  Industrial Disputes Act, 1947 – Section 4 of the Act assigns conciliators the responsibility to mediate and settle industrial disputes and prescribes the procedure to be followed in great detail.  Code of Civil Procedure, 1908 – The Code was amended in 2002 which provided for the reference of all pending court cases to mediation. The amendment also prescribes mediation for all family and personal matters due to their sensitive nature.  Companies Act, 2013 – Section 442 provides for the referral of disputes to mediation by the National Company Law Tribunal and the Appellate Tribunal.  Micro, Small and Medium Enterprises Development Act, 2006 – The Act mandates mediation and conciliation when disputes arise. (Section 18)  Real Estate (Regulation and Development) Act, 2016 – Section 32(g) provides for the amicable settlement of disputes through an established dispute resolution forum.  Commercial Courts Act, 2015 – The new amendment made to the Act in 2018 provide for mandatory mediation between parties before filing of a suit. The amendment allows litigation only if the parties meaningfully engage in mediation proceedings and still fail to resolve the matter.  Consumer Protection Act, 2019 – The new rendition of the Consumer Protection Act dedicates an entire Chapter to the resolution of disputes through mediation first before approaching a consumer redressal agency. 14 The Institute of Cost Accountants of India  Introduction Advantages of Alternative Dispute Resolution Less Time Consuming: People resolve their disputes in short period as compared to traditional litigation forums. Cost effective method: ADR as a process in general is less expensive than litigation process. Also, as a platform this is a less aggressive dispute resolution process, which often leads to an amicable settlement. Regulatory Bodies in India Along with Courts, Tribunals and other forums in India, we have various regulatory bodies in India, which are the part and parcel of governance in their respective sectors, a watchdog and also a guardian in case of any irregularity. Listed below, are few of the most important one’s affecting on our day to day life. 1. Securities and Exchange Board of India (SEBI) The Securities and Exchange Board of India (SEBI) is a statutory body established under the SEBI act of 1992, as a response to prevent malpractices in the capital markets that were negatively impacting people’s confidence in the market. Its primary objective is to protect the interest of the investors, prevent malpractices, and ensuring the proper and fair functioning of the markets. SEBI has many functions, they can be categorized as: (i) Protective functions: To protect the interests of the investors and other market participants. It includes – preventing insider trading, spreading investor education and awareness, checking for price rigging, etc. (ii) Regulatory functions: These are performed to ensure the proper functioning of various activities in the markets. It includes – formulating and implementing code of conduct and guidelines for all types of market participants, conducting an audit of the exchanges, registration of intermediaries like brokers, investment bankers, levying fees, and fines against misconduct. (iii) Development functions: These are performed to promote the growth and development of the capital markets. It includes – Imparting training to various intermediaries, conducting research, promoting self-regulation of organizations, facilitating innovation, etc. To perform its functions and achieve its objectives, SEBI has the following powers: a. To change laws relating to the functioning of the stock exchange b. To access records and financial statements of the exchanges c. To conduct hearing and give judgments on cases of malpractices in the markets. d. To approve the listing and force delisting of companies from any exchanges. e. To take disciplinary actions like fines and penalties against participants who involve in malpractice. f. To regulate various intermediaries and middlemen like brokers. 2. Reserve Bank of India (RBI) The Reserve Bank of India (RBI) is India’s central bank and was established under the Reserve Bank of India act in 1935. The primary purpose of RBI is to conduct the monetary policy and regulate and supervise the financial sector, most importantly the commercial banks and the non-banking financial companies. It is responsible to maintain price stability and the flow of credit to different sectors of the economy. Some of the main functions of RBI are: a. It issues the license for opening banks and authorizes bank branches. b. It formulates, implements, and reviews the prudential norms like the Basel framework. The Institute of Cost Accountants of India 15 Fundamentals of Business Laws and Business Communication c. It maintains and regulates the reserves of the banking sector by stipulating reserve requirement ratios. d. It inspects the financial accounts of the banks and keeps a track of the overall stress in the banking sector. e. It oversees the liquidation, amalgamation or reconstruction on financial companies. f. It regulates the payment and settlement systems and infrastructure. g. It prints, issues and circulates the currency throughout the country. The RBI is the banker to the government and manages its debt issuances, and is also responsible to maintain orderly conditions in the government securities markets (G-Sec). RBI manages the foreign exchange under the Foreign Exchange Management Act, 1999. 3. Insurance Regulatory and Development Authority of India (IRDAI) The Insurance Regulatory and Development Authority of India (IRDAI) is an independent statutory body that was set up under the IRDA Act, 1999. Its purpose is to protect the interests of the insurance policyholders and to develop and regulates the insurance industry. It issues advisories regularly to insurance companies regarding the changes in rules and regulations. It promotes the insurance industry but also controls the various charges and rates related to insurance. The three main objectives of IRDA are: (i) To ensure fair treatment and protect the interests of the policyholder. (ii) To regulate the insurance companies and ensure the industry’s financial soundness. (iii) To formulate standards and regulations so that there is no ambiguity. Some important functions of IRDA are: a. Granting, renewing, canceling or modifying the registration of insurance companies. b. Levying charges and fees as per the IRDA act. c. Conducting investigation, inspection, audit, etc. of insurance companies and other organizations in the insurance industry. d. Specifying the code of conduct and providing qualifications and training to intermediaries, insurance agents etc. e. Regulating and controlling the insurance premium rates, terms and conditions and other benefits offered by insurers. f. Provides a grievance redressal forum and protect the interests of the policyholder. 4. Pension Funds Regulatory and Development Authority (PFRDA) The Pension Fund Regulatory and Development Authority (PFRDA) is a statutory body, which was established under the PFRDA act, 2013. It is the sole regulator of the pension industry in India. Initially, PFRDA covered only for employees in the government sector but later, its services were extended to all citizens of India including NRI’s. Its major objectives are – to provide income security to the old aged by regulating and developing pension funds and to protect the interest of subscribers to pension schemes. The National Pension System (NPS) of the government is managed by the PFRDA. It is also responsible for regulating custodians and trustee banks. The Central Record Keeping Agency (CRA’s) of the PFRDA performs record keeping, accounting and provides administration and customer services to subscribers of the pension fund. 16 The Institute of Cost Accountants of India  Introduction Some functions of PFRDA are: (i) Conducting enquiries and investigations on intermediaries and other participants. (ii) Increasing public awareness and training intermediaries about retirement savings, pension schemes etc. (iii) Settlements of disputes between intermediaries and subscribers of pension funds. (iv) Registering and regulating intermediaries. (v) Protecting the interest of pension fund users. (vi) Stipulating guidelines for investment of pension funds. (vii)Formulating code of conduct, standards of practice, terms and norms for the pension industry. 5. Association of Mutual Funds in India (AMFI) The Association of Mutual Funds in India (AMFI) was set up in 1995. It is a non-profit organization that is self-regulatory and works for the development of mutual fund industry by improving professional and ethical standards, thus aiming to make the mutual funds more accessible and transparent to the public. It provides spreads awareness vital information about mutual funds to Indian investors. The Association of Mutual Funds in India is the regulatory body for mutual funds sector in India. It is a division of the Securities and Exchange Board of India, Ministry of Finance, Government of India. Most mutual funds firms in India are its members. AMFI ensures smooth functioning of the mutual fund industry by implementing high ethical standard and protects the interests of both – the fund houses and investors. Most asset management companies, brokers, fund houses, intermediaries etc in India are members of the AMFI. Registered AMC’s are required to follow the code of ethics set by the AMFI. These code of ethics are – integrity, due diligence, disclosures, professional selling and investment practice. The AMFI updates the Net Asset Value of funds on a daily basis on its website for investors and potential investors. It has also streamlined the process of searching mutual fund distributors. 6. Ministry of Corporate Affairs (MCA) The Ministry of Corporate Affairs (MCA) is a ministry within the government of India. It regulates the corporate sector and is primarily concerned with the administration of the Companies Act, 1956, the Companies Act, 2013 and other legislations. It frames the rules and regulations to ensure the functioning of the corporate sector according to the law. The objective of MCA is to protect the interest of all stakeholders, maintain a competitive and fair environment and facilitate the growth and development of companies. The Registrar of Companies (MCA), is a body under the MCA that has the authority to register companies and ensure their functioning as per the provisions of the law. The issuance of securities by the companies also comes under the purview of the Companies Act. 7. National Housing Bank (NHB) National Housing Bank, is the apex regulatory body for overall regulation and licensing of housing finance companies in India. It is under the jurisdiction of Ministry of Finance, Government of India. It was set up on 9 July 1988 under the National Housing Bank Act, 1987. The primary function of NHB is to “operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support to such institutions and for matters connected therewith or incidental thereto”. The Institute of Cost Accountants of India 17 Fundamentals of Business Laws and Business Communication Primary and Subordinate Legislation 1.4 I n modern day world, government activity influences almost every field of human behaviour, thus necessitating laws in regulating this ever-widening sphere of activity. Therefore, there is constant need to legislate, at a rapid pace, with a localized understanding, which however is cumbersome and impractical to perform, for the Union Legislature and State Legislature. As we move towards a more dynamic society, therefore the governance of the same extends to various levels of government bodies, as according to the complexity, furthermore delegated power (subordinate legislation) to authorities and officials. Primary Legislation is the law that derives its source from the enactments passed by the Parliament or the State Legislatures, the bodies empowered by the Constitution of India, 1950 by its provisions. In addition to these the President and the Governor have limited powers to issue ordinances when the Parliament or the State Legislature are not in session. Secondary Legislation/Sub-Ordinate Legislation arises from the need for empowering authorities (to legislate) working at the grass-root level to counter the daily challenges to the existing laws becomes a necessity. The provision for secondary legislation (in the form of regulations/bye laws) has been ingrained in the Constitution of India, 1950. Article 13.3 (a) of the Constitution of India, 1950 mentions law includes any Ordinance, order, bye-law, rule, regulation, notification, custom or usage having in the territory of India the force of law; therefore provision for such delegation (subordinate legislation) gains its prominence. The Constitution of India, 1950 in its provisions illustrates of power delegation (if need be), Article 312- All India Services (1) Notwithstanding anything in Chapter VI of Part VI or Part XI, if the Council of States (Rajya Sabha) has declared by resolution supported by not less than two thirds of the members present and voting that it is necessary or expedient in the national interest so to do, Parliament may by law provide for the creation of one or more all India services (including an all India judicial service) common to the Union and the States, and, subject to the other provisions of this Chapter, regulate the recruitment, and the conditions of service of persons appointed, to any such service. (the Indian Administrative Service and the Indian Police Service shall be deemed to be services created by Parliament under this article) Supreme Court of India in the Gwalior Rayon Mills Mfg. (Wing.) Co. Ltd.V.Asstt. Commissioner of SalesTaxand Others (All India Reporter1974 SC 1660 (1667)), The legislatures because of limitations imposed upon by the time factor hardly go into matters of detail. Provision is, therefore, made for delegated legislation to obtain flexibility, elasticity, expedition and opportunity for experimentation. The practice of empowering the executive to make subordinate legislation within a prescribed sphere has evolved out of practical necessity and pragmatic needs of a modern welfare state. Subordinate legislation is the legislation made by an authority subordinate to the legislature. Subordinate legislation is that which proceeds from any authority other than the sovereign power and is, therefore, dependent for its continued existence and validity on some superior or supreme authority. Most of the enactments provide for the powers for making rules, regulations, bye-laws or other statutory instruments which are exercised by the specified subordinate authorities. Such legislation is to be made within the framework of the powers so delegated by the legislature and 18 The Institute of Cost Accountants of India  Introduction is, therefore, known as delegated or subordinate legislation. The sub-ordinate legislation cannot go beyond the act or the objective of the act, or the same would be held invalid. There are instances where pieces of subordinate legislation which tended to replace or modify the provisions of the basic law or attempted to lay down new law by themselves had been struck down as ultra vires either because of transgressing the ambit of the Act or the Act itself is inconsistent with the provisions of the Constitution of India. Local Governance - The Constitution of India, 1950 itself provides provisions for decentralization of governance, for effective and adequate authority over a territory to look after the requirements. Part IX (Panchayat System) and Part IXA (Municipalities) of the Constitution of India, 1950 give them adequate powers and autonomy over their jurisdiction. These two bodies are one of the largest sources of sub-ordinate legislation, as regulations in these territories need to be revised very rapidly. As, we have observed in the Covid-19 pandemic, how frequently, guidelines and regulations have been required to cater to the unprecedented circumstances we have been through. This would have been a cumbersome task for the Parliament or the State legislature to be able to analyse and react to the situation in a localized manner, taking adequate measures for the general well being and requirements of the population. The Institute of Cost Accountants of India 19 Fundamentals of Business Laws and Business Communication Exercise Multiple Choice Questions (MCQ) 1. What are the sources of law? (a) Constitution of India (b) Constitution of India, judicial precedents, customary laws, statutes and ordinance (c) Statutes enacted by the Parliament of India and State Legislatures (d) Religion 2. Which Article in the Constitution of India, 1950 has provisions for introduction of a bill in the Parliament of India? (a) Article 119 (b) Article 141 (c) Article 107 (d) Article 243 3. Money Bill is introduced in which House of the Parliament? (a) Council of People – Lok Sabha (b) Council of States – Rajya Sabha (c) Both the Houses (d) None of the Houses 4. Under what Article of the Constitution of India, 1950 is The President of India empowered to make an Ordinance? (a) Article 243 (b) Article 123 (c) Article 129 (d) Article 368 5. The essence of Sub-Ordinate legislation can be found in which Article of the Constitution of India, 1950? (a) Article 12 (b) Article 32 (c) Article 13 (d) Article 14 20 The Institute of Cost Accountants of India  Introduction 6. When was the Constitution of India passed by the Constituent Assembly? (a) 26th January 1950 (b) 26th November 1949 (c) 25th November 1949 (d) 15th August 1947 7. Which is the highest Court in India? (a) High Court (b) Supreme Court of India (c) International Court of Justice (d) Sessions Court 8. Which Articles of the Constitution of India have the power to entertain petitions of violation of Fundamental Right? (a) Article 32 (b) Article 226 (c) Article 226 and Article 32 (d) Article 356 9. Which is the highest civil court in a district? (a) Sessions Court (b) Supreme Court of India (c) District Court (d) High Court 10. Which Article of the Constitution of India empowers the legislature to make laws? (a) Article 12 (b) Article 243 (c) Article 141 (d) Article 245 11. When was the Supreme Court of India established? (a) 26th November 1949 (b) 26th January 1950 (c) 28th January 1950 (d) 1st October 1937 The Institute of Cost Accountants of India 21 Fundamentals of Business Laws and Business Communication 12. Which Article of the Constitution of India stipulates law made by the Supreme Court of India? (a) Article 141 (b) Article 245 (c) Article 368 (d) Article 352 13. What is the Schedule in the Constitution of India, for Separation of Subject for Legislature? (a) 9th Schedule (b) 7th Schedule (c) 32nd Schedule (d) 14th Schedule 14. What kind of structure does the Indian Constitution have? (a) Unitary (b) Federal (c) Autocracy (d) Totalitarian 15. Under which Article can we amend the provisions of the Constitution of India? (a) Article 356 (b) Article 368 (c) Article 254 (d) Article 245 16. Which is the lowest court to approach for criminal matters? (a) Munsif Court (b) Judicial Magistrate (c) Sessions Court (d) District Court 17. Mention the number of judges in the Supreme Court of India including Chief Justice of India currently. (a) 23 (b) 32 22 The Institute of Cost Accountants of India  Introduction (c) 34 (d) 46 18. Fundamental Rights are mentioned under which part of the Constitution of India? (a) Part-II (b) Part-III (c) Part-IX (d) Part-XII 19. Municipalities are provided for authority under which part of the Constitution of India? (a) Part IX (b) Part IXA (c) Part III (d) Part I 20. Under what Article of the Constitution of India, 1950 is the Governor of a State empowered to make an Ordinance? (a) Article 123 (b) Article 243 (c) Article 245 (d) Article 213 21. What Are Personal Laws? (a) Laws relating to inter personal behaviour (b) Customs (religious beliefs) that have now been codified (c) Laws that a person makes (d) Laws based on opinion 22. Which Article of the Constitution of India, deal with inconsistency between laws made by Parliament and laws made by the Legislatures of States? (a) Article 245 (b) Article 254 (c) Article 368 (d) Article 32 The Institute of Cost Accountants of India 23 Fundamentals of Business Laws and Business Communication 23. What is a Private Bill? (a) A bill introduced by a member other than a Minister (b) Bill introduced by a private citizen (c) Bill introduced by a Private company (d) A bill relating affairs which are private to individual 24. The Parliament for the Union of India which shall consist? (a) The President, the Council of States (Rajya Sabha) and the House of the People (Lok Sabha) (b) Rajya Sabha (c) Lok Sabha (d) Legislative Assembly 25. Secondary/Sub-ordinate legislation cannot go beyond: (a) The ambit of the Act (b) The ambit of the Act or the Constitution of India (c) The Constitution of India (d) Directive Principles of State Policy State True or False: 1. Sessions Court is the lowest court to approach for criminal matters. 2. Money Bill is introduced in Lok Sabha. 3. Any Elected Minister can pass an ordinance. 4. There is no punishment for Contempt of Court. 5. The Supreme Court of India was established by Britishers. 6. We can approach the Court for violation of our Fundamental Rights. 7. The International Court of Justice is the highest court in the hierarchy of Indian Judicial System. 8. The President of India and the Governor of a State can pass an Ordinance. 9. Executive Magistrates have responsibilities only related to the judicial system. 10. Only acts passed by the Parliament of India or State Legislature are the laws. 24 The Institute of Cost Accountants of India  Introduction Fill in the Blanks: 1. Law is a ______ of rules. 2. The need for empowering authorities to frame _________ working at the grass-root level. 3. The Part ___ provides for provisions for the Panchayat Raj system. 4. Mr. ____________ was the head of the drafting committee of the Constitution of India, 1950. 5. Under Article ______ of the Constitution of India, 1950, The Supreme Court of India and the High Court of each state under Article _____ of the Constitution of India, 1950 have the powers to initiate action for contempt of Court. 6. Some states are provided with Legislative ______________ and Legislative ____________, both. 7. Article ____ of the Indian Constitution illustrates about recourse in situations of inconsistency between laws made by Parliament and laws made by the Legislatures of States. 8. An appeal against orders of subordinate courts in both ________ and _________ matters lies with the High Court. 9. The Supreme Court of India can under Article ________ can review its own orders or judgments. 10. Article ______ of Constitution of India, 1950 empowers all High Courts to practice superintendence over all the courts or tribunals within its territorial jurisdiction. 11. Case laws are _________ precedents. 12. The _________ Court can decide disputes between the Government of India and one or more states. 13. An ordinance is law, that can be brought into place by the ________________ for the whole of India or any territory within and/or the ___________ of any state for the concerned territory in case of any exigency. 14. Article _____ of the Constitution of India states that The Parliament for the Union shall be headed by the President and shall have two house. 15. The jurisdiction of Privy Council was established by the _________________________________. Short Essay Type Questions (Give the answers in one (or) two sentences) 1. Law/s Ans: Law is a set of rules, all statutes, case laws (judicial precedents) and customary law, Ordinances, regulations and other mandates that affect us. 2. Lists in the Constitution The statutes are enacted by the Parliament and State Legislatures according to their domain, mentioned in the 7th Schedule of the Constitution of India (the Union List, The State List and the Concurrent List). The Institute of Cost Accountants of India 25 Fundamentals of Business Laws and Business Communication 3. Ordinance In times of these exigencies The President of India 123. Power of President to promulgate Ordinances during recess of Parliament. Similar powers have been provided to the Governor of a State, under Article 213 of the Constitution of India, 1950, in territorial limit of the concerned state. 4. Bill Article 107 of the Indian Constitution, 1950 specifies the provisions as to introduction and passing of Bills. (1) Subject to the provisions of Articles 109 and 117 with respect to Money Bills and other financial Bills, a Bill may originate in either House of Parliament. (a money bill is not introduced in the Council of States/Rajya Sabha – Article 109 of The Constitution of India, 1950). 5. Writ Jurisdiction The right to approach the Court against violation of his fundamental rights prescribed under Part-III, as expressly provided under Article 32 which guarantees constitutional remedies in the form of writs. Answers Multiple Choice Questions (MCQ) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 b c a b c b b c c d b a b b b b c b b d 21 22 23 24 25 b b a a b State True or False 1 2 3 4 5 6 7 8 9 10 F T F F F T F T F F Fill in the blanks: 1 Set 2 Regulation 3 IX 4 MR. B.R.Ambedkar 5 129, 215 6 Legislative Council and Legislative Assembly 7 254 8 Civil & Criminal 9 137 10 Article 227 11 Judicial 12 The Supreme Court of India 13 President, Governor 14 Article 79 15 Abolition of Privy Council Jurisdiction Act,1949 26 The Institute of Cost Accountants of India  Indian Contracts Act, 1872 INDIAN CONTRACTS ACT, 1872 2 This Module includes: 2.1. Essential elements of a Contract, Types of Contract, Offer and Acceptance 2.2. Void and Voidable Agreements, No Consideration No Contract 2.3. Consideration, Legality of Object and Consideration 2.4. Capacity of Parties, Free Consent 2.5. Quasi and Contingent Contracts 2.6. Performance of Contracts 2.7. Meaning of Indemnity, Guarantee, Pledge, Agent 2.8. E-Contracts and E-Signature – Meanings and Requirements 2.9. Discharge of Contracts 2.10. Breach of Contract and Remedies for Breach of Contract The Institute of Cost Accountants of India 27 Fundamentals of Business Laws and Business Communication INDIAN CONTRACTS ACT, 1872 Module Learning Objectives: After studying this module, the students will be able to -  Know the essential elements of a contract.  Understand the difference between a void and a voidable contract.  Appreciate the importance of consideration in a contract.  Know the capacity of parties to a contract and the importance of free consent  Understand the meaning of important terms like Indemnity, Guarantee, Pledge and Agent.  Understand the meaning of performance of contract.  Appreciate the meaning and requirement of E-Contracts and E-Signature.  Know the various modes of discharging the contract.  Develop an understanding about the breach of contract and remedies for the same. 28 The Institute of Cost Accountants of India  Indian Contracts Act, 1872 Essential Elements of a Contract, Types 2.1 of Contract, Offer and Acceptance T he world of commerce is based on reciprocal act and/or considerations. Along with these acts, the law governing these commercial activities, revolves around rights and liabilities. The Indian Contract Act, 1872 prescribes the law relating to contracts in India and is the key act regulating enforceable agreements. The act is based on the principles of English Common Law and is applicable to all the states of India. The basis of the rights and liabilities, is the terms of the transaction created voluntarily between the parties by making legally enforceable agreements. Before enactment of Indian Contract Act, 1872, the courts in India used to apply English Common laws as suited to Indian conditions, customs and usages. Some difficulties were noticed in using English Common laws. Accordingly later the courts started deciding cases based on Hindu Personal laws and Muslim personal laws. But the same were still not found fit to address the business complexities. Accordingly, the Indian Contract Act, 1872 was framed. This act is based on English Common law, which is to a large extent made up of judicial precedents. The law relating to contracts is contained in the Indian Contract Act, 1872. The Act as originally enacted is divided into four parts: 1. Law relating to general principles of contract. [Sec 1 - 75] 2. Law relating to sale of goods. [Sec. 76 – 123] - Repealed and the Sale of Goods Act, 1930 originated 3. Law relating to special contracts [Sec. 124 – 238] 4. Law relating to Partnership Business - Repealed and The Partnership Act, 1932, enacted. Definition of Contract: Section 2(h) of the Act defines the term contract as “an agreement between two or more parties enforceable by law”. An agreement and its enforceability are two essential components of a contract. If either of these two is missing there is no contract. Agreement has been defined in section 2(e) as “every promise and every set of promises forming consideration for each other”. According to Sec 2 (b), ‘when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted and a proposal when accepted becomes a contract. The essence of agreement or in turn contract is meeting of mind of the parties. The parties to an agreement must have agreed upon the subject in the same sense and at the same time. Unless there is consensus ad idem, there cannot be any contract. The Institute of Cost Accountants of India 29 Fundamentals of Business Laws and Business Communication Example: A had two motor cars Maruti Alto and Maruti 800; he intends to sell Maruti 800 to B. But B thought he is selling Maruti Alto agrees to his proposal. Since there is no meeting of mind both understood the same transaction differently, there is no consensus ad idem. Accordingly there is no consent and thus there is no contract. Will all agreements give rise to a contract? An agreement to become a contract must give rise to a legal obligation. Agreement can be social obligation or legal obligation. An agreement giving rise to social obligation is not a contract. That is why it is said that the term agreement is a wide term it includes both social and legal obligations but only those agreements which the parties intend to enforce legally culminates into contract. An agreement is regarded as a contract when it is enforceable by law. Legal obligations arise to make an agreement, a contract. It means that an agreement must give rise to legal obligations. There must be an intention to create legal obligation. In case of agreement regulating business relations it is assumed that the parties intended legal consequences. Basics of a Contract and Important definitions under Contract Act, 1872: The Indian Contract Act, 1872 defines contract as an agreement between two or more parties for the buying/selling of goods or services for a valid consideration. The essentials to a valid contract are: 1. An offer and acceptance have to be made. 2. There should be a lawful consideration. 3. There should be free consent between the parties to a contract. 4. The object of the agreement should be lawful. 5. Parties must be competent to contract. 6. The contract must be enforceable by law. Section 2 (a) Defines Proposal or Offer - When one person signifies to another, his willingness to do or to abstain from doing anything, to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. Section 2 (b) Acceptance or Promise - When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise Section 2 (c) Promisor and Promisee - The person making the proposal is called the “promisor”, and the person accepting the proposal is called the “promisee” Section 2 (d) Consideration - 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 promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. Section 2 (e) Agreement Every promise and every set of promises, forming the consideration for each other, is an agreement; Agreement = Offer + Acceptance Contract = Agreement + Enforceability by Law Section 2 (f) Reciprocal Promises - Promises which form the consideration or part of the consideration for each other are called reciprocal promises. Reciprocal promises requires both the parties to the agreement to do something. Section 2 (g) Void Agreement - An agreement not enforceable by law is said to be void; 30 The Institute of Cost Accountants of India  Indian Contracts Act, 1872 Section 2 (h) Contract - An agreement enforceable by law is a contract; Section 2 (i) Voidable Contract - An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract. The contract will be void if the party having the option do not make it valid. Section 2 (j) Void Contract - A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. Essential Elements of a Valid Contract: (i) Agreement: In order to constitute a contract, there must be an agreement in first place. An agreement in turn is composed of two elements-offer and acceptance. Thus there must be at least two parties-one making the offer and another accepting it. The terms of offer must be definite and the acceptance must be absolute and unconditional. (ii) Free Consent: All contracts need to be voluntary - Sec 14 of the Indian Contract Act, 1872, illustrates that - ‘Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake. If consent is not free, then no valid contract comes into existence. This will be discussed in detail subsequently. (iii) Lawful consideration: The agreement must be supported by a lawful consideration. Consideration means ‘something in return’. ‘Something in return’ may be an act or abstinence. But it must be real and lawful. This will be discussed in detail subsequently. (iv) Parties are competent: The parties to an agreement must be capable of entering into a contract. A person is considered competent if he is (a) eighteen years of age (b) of sound mind (c) not disqualified from contracting by any law to which he is subject. Existence of free consent implies the consent of the parties must be free and genuine i.e. not induced by coercion, undue influence, fraud or misrepresentation. (v) Legality of object: There must be legality of object and consideration failing which it will not be a valid contract. This will be discussed in detail subsequently. This contract should not violent the provision of any other laws and regulations of the country. (vi) Legal Relationship: The parties must intend to create a legal relationship. Agreements of social or domestic nature do not contemplate legal relationship, so they are not contracts. Example: A husband promising his wife to buy her a ‘necklace’ on occasion of her birthday is not a contract. (vii)Agreements not expressly declared to be void: The agreement not expressly declared void or illegal by law. This will be discussed in detail subsequently. (viii)Consensus ad idem/Meeting of Minds: The essence of agreement or in turn contract is meeting of mind of the parties. The parties to an agreement must have agreed upon the subject in the same sense and at the same time. Unless there is consensus ad idem, there cannot be any contract. (ix) Certain and Capable of Performance: The terms of agreement must be certain and capable of performance. Example: Mr. Y agrees to sell Mr. V some toys. The type, quality, value etc are not discussed. The agreement cannot be enforced as terms are uncertain. (x) Legal formalities: Where nature of agreement is such that it requires compliance with certain formalities, such requirements should be fulfilled. A contract may require registration in addition of being in writing. However as regards to legal effects, an oral contract has same effect as a contract in writing. The Institute of Cost Accountants of India 31 Fundamentals of Business Laws and Business Communication Types of Contract: (A) Based on enforceability: (i) Valid Contract: An agreement enforceable by law is a valid contract. In other words it satisfies all the requirements of a valid contract as laid down in section 10. If any of the essential requirements is missing it becomes a void contract. (ii) Void agreement: An agreement not enforceable by law is said to be void. A void agreement has no legal consequences. (iii) Voidable contract: An agreement which is enforceable at the option of one or more parties thereto but not at the option of other or others is a voidable contract. (iv) Void contract: A Contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. Void agreement and void contract are different. Void agreement is void ab-initio but void contract is a valid contract at the beginning but subsequently becomes void when it ceases to be enforceable. (v) Unenforceable contracts: These are the contracts which cannot be enforced in a court of law because of some technical defects, these contracts become fully enforceable if the technical defects are removed. (vi) Illegal Contracts: An illegal agreement is destitute of any legal effect from the very beginning. All illegal agreements are void agreements but all void agreements are not illegal. (B) Based on method of formation: (i) Formal contracts: This term is usually found in English laws. Validity of these contracts depends upon their form. They are valid even if they lack consideration. These contracts are of two types; Contract under seal and contract of Records. Contract under seal are in writing and signed by the parties to them. Contract of Records includes the court judgements and recognisance, obligations in such cases arise out of judgement and not under the contract. (ii) Simple Contract: All contracts other than formal are called simple contracts or parole contracts. (C) Based on extent of performance: (i) Executed contracts: An executed contract is one which has been completely completed by both the parties. (ii) Executory contracts: It is a contract which is wholly unperformed. If one party has performed his part of obligation but the other party has not yet completed his obligation on the contract, the contract still remains executory contract. (D) Based on Obligation: (i) Unilateral contract: Under this type of contract, there is an obligation on the part of only one party when the contract is concluded. (ii) Bilateral contract: Here there is an obligation on both the parties to the contract. (iii) Multilateral contract: In this type of contract more than two parties are involved. These are very complex contracts and generally take international character. (E) On the basis of mode of creation: (i) Express contract: According to section 9, in so far as the proposal or acceptance of any promise is made in words, the promise is said to be expressed. Therefore the contracts entered into between the parties by words spoken or written are known as express contracts. 32 The Institute of Cost Accountants of India  Indian Contracts Act, 1872 (ii) Implied or inferred contract: As per section 9, in so far such proposal or acceptance is made otherwise than in words, the promise is said to be implied. Thus the contracts which are made by an act or conduct of the parties and not by words are termed an implied contract. (iii) E-contract: This is a kind of contract formed in the course of E-commerce by interaction of two or more person competent to contract using electronic means, such as e-mail. This involves interaction of an individual with an electronic agent, such as computer program or interaction of at least two electronic agents that are programmed in such a way to generate contract. This contract are conceptually akin to the traditional paper contract and requires all the essential requirements of a valid contract like free consent, capacity of the parties, consideration and legality of objects and consideration. Offer and Acceptance Meaning and Definition of Offer: For an agreement to come into force, there should be a definite offer by one party and unqualified acceptance by the party to whom offer is made. Thus ‘An offer is an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the “offeree”. The term proposal [Sec 2(a)] used in the Indian Contract Act is like the term “offer” used in English laws. The person making proposal or offer is called the promisor or offeror and the person to whom offer is made is called the offeree and the person accepting the offer is called the promisee or acceptor. [Sec 2(c)] Types of Offer: i) Express and Implied offer: An offer may be made either by words or by conduct. An offer, which is made by words, is called express offer and the one, which is inferred from the conduct of a person or the circumstances of the case, is called an implied offer. An example of implied offer is “Calcutta State Transport Corporation on different routes to carry passengers at the scheduled tariff rates. This is a case of implied offer by CSTC and once a person board in the CSTC bus he/she is said to have accepted the offer by his act/conduct.” ii) Offer and Invitation to offer: In the case of invitation to offer the person sending out invitation does not make an offer but only invites the other parties to make an offer. An advertisement for sale of goods by auction, quotations, catalogues of prices or display of goods at show room with price tag etc is invitation of offer rather than offer. The main difference between an offer and an invitation to offer is that in the case of former there should be expression of willingness to do or to abstain from doing with a view to obtaining the assent of the other party, while in the later one, the party without expressing his final willingness, proposes certain terms on which he is willing to negotiate, he does not make an offer, he only invites the other party to make an offer on those terms. The person who responds to the invitation to offer makes the offer which may or may not be accepted by the person inviting the offer. Invitation to offer also occurs for instance when tenders are invited. Advertisement for tender is merely an invitation to offer. The tender constitutes the offer which can be accepted or rejected. Simply putting goods up for auction, catalogue of goods, a prospectus of a company, invitation for jobs, invitation for public subscription etc are merely invitation and not an offer. iii) Offer can be specific or general: An offer is said to be specific when it is addressed to a definite person or persons. Such offer can be accepted only by the person or persons to whom it is made. A general offer on the other hand is addressed to public in large and may be accepted by anybody fulfilling the terms and conditions. The Institute of Cost Accountants of India 33 Fundamentals of Business Laws and Business Communication Legal Rules Regarding Offer: An offer to be valid must comply with the following rules: 1. Offer may be expressed or implied: An offer may be expressed or may be implied from the conduct of the parties or circumstances of the case. Express Offer: An express offer is made by words spoken or written. Implied Offer - An implied offer is not made by words spoken or written. It is implied from the conduct of the parties or from the circumstances. 2. Offer may be specific or general: A specific offer is one which is made to a particular person. It can be accepted by the person to whom it has been made, no one else can accept such an offer. A general offer is an offer made to the public at large. 3. Offer must give rise to legal obligation: An offer to be valid must create legal relationship between the parties. The very purpose of entering into an agreement is to make it enforceable at a Court of law. 4. Terms of an offer must be definite and certain: The terms of an offer should not be vague or indefinite. 5. Offer must be distinguished from an invitation to offer: An offer must be distinguished from an invitation to offer. The shopkeepers generally display their goods in showcases with price tags. The shopkeeper in such cases is not making an offer so that you can accept it. He is, on the other hand, inviting you to make an offer which he may or may not accept. Thus you cannot compel a shopkeeper to sell the goods displayed in the showcase at the marked price. However, if there is a specific law to sell goods at marked price then the seller will have to sell at marked price. For example, during National Emergency essential commodities have to be sold at marked price. 6. Offer must be communicated: An offer must be communicated to the person to whom it is made. A person can accept the offer only when he knows about it. If he does not know it, he cannot accept it. 7. Communication of Special Terms: Special terms of a contract must be communicated. Generally, such cases arise in respect of general offers, like tickets or receipts for depositing luggage at the Railway Station or receipts for clothes given for dry cleaning etc. The rule in these cases is that parties are not bound unless conditions printed are properly communicated. The special terms must be brought to the customer’s notice either (a) by drawing his attention to them specifically or (b) by inferring that a man of ordinary prudence could find them by exercising ordinary prudence. However, if the special conditions forming part of the offer are contained in a document which is delivered after the contract is complete. Then the customer is not bound by them. 8. Offer must be made with a view to obtaining the consent of the other party to do or to abstain from doing the act: The offer must be made with an intention to get the consent of the other party to do or to abstain from doing the act and not simply with a view to making known the intention of making an offer. 9. Offer should not impose an unnecessary obligation to communicate non acceptance: Thus an offeror cannot say that i