Buisness Law

LAW OF TORTIOUS LIABILITY

A tort is a civil wrong. Unlike the obligations voluntarily accepted by the parties to a
contract, a tort consists of the breach of a duty imposed by the law. The law of tort seeks to
provide a legal remedy for the victims of certain forms of harmful conduct.
Examples of the kinds of harmful conduct which the law provides protection against include:
interference with a persons ownership or possession of land or personal property, e.g.
the torts of trespass to land and trespass to goods;
injury to business or personal reputations, e.g. tort of defamation;
interference with a persons use and enjoyment of land, e.g. tort of nuisance;
damage to land, e.g. tort of negligence, the rule in Rylands v Fletcher;
personal injury and death, e.g. torts of negligence and trespass to the person;
damage to commercial interests, e.g. torts of deceit, passing-off, inducement of breach
of contract, conspiracy.
Each tort is governed by its own special rules covering such matters as the basis of liability,
defences and remedies. General principles relating to these issues are set out below.
Basis of tortious liability
Liability in tort is essentially fault-based. This means that a claimant must prove that the
defendant acted intentionally or negligently and was, therefore, blameworthy.
There are two situations where tortious liability may be imposed despite the defendant not
being at fault.
1 Torts of strict liability. These are torts where the claimant can recover compensation for
loss or damage without having to prove fault or intention on the part of the defendant. Part I
of the Consumer Protection Act 1987, for example, provides that a manufacturer is strictly
liable for injuries caused by his defective products.
2 Vicarious liability. In certain situations one person may be held liable for the torts of
another. This type of liability is known as vicarious liability. An employer, for example, is
vicariously liable for the torts of his employees committed during the course of their
employment. Vicarious liability may also arise between partners and between a principal and
agent. There are various justifications for the principles of vicarious liability:
liability is incurred by the person best able financially to meet any award of damages
(usually because the risk is covered by insurance);
the claimant is given an additional defendant to sue, who is more likely to be able to
satisfy any judgment;
harm may be prevented by imposing liability on the person in control of the activity;
the claimant is provided with a defendant in cases where it is impossible to establish
precisely who was responsible within a particular organisation for the wrongful
conduct.
Specific torts relevant to business
Negligence
The tort of negligence is concerned with certain kinds of careless conduct which cause
damage or loss to others.
In order to establish negligence a claimant must prove that:
1 the defendant owed him a legal duty of care;
2 the defendant was in breach of this duty; and
3 the claimant suffered injury or loss as a result of the breach.
Defective goods
There are three circumstances when the person responsible for putting defective goods into
circulation will incur liability in tort for his products. These are:
1 in the tort of negligence;
2 strict liability under Part I of the Consumer Protection Act 1987; and
3 for breach of statutory duty under Part II of the Consumer Protection Act 1987.
Liquidated and unliquidated damages
Introduction
Liquidated damages clauses are used in many types of contracts, most frequently in IT and
construction contracts. A liquidated damages clause (or an agreed damages clause), is a
provision in a contract that fixes the sum payable as damages for a party's breach. In
comparison, unliquidated damages are damages for a party's breach which have not been pre-
estimated.
The Principal function of a liquidated damages clause is to quantify the damages payable in
the event of breach of the contract. The clause will only be relevant once liability is proven or
admitted. In an action for breach of contract, to recover damages beyond nominal damages,
damage must either be proven or admitted. The advantage of a liquidated damages clause is
that there is no need to prove the actual loss, because the clause stipulates a pre-assessment or
pre-estimation of damages.1
Some of the advantages of including a liquidated damages clause in a contract are that it:
provides certainty to the parties
facilitates the recovery of damages by avoiding the requirement of proof of loss
simplifies the dispute resolution procedure
may induce performance of the contract.

Indemnity Clause
An indemnification is a contractual obligation by one party (indemnitor) to pay or
compensate for the losses, damages or liabilities incurred by another party to the contract
(indemnitee) or by a third party.

Alternative Dispute Resolution Mechanisms

The vast majority of disputes are settled by other means outside the formal court system.
There are many good reasons why the parties themselves may prefer an outof- court
compromise to courtroom conflict: e.g. fear of spoiling an otherwise satisfactory relationship;
the cost of legal action, the amount of money at stake; difficulty in predicting the outcome of
the case; or the likelihood of bad publicity. The courts guidelines are
as follows:
A court cannot compel the parties to engage in mediation. ADR is a process which is
entered into voluntarily and an order to engage in ADR may be a breach of Art 6 of
the European Convention on Human Rights (right of access to the courts).
The role of the court is to encourage ADR. The encouragement may be robust.
Costs may be awarded against the successful party if he has unreasonably refused to
agree to ADR.
The burden of showing that the refusal was unreasonable rests with the unsuccessful
party.
Factors which are relevant to deciding the question of reasonableness include the
nature of the dispute, the merits of the case, the extent to which other settlement
methods have been tried, whether the costs of ADR would be disproportionately high,
whether any delay in establishing ADR would be prejudicial, and whether ADR has
reasonable prospects of success.
There is no presumption in favour of mediation.

Some of the disadvantages of litigation and the potential benefits of ADR are as follows:
Litigation is adversarial and confrontational. The parties may wish to maintain a
continuing relationship after the dispute has been resolved.
In order to pursue litigation, you will usually need a lawyer to help prepare your case
and to represent you, particularly in the higher courts. You may not be able to afford
professional legal services or the amount at stake does not justify incurring significant
costs.
Despite the civil procedure reforms, litigation can still be very slow. You may need a
speedy resolution to the problem.
Litigation in the courts can be a daunting prospect for a lay person. ADR can be more
user-friendly with simpler procedures.
Litigation is very stressful and the fear of mounting costs can cause great anxiety.
Some ADR techniques, e.g. conciliation, are specifically designed to overcome these
problems.
The remedies available to a court are quite limited, e.g. damages, injunction or a
declaration of rights. A wider range of remedies may be available through ADR, e.g.
securing a change in the way an organisation operates or securing an explanation of
what happened.

In most situations litigation is a public process. The case may be reported in the press
and the judgment will be freely available to members of the public. Through ADR
your case may be dealt with in privacy and you can avoid adverse or intrusive
publicity.
Although there is some degree of specialisation in the judiciary, most judges are
generalists. The parties may wish to refer their dispute to someone with specialised or
expert knowledge.
 Litigation takes place at a time and location specified by the courts and according to
pre-determined Civil Procedure Rules. ADR can operate more flexibly at a time and
place convenient to the parties and sometimes by mutually agreed rules.

Typology of ADRs
In this section we explain the main types of ADR.

Arbitration
Arbitration allows the parties to present their arguments to an independent arbitrator of their
choice, in private and at their own convenience. The arbitrator may be legally qualified but
usually he has special knowledge or experience of the subject matter. Sometimes an
arbitration panel is used. Both sides agree to be bound by the decision of the arbitrator, which
can be enforced as if it were the judgment of a court.

Mediation
Another alternative to litigation in the civil courts is mediation. This form of alternative
dispute resolution consists of using a neutral third party (mediator) to help the parties to a
legal dispute to reach a common position. Mediation can either be evaluative in the sense
that the mediator evaluates the strength of a case or facilitative in that the mediator
concentrates on helping the parties to reach agreement.

Conciliation
Conciliation is very similar to mediation, in that a third party helps the parties to reach a
resolution. However, in conciliation the third party plays a more active role in bringing the
parties together and suggesting solutions. In some cases the initiative for a settlement comes
not from the parties themselves, but from an outside agency; for example, the Advisory,
Conciliation and Arbitration Service (ACAS) tries to resolve both collective and individual
disputes between employers and employees by means of conciliation.
Ombudsman is an authority, appointed by the government and even private bodies to
investigate complaints against an authority. In India ombudsman exits for sectors like
insurance, income tax, banking and other sectors as well.
In the article first director are usually named
In terms of the Companies Act, 2013 company means a company incorporated under the
Act, or under the previous company law [Sec. 2(20)]. A : 1.1 INCORPORATION OF
PRIVATE COMPANIES, PUBLIC COMPANIES, COMPANY LIMITED BY
GUARANTEE AND UNLIMITED COMPANIES AND THEIR CONVERSIONS/
RECONVERSION/ RE-REGISTRATION THE COMPANIES ACT, 2013 2 CORPORATE
LAWS & COMPLIANCE A company may be an incorporated company or a Corporation, or
an unincorporated company. An incorporated company is a single and legal (artificial) person
distinct from the individuals constituting it, whereas an unincorporated company, such as a
partnership, is a mere collection or aggregation of individuals. Therefore, unlike a
partnership, a company is a corporate body and a legal person having status and personality
distinct and separate from that of the members constituting it.
Characteristics/Advantages of company
- Independent corporate existence- The outstanding feature of a company is its
independent corporate existence. It is a distinct legal person existing independent of
its members. By incorporation under the Act, the company is vested with a corporate
personality which is distinct from the members who compose it.
- Limited Liability- The privilege of limiting liability for business debts is one of the
principal advantages of doing business under the corporate form of organization.
Where the subscribers exercise the choice of registering the company with limited
liability, the members liability becomes limited or restricted to the nominal value of
the shares taken by them or the amount guaranteed by them. No member is bound to
contribute anything more than the nominal value of the shares held by him.
- Perpetual succession- An incorporated company never dies. It is an entity with
perpetual succession. Perpetual succession, means that the membership of a company
may keep changing from time to time, but that does not affect the companys
continuity. The death or insolvency of individual members does not, in any way affect
the corporate existence of the company.
- Separate property A company, being a legal person, is capable of owning, enjoying
and disposing of property in its own name. The company becomes the owner of its
capital and assets. The shareholders are not the several or joint owners of the
companys property. The company is the real person in which all its property is
vested, and by which is controlled, managed and disposed of [Bacha F Guzdar v.
C.I.T. AIR 1955 SC 74.]. The property is vested in the company as a body corporate,
and no changes of individual membership affect the title. The property, however
much, the shareholders may come and to remains vested in the company, and the
 company can convey, assign, mortgage, or otherwise deal with it irrespective of these
mutations.
- Lifting of the Corporate Veil - Before going into this question, one should first try to
understand the meaning of the phrase lifting the veil. It means looking behind the
company as a legal person, i.e., disregarding the corporate entity and paying regard,
instead, to the realities behind the legal facade. Where the Courts ignore the company
and concern themselves directly with the members or managers, the corporate veil
may be said to have been lifted. Only in appropriate circumstances, the Courts are
willing to lift the corporate veil and that too, when questions of control are involved
rather than merely a question of ownership. The following are the cases where
company law disregards the principle of corporate personality or the principle that the
company is a legal entity distinct and separate from its shareholders or members: (a)
In the law relating to trading with the enemy where the test of control is adopted. (b)
In certain matters concerning the law of taxes, duties and stamps particularly where
question of the controlling interest is in issue. (c) Where companies form other
companies as their subsidiaries to act as their agent.
Classes of companies
1. On the basis of incorporation
a. Statutory Companies- e, e.g., the Reserve Bank of India, the State Bank of India,
the Life Insurance Corporation, the Industrial Finance Corporation, the Unit trust
of India and State Financial Corporations These are mostly concerned with public
utilities, e.g. railways, tramways, gas and electricity companies and enterprises of
national importance.
b. Registered Companies - These are the companies which are formed and registered
under the Companies Act, 2013, or were registered under any of the earlier
Companies Acts.
2. On the basis of Liability
a. Company limited by Shares
b. Company Limited by Guarantee
c. Unlimited Company - unlimited company as a company not having any limit on
the liability of its members. In such a company the liability of a member ceases
when he ceases to be a member.
3. On basis of member
a. One Person Company According to Section 2 (62) of the Companies Act, 2013
One Person Company means a company which has only one person as a
member. A company formed under one person company may be either: a) A
company limited by shares, or b) company limited by guarantee, or c) An
unlimited company.
b. Private Company
c. Public Company
d. Small Company
4. On Basis of Control
a. Holding and Subsidary company
5. On basis of Listing in th erecognized stock exchange
 a. Listed Company - a 'listed company' means a company which has any of its
securities listed on any recognised stock exchange. Whereas the word securities as
per the Section 2 (81) of the Companies Act, 2013 has been assigned the same
meaning as defined in clause (h) of Section 2 of the Securities Contracts
(Regulation) Act, 1956.
b. Unlisted Company- means company other than listed company.
6. Others
a. Government Company- According to Section 2 (45) of the Companies Act, 2013,
a 'Government company' means any company in which not less than fifty one per
cent of the paid-up share capital is held by the Central Government, or by any
State Government or Governments, or partly by the Central Government and
partly by one or more State Governments, and includes a company which is a
subsidiary company of such a Government company.
b. Foreign Company- According to Section 2 (42) of the Companies Act, 2013,
foreign company means any company or body corporate incorporated outside
India which: (a) has a place of business in India whether by itself or through an
agent, physically or through electronic mode. And (b) conducts any business
activity in India in any other manner.
c. Associate Company- According to Section 2 (6) of the Companies Act, 2013,
'associate company' in relation to another company, means a company in which
that other company has a significant influence, but which is not a subsidiary
company of the company having such influence and includes a joint venture
company.
d. Dormant Company - Where a company is formed and registered under this Act for
a future project or to hold an asset or intellectual property and has no significant
accounting transaction, such a company or an inactive company may make an
application to the Registrar in such manner as may be prescribed for obtaining the
status of a dormant company.
Incorporation of Company
A. Formation of company : Persons who form the company are known as promoters. It
is they, who conceive the idea of forming the company. They take all necessary steps
for its registration
B. Procedural Aspect of incorporation of company:
- Filling of documents and information with registrar
C. Registration