Introduction

Commercial law or business law is the body of law which governs business and
commerce and is often considered to be a branch of civil law and deals both with issues
of private law and public law. Commercial law regulates corporate contracts, hiring
practices, and the manufacture and sales of consumer goods. Many countries have
adopted civil codes which contain comprehensive statements of their commercial law. In
the United States, commercial law is the province of both the Congress under its power to
regulate interstate commerce, and the states under their police power. Efforts have been
made to create a unified body of commercial law in the US: the most successful of these
attempts has resulted in the general adoption of the Uniform Commercial Code.

Indian Contract Act 1872

Indian Contract Act 1872 is the main source of law regulating contracts in Indian law,
as subsequently amended.

It determines the circumstances in which promise made by the parties to a contract shall
be legally binding on them. All of us enter into a number of contracts everyday
knowingly or unknowingly. Each contract creates some right and duties upon the
contracting parties. Indian contract deals with the enforcement of these rights and duties
upon the parties.

The Indian Contract Act 1872 sections 1-75 came into force on 1 September 1872. It
applies to the whole of India except the state of Jammu and Kashmir. It is not a complete
and exhaustive law on all types of contracts.

Definition

Section 2(h) of the Act defines the term contract as "any agreement enforceable by law".
There are two essentials of this act, agreement and enforceability.

Section 2(e) defines agreement as "every promise and every set of promises, forming the
consideration for each other."

Again Section 2(b) defines promise in these words: "when the person to whom the
proposal is made signifies his assent thereto, the proposal is said to be accepted. Proposal
when accepted, becomes a promise."
Essential Elements of a Valid Contract

According to Section 10, "All agreements are contracts, if they are made by the free
consent of the parties, competent to contract, for a lawful consideration with a lawful
object, and not hereby expressly to be void."

Essential Elements of a Valid Contract are:

1.Proper offer and proper acceptance. there must be an agreement based on a lawful offer
made by person to another and lawful acceptance of that offer made by the latter. section
3 to 9 of the contract act, 1872 lay down the rules for making valid acceptance

2.Lawful consideration: An agreement to form a valid contract should be supported by

consideration. Consideration means “something in return” (quid pro quo). It can be cash,
kind, an act or abstinence. It can be past, present or future. However, consideration
should be real and lawful.

3.Competent to contract or capacity: In order to make a valid contract the parties to it

must be competent to be contracted. According to section 11 of the Contract Act, a
person is considered to be competent to contract if he satisfies the following criterion:

• The person has reached the age of majority.

• The person is of sound mind.
• The person is not disqualified from contracting by any law.

4.Free Consent: To constitute a valid contract there must be free and genuine consent of
the parties to the contract. It should not be obtained by misrepresentation, fraud, coercion,
undue influence or mistake.

5.Lawful Object and Agreement: The object of the agreement must not be illegal or
unlawful.

6. Agreement not declared void or illegal: Agreements which have been expressly
declared void or illegal by law are not enforceable at law; hence does not constitute a
valid contract.

7. Intention To Create Legal Relationships

8. Certainty, Possibility Of Performance

9. Legal Formalities

Types of Contracts

On the basis of Validity:

1. Valid contract: An agreement which has all the essential elements of a contract is
called a valid contract. A valid contract can be enforced by law.

2. Void contract[Section 2(j)]: A void contract is a contract which ceases to be

enforceable by law. A contract when originally entered into may be valid and binding on
the parties. It may subsequently become void.

3. Voidable contract[Section 2(i)]: An agreement which is enforceable by law at the

option of one or more of the parties thereto, but not at the option of other or others, is a
voidable contract. If the essential element of free consent is missing in a contract, the law
confers right on the aggrieved party either to reject the contract or to accept it. However,
the contract continues to be good and enforceable unless it is repudiated by the
aggrieved party.

4. Illegal contract: A contract is illegal if it is forbidden by law; or is of such nature that,

if permitted, would defeat the provisions of any law or is fraudulent; or involves or
implies injury to a person or property of another, or court regards it as immoral or
opposed to public policy. These agreements are punishable by law. These are void-ab-
initio.

“All illegal agreements are void agreements but all void agreements are not illegal.”

5. Unenforceable contract: Where a contract is good in substance but because of some

technical defect cannot be enforced by law is called unenforceable contract. These
contracts are neither void nor voidable.

On the basis of Formation:

1. Express contract: Where the terms of the contract are expressly agreed upon in words
(written or spoken) at the time of formation, the contract is said to be express contract.

2. Implied contract: An implied contract is one which is inferred from the acts or conduct
of the parties or from the circumstances of the cases. Where a proposal or acceptance is
made otherwise than in words, promise is said to be implied.

3. Tacit contract-Tacit contracts are IMPlIED contract in itself. eg-Taking ticket in the
bus,during journey..

4. Quasi contract: A quasi contract is created by law. Thus, quasi contracts are strictly
not contracts as there is no intention of parties to enter into a contract. It is legal
obligation which is imposed on a party who is required to perform it. A quasi contract is
based on the principle that a person shall not be allowed to enrich himself at the expense
of another.

On the basis of Performance:

1. Executed contract: An executed contract is one in which both the parties have
performed their respective obligation.

2. Executory contract: An executory contract is one where one or both the parties
to the contract have still to perform their obligations in future. Thus, a contract which is
partially performed or wholly unperformed is termed as executory contract.

3. Unilateral contract: A unilateral contract is one in which only one party has to
perform his obligation at the time of the formation of the contract, the other party having
fulfilled his obligation at the time of the contract or before the contract comes into
existence.

4. Bilateral contract: A bilateral contract is one in which the obligation on both the
parties to the contract is outstanding at the time of the formation of the contract. Bilateral
contracts are also known as contracts with executory consideration.

Offer

Proposal is defined under section 2(a) of the Indian contract Act, 1872 as "when one
person signifies to another his willingness to do or to abstain from doing anything with a
view to obtainingthe assent of that other to such act or abstinence, he is said to make a
proposal/offer". Thus, for a valid offer,the party making it must express his willingness to
do or not to do something. But mere expression of willingness does not constitute an
offer. An offer should be made to obtainthe assent ofthe other.The offer should be
communicated tothe offeree and it should not contain a termthe non compliance of which
would amount to acceptance. Classification of Offer 1. General Offer: Which is made to
public in general. 2. Special Offer: Which is made to a definite person. 3. Cross Offer:
Exchange of identical offer in ignorance of each other. 4. Counter Offer: Modification
and Variation of Original offer. 5. Standing, Open or Continuing Offer: Which is open
for a specific period of time. The offer must be distinguished from an invitation to offer.
Invitation to offer An invitation to offer is only a circulation of an offer, it is an attempt
to induce offers and precedes a definite offer. Acceptance of an invitation to an offer does
not result contract and only an offer emerges inthe process of negotiation. A statement
made by a person who does not intend to bound by it but, intends to further act, is an
invitation to offer.

Acceptance

According to Section 2(b), "When the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted."

Rules:

1. Acceptance must be absolute and unqualified.

2. Communicated to offeror.

3. Acceptance must be in the mode prescribed.

4. Acceptance must be given within a reasonable time before the offer lapses.

5. Acceptance by the way of conduct.

6. Mere silence is no acceptance.

Lawful Consideration

According to Section 2(d), Consideration is defined as: "When at the desire of the
promisor, the promisee has done or abstained from doing, or does or abstains from doing,
or promises to do or abstain something, such an act or abstinence or promise is called
consideration for the promise."

In short, Consideration means quid pro quo i.e. something in return.

An agreement must be supported by a lawful consideration on both sides.

The consideration or object of an agreement is lawful, unless and until it is- 1.forbidden
by law, or 2.is of such nature that ,if permitted ,it would defeat the provisions of any
law ,or 3.is fraudulant ,or involves or implies injury to the person or property of
another ,or 4.the court regards it as immoral ,or opposed to public policy. 5.consideration
may take in any form-money,goods,services,a promise to marry, a promise to forbear etc.

Competent To Contract

Section 11 of The Indian Contract Act specifies that every person is competent to
contract provided:

1. He should not be a minor i.e an individual who has not attained the age of majority i.e.
18 years.

2. He should be of sound mind while making a contract. A person with unsound mind
cannot make a contract.

3. He is not a person who has been personally disqualified by law.

Free Consent

According to Section 13, " two or more persons are said to be consented when they agree
apon the same thing in the same sense (Consensus-ad-idem).
A consent is said to be free when it not caused by coercion or undue influence or fraud or
misrepresentation or mistake.

Elements Vitiating free Consent

1. Coercion (Section 15): "Coercion" is the committing, or threatening to commit, any act
forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain,
any property, to the prejudice of any person whatever, with the intention of causing any
person to enter into an agreement.

2. Undue influence (Section 16): "Where a person who is in a position to dominate the
will of another enters into a contract with him and the transaction appears on the face of
it, or on the evidence, to be unconscionable, the burden of proving that such contract was
not induced by undue influence shall lie upon the person in the position to dominate the
will of the other."

3. Fraud (Section 17): "Fraud" means and includes any of the following acts committed
by a party to a contract, or with his connivance, or by his agent, with intent to deceive
another party thereto of his agent, or to induce him to enter into the contract.

4. Misrepresentation (Section 18): " causing, however innocently, a party to an agreement

to make a mistake as to the substance of the thing which is the subject of the agreement".

5. Mistake of fact (Section 20): "Where both the parties to an agreement are under a
mistake as to a matter of fact essential to the agreement, the agreement is void".

Revocation of Offer

A proposal may be revoked at any time before the communication of its acceptance is
complete as against the proposer, but not afterwards. An acceptance may be revoked at
any time before the communication of the acceptance is complete as against the acceptor,
but not afterwards.

A proposal is revoked -

(1) by the communication of notice of revocation by the proposer to the other party;

(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is
so prescribed, by the lapse of a reasonable time, without communication of the
acceptance;

(3) by the failure of the acceptor to fulfill a condition precedent to acceptance; or

(4) by the death or insanity of the proposer, if the fact of the death or insanity comes to
the knowledge of the acceptor before acceptance.
Agency

In law, the relationship that exists when one person or party (the principal) engages
another (the agent) to act for him, e.g. to do his work, to sell his goods, to manage his
business. The law of agency thus governs the legal relationship in which the agent deals
with a third party on behalf of the principal. The competent agent is legally capable of
acting for this principal vis-à-vis the third party. Hence, the process of concluding a
contract through an agent involves a twofold relationship. On the one hand, the law of
agency is concerned with the external business relations of an economic unit and with the
powers of the various representatives to affect the legal position of the principal. On the
other hand, it rules the internal relationship between principal and agent as well, thereby
imposing certain duties on the representative (diligence, accounting, good faith, etc.).

Under section 201 to 210 an agency may come to an end in a variety of ways:

(i) By the principal revoking the agency – However, principal cannot revoke an
agency coupled with interest to the prejudice of such interest. Such Agency is
coupled with interest. An agency is coupled with interest when the agent himself
has an interest in the subject-matter of the agency, e.g., where the goods are
consigned by an upcountry constituent to a commission agent for sale, with poor
to recoup himself from the sale proceeds, the advances made by him to the
principal against the security of the goods; in such a case, the principal cannot
revoke the agent’s authority till the goods are actually sold, nor is the agency
terminated by death or insanity. (Illustrations to section 201)
(ii) By the agent renouncing the business of agency;
(iii) By the business of agency being completed;
(iv) By the principal being adjudicated insolvent (Section 201 of The Indian
Contract Act. 1872)

The principal also cannot revoke the agent’s authority after it has been partly exercised,
so as to bind the principal (Section 204), though he can always do so, before such
authority has been so exercised (Sec 203).

Further, as per section 205, if the agency is for a fixed period, the principal cannot
terminate the agency before the time expired, except for sufficient cause. If he does, he is
liable to compensate the agent for the loss caused to him thereby. The same rules apply
where the agent, renounces an agency for a fixed period. Notice in this connection that
want of skill continuous disobedience of lawful orders, and rude or insulting behavior has
been held to be sufficient cause for dismissal of an agent. Further, reasonable notice has
to be given by one party to the other; otherwise, damage resulting from want of such
notice, will have to be paid (Section 206). As per section 207, the revocation or
renunciation of an agency may be made expressly or impliedly by conduct. The
termination does not take effect as regards the agent, till it becomes known to him and as
regards third party, till the termination is known to them (Section 208).
When an agent’s authority is terminated, it operates as a termination of subagent also.
(Section 210).

sale of goods act 1930

The law as to the sale of goods was originally embodied in sections 76 to 123 of the
Indian Contract Act, 1872. However, as the provisions of the sections 76 to123 were
found inadequate to meet the complexities of growing mercantile transactions, the said
sections were repealed and the sale of Goods Act 1930 took birth. It is well known that
our sale of Goods Act, 1930 is based upon and is largely a re-production of the English
sale of Goods Act 1893 and in principle the law of sale of goods in both the countries is
now the same and, therefore, English authorities in interpretation of different sections
although not technically binding in India, would have great persuasive value.

Law relating to sale of goods is a branch of Contract Law as the general principles of
contracts are applicable to contracts for sale of goods such as offer and its acceptance,
capacity of parties, free consent, consideration and legality of the object.

Scope of the Act:

The sale of Goods Act applies only to movables than actionable claims and money and
not to immovables which are governed by the Transfer of property Act 1882. Actionable
claims mean chose in action or thing in action. It means the person has a right to recover
a thing by suit but does not have the enjoyment of the thing.

Goods [Sec 2 (7)]:

Goods means every kind of movable property other than actionable claims and money
and includes tock and shares, growing crops, grass and things attached, to or forming part
of the land which are agreed to be severed before sale or under the contract of sale.

Goods may be – (1) Existing, or (2) Future

Existing goods are further classified into –

a) Specific goods
b) Un-ascertained or Generic goods

Specific goods mean goods identified and agreed upon at the time a contract of sale is
made [Sec2 (14)]. These goods are already in existence and are physically present in
some person’s possession and ownership for example contract for the sale of a specific
watch or specific car.

Generic or un-ascertained goods are indicated by description and not separately identified
for example sale of one kg of oil from 100 kgs of oil with the merchant is a sale of un-
ascertained goods. When one kg is separated from 100 kgs of oil the sale is of specific
goods.

Future goods means goods to be manufactured or purchased or acquired by the seller

after the making of the contract of sale [Sec 2 (6)]. These goods do not exist at the time of
contract of sale, but subsequently come existence.

Illustrations:

A agrees to sell B a sofa cum bed which he would manufacture. It is a case of sale of
future goods.

Shares and stock are goods. Even things like goodwill, copyright, trade mark, patent etc
are all goods. Gas and electricity though not governed by the sale of Goods act, has been
held to be goods. Money is the only consideration in sale of goods. Money means current
money. Current money is not goods. If goods are sold for goods the transaction is
‘Exchange’ governed by the Transfer of Property Act, 1882, Price, therefore under the
Act means money consideration for sale of goods. Sale of old coins or notes for money in
sale of goods

Document of Title to goods:

Document of title to goods includes a bill of lading dock warrant, warehouse keeper’s
certificate, wharfinger’s certificate, railways receipt warrant or order for the delivery of
goods and any other document used in the ordinary course of business as proof of the
possession or control of goods or authorizing or purporting to authorize, either by
endorsement or by delivery, the possessor of the document to transfer or receive goods
thereby presented.

In a short, a document of title to goods is a proof of possession or control over the goods.
The holder of the document of title to goods is authorized to receive the goods. He is also
authorized to transfer the possession of the goods either by endorsement or by delivery.

Bill of lading, dock warrant, warehouse keeper’s certificate, wharfinger’s certificate

railway receipt, delivery warrant are some of the documents of title to goods. Any
document used in the ordinary course of business, which entitles the possessor of e
document to receive the goods unconditionally is a document of title to goods.

A delivery order is a document of title to goods and its possessor has the right not only to
receive the goods but also to transfer it to another by endorsement or delivery.

A bill of lading is a writing signed on behalf of the owner of the ship in which goods are
embarked, acknowledging the receipt of the goods, and undertaking to deliver them at the
end of the voyage subject to such conditions as may be mentioned in the bill of lading. It
is well settled in commercial world that a bill of lading represents the goods and the
transfer of it operates as a transfer of the goods.
The Factories Act, 1948

Objectives
1. To ensure adequate safety measures and to promote the health and welfare of the
workers employed in factories.
2. To prevent haphazard growth of factories through the provisions related to the
approval of plans before the creation of a factory.

Applicability of the Act

1. Applicable to the whole of India including Jammu & Kashmir.
2. Covers all manufacturing processes and establishments falling within the
definition of ‘factory’.
3. Applicable to all factories using power and employing 10 or more workers, and if
not using power, employing 20 or more workers on any day of the preceding 12
months.

Scheme of the Act

1. The Act consists of 120 Sections and 3 Schedules.
2. Schedule 1 contains list of industries involving hazardous processes
3. Schedule 2 is about permissible level of certain chemical substances in work
environment.
4. Schedule 3 consists of list of notifiable diseases.

Important provisions the Act

Facilities and Conveniences - The factory should be kept clean. [Section 11]. There
should be arrangement to dispose of wastes and effluents. [Section 12]. Ventilation
should be adequate. Reasonable temperature for comfort of employees should be
maintained. [Section 13]. Dust and fumes should be controlled below permissible limits.
[Section 14]. Artificial humidification should be at prescribed standard level. [Section
15]. Overcrowding should be avoided. [Section 16]. Adequate lighting, drinking water,
latrines, urinals and spittoons should be provided. [Sections 17 to 19]. Adequate
spittoons should be provided. [Section 20].

Welfare - Adequate facilities for washing, sitting, storing cloths when not worn during
working hours. [Section 42]. If a worker has to work in standing position, sitting
arrangement to take short rests should be provided. [Section 44]. Adequate First aid
boxes shall be provided and maintained [Section 45].

Facilities in case of large factories - Following facilities are required to be

provided by large factories - * Ambulance room if 500 or more workers are employed *
Canteen if 250 or more workers are employed. It should be sufficiently lighted and
ventilated and suitably located. [Section 46]. * Rest rooms / shelters with drinking water
when 150 or more workmen are employed [Section 47] * Crèches if 30 or more women
workers are employed. [Section 48] * Full time Welfare Officer if factory employs 500 or
more workers [Section 49] * Safety Officer if 1,000 or more workmen are employed.

Safety - All machinery should be properly fenced to protect workers when machinery
is in motion. [Section 21 to 27]. Hoists and lifts should be in good condition and tested
periodically. [Section 28 and 29]. Pressure plants should be checked as per rules. [Section
31]. Floor, stairs and means of access should be of sound construction and free form
obstructions. [Section 32]. Safety appliances for eyes, dangerous dusts, gas, fumes should
be provided. [Sections 35 and 36]. Worker is also under obligation to use the safety
appliances. He should not misuse any appliance, convenience or other things provided.
[Section 111]. In case of hazardous substances, additional safety measures have been
prescribed. [Sections 41A to 41H]. - - Adequate fire fighting equipment should be
available. [Section 38]. - - Safety Officer should be appointed if number of workers in
factory are 1,000 or more. [Section 40B].

Working Hours - A worker cannot be employed for more than 48 hours in a week.
[Section 51]. Weekly holiday is compulsory. If he is asked to work on weekly holiday, he
should have full holiday on one of three days immediately or after the normal day of
holiday. [Section 52(1)]. He cannot be employed for more than 9 hours in a day. [Section
54]. At least half an hour rest should be provided after 5 hours. [Section 55]. Total period
of work inclusive of rest interval cannot be more than 10.5 hours. [Section 56]. A worker
should be given a weekly holiday. Overlapping of shifts is not permitted. [Section 58].
Notice of period of work should be displayed. [Section 61].

Overtime Wages - If a worker works beyond 9 hours a day or 48 hours a week,

overtime wages are double the rate of wages are payable. [Section 59(1)]. A workman
cannot work in two factories. There is restriction on double employment. [Section 60].
However, overtime wages are not payable when the worker is on tour. Total working
hours including overtime should not exceed 60 in a week and total overtime hours in a
quarter should not exceed 50. Register of overtime should be maintained. - - An
employee working outside the factory premises like field workers etc. on tour outside
headquarters are not entitled to overtime. – R Ananthan v. Avery India 1972(42) FJR 304
(Mad HC) * Director of Stores v. P S Dube 1978 Lab IC 390 = 52 FJR 299 = 1978 I LLN
464 = 36 FLR 420.

Employment of Women - A woman worker cannot be employed beyond the

hours 6 a.m. to 7.00 pm. State Government can grant exemption to any factory or group
or class of factories, but no woman can be permitted to work during 10 PM to 5 AM.
Shift change can be only after weekly or other holiday and not in between. [Section 66].

Night Shift for women:

Factories Act is proposed to be amended to allow night shift for women workers. The
Government has decided to amend Section 66 of the Factories Act, 1948 to allow
employment of women workers between 7.00 pm and 6.00 am. The demand of women’s
organisations and in tune with the present economic globalization, the Government has
decided to bring in then required changes in the Act. This flexibility would be available
to all manufacturing units including the apparel sector. This decision has been taken after
meetings with the representatives of the employers and the trade unions. The proposed
Bill will empower the State Governments for allowing the necessary flexibility in
employment of women during night shift in factories.

The proposed amendment would inter-alia provide that the employer has to ensure
occupational safety and adequate protection to the women workers. However, the State
Government or any person authorised by it would be allowing employment of women
during night only after consulting the workers or their representative organisations and
concerned employers or their representatives. The State Governments are also
empowered to frame their own rules for allowing such permissions.

Record of Workmen - A register (muster roll) of all workers should be

maintained. No worker should be permitted to work unless his name is in the register.
Record of overtime is also required to be maintained. [Section 62].

Leave - A worker is entitled in every calendar year annual leave with wages at the rate
of one day for every 20 days of work performed in the previous calendar year, provided
that he had worked for 240 days or more in the previous calendar year. Child worker is
entitled to one day per every 15 days. While calculating 240 days, earned leave,
maternity leave upto 12 weeks and lay off days will be considered, but leave shall not be
earned on those days. [Section 79]. – Leave can be accumulated upto 30 days in case of
adult and 40 days in case of child. Leave admissible is exclusive of holidays occurring
during or at either end of the leave period. Wage for period must be paid before leave
begins, if leave is for 4 or more days. [Section 81]. Leave cannot be taken for more than
three times in a year. Application for leave should not normally be refused. [These are
minimum benefits. Employer can, of course, give additional or higher benefits].
Wages for OT and Leave Salary - 'Wages' for leave encashment and overtime
will include dearness allowance and cash equivalent of any benefit. However, it will not
include bonus or overtime.

Child Employment - Child below age of 14 cannot be employed. [Section 67].

Child above 14 but below 15 years of age can be employed only for 4.5 hours per day or
during the night. [Section 71]. He should be certified fit by a certifying surgeon. [Section
68]. He cannot be employed during night between 10 pm to 6 am. [Section 71]. A person
over 15 but below 18 years of age is termed as ‘adolescent’. He can be employed as an
adult if he has a certificate of fitness for a full day's work from certifying surgeon. An
adolescent is not permitted to work between 7 pm and 6 am. [Section 70]. There are more
restrictions on employment of female adolescent. - - Register of child workers should be
maintained. [Section 73].

Display on Notice Board - A notice containing abstract of the Factories Act and
the rules made thereunder, in English and local language should be displayed. Name and
address of Factories Inspector and the certifying surgeon should also be displayed on
notice board. [Section 108(1)].

Notice of Accidents, Diseases Etc. - Notice of any accident causing

disablement of more than 48 hours, dangerous occurrences and any worker contacting
occupational disease should be informed to Factories Inspector. [Section 88]. Notice of
dangerous occurrences and specified diseases should be given. [Sections 88A and 89].

Obligation regarding Hazardous Processes / Substances -

Information about hazardous substances / processes should be given. Workers and
general public in vicinity should be informed about dangers and health hazards. Safety
measures and emergency plan should be ready. Safety Committee should be appointed.

Payment of Wages Act, 1936

Objectives
• To ensure regular and prompt payment of wages and to prevent the exploitation of
a wage earner by prohibiting arbitrary fines and deductions from his wages.
Applicability of the Act
• Application for payment of wages to persons employed in any factory.
• Not applicable to wages which average Rs 6,500 per month or more.
• Wages include all remuneration, bonus, or sums payable for termination of
service, but do not include house rent reimbursement, light vehicle charges, medical
expenses, TA, etc.
Important provisions of the Act
• Responsibility of the employer for payment of wages and fixing the wage period.
• Procedures and time period in wage payment.
• Payment of wages to discharged workers.
• Permissible deductions from wages.
• Nominations to be made by employees.
• Penalties for contravention of the Act.
• Equal remuneration for men and women.
• Obligations and rights of employers.
• Obligations and rights of employees.
The Act is to regulate payment of wages to certain class of employed persons. The main
purpose of this Act is to ensure regular and timely payment of wages to the employed
persons, to prevent unauthorized deductions being made from wages and arbitrary fines
being imposed on the employed persons. The Act extends to the whole of India.

Application of the Act:

The Act applies to payment of wages to persons employed in factory or railways. It also
applies to any ‘industrial or other establishment’ specified in Section 2(ii). [Section
1(4)]. ‘Factory’ means factory as defined in Section 2(m) of Factories Act. - - Industrial
or other establishment specified in Section 2(ii) are - * Tramway or motor transport
services * Air transport services * Dock wharf or jetty * Inland vessels * Mines, quarry
or oil-field * Plantation * Workshop in which articles are produces, adopted or
manufactured. - - The Act can be extended to other establishment by State/Central
Government.

Presently, the Act applies to employees drawing wages upto Rs 6,500. [Section 1(6)].
Every employer is responsible for payment to persons employed by him on wages.
[Section 3].

MEANING OF WAGES - Wages means all remuneration expressed in terms of

money and include remuneration payable under any award or settlement, overtime wages,
wages for holiday and any sum payable on termination of employment. However, it does
not include bonus which does not form part of remuneration payable, value of house
accommodation, contribution to PF, traveling allowance or gratuity. [Section 2(vi)]

HOW WAGES SHOULD BE PAID - Wages can be paid on daily, weekly,

fortnightly or monthly basis, but wage period cannot be more than a month. [Section 4].
Wages should paid on a working day. Wages are payable on or before 7th day after the
‘wage period’. In case of factories employing more than 1,000 workers, wages can be
paid on or before 10th day after ‘wage period’ is over. [Section 5(1)]. [Normally, ‘wage
period’ is a ‘month’. Thus, normally, wages should be paid by 7th of following month
and by 10th if the number of employees are 1,000 or more]. - - Wages should be paid in
coins and currency notes. However, with authorisation from employee, it can be paid by
cheque or by crediting in his bank account. [Section 6].

DEDUCTIONS PERMISSIBLE - Deduction on account of absence of duty, fines,

house accommodation if provided, recovery of advance, loans given, income tax,
provident fund, ESI contribution, LIC premium, amenities provided, deduction by order
of Court etc. is permitted. Maximum deduction can be 50%. However, maximum
deduction upto 75% is permissible if deduction is partly made for payment to cooperative
society. [Section 7].

FINES – Specific notice specifying acts and omissions for which fine can be imposed
should be exhibited on notice board etc. Such notice can be issued only after obtaining
specific approval from State Government. Fine can be imposed only after giving
employee a personal hearing. Fine can be maximum 3% of wages in a month. Fine
cannot be recovered in instalments. [Section 8].

Payment of Gratuity Act, 1972

Gratuity is a lump sum payment to employee when he retires or leaves service. It is
basically a retirement benefit to an employee so that he can live life comfortably after
retirement. However, under Gratuity Act, gratuity is payable even to an employee who
resigns after completing at least 5 years of service.

In DTC Retired Employees v. Delhi Transport Corporation 2001(4) SCALE 30 = 2001

AIR SCW 2005, it was observed that gratuity is essentially a retiring benefit which as per
Statute has been made applicable on voluntary resignation as well. Gratuity is reward for
good, efficient and faithful service rendered for a considerable period.

ACT PROVIDES FOR MINIMUM GRATUITY ONLY – The Gratuity Act

provides only for minimum gratuity payable. If employee has right to receive higher
gratuity under a contract or under an award, the employee is entitled to get higher
gratuity. [Section 4(5)].

Employers liable under the scheme - The Act applies to every factory,
mine, plantation, port, and railway company. It also applies to every shop and
establishment where 10 or more persons are employed or were employed on any day in
preceding 12 months. [Section1(3)]. Since the Act is also applicable to all shops and
establishments, it will apply to motor transport undertakings, clubs, chambers of
commerce and associations, local bodies, solicitor’s offices etc. , if they are employing 10
or more persons.

Employees eligible for gratuity – ’Employee’ means any person (other than
apprentice) employed on wages in any establishment, factory, mine, oilfield, plantation,
port, railway company or shop, to do any skilled, semi-skilled or unskilled, manual,
supervisory, technical or clerical work, whether terms of such employment are express or
implied, and whether such person is employed in a managerial or administrative capacity.
However, it does not include any Central/State Government employee. [Section 2(e)].
Thus, the Act is applicable to all employees - workers as well as persons employed in
administrative and managerial capacity.

Gratuity is payable to a person on (a) resignation (b) termination on account of death or

disablement due to accident or disease (c) retirement (d) death. Normally, gratuity is
payable only after an employee completes five years of continuous service. In case of
death and disablement, the condition of minimum 5 years’ service is not applicable.
[Section 4(1)].

The Act is applicable to all employees, irrespective of the salary.

Amount of gratuity payable - Gratuity is payable @ 15 days wages for every

year of completed service. In the last year of service, if the employee has completed more
than 6 months, it will be treated as full year for purpose of gratuity. - - In case of seasonal
establishment, gratuity is payable @ 7 days wages for each season. [Section 4(2)].

Wages shall consist of basic plus D.A, as per last drawn salary. However, allowances like
bonus, commission, HRA, overtime etc. are not to be considered for calculations.
[Section 2(s)].

In case of employees paid on monthly wages basis, per day wages should be calculated
by dividing monthly salary by 26 days to arrive at daily wages e.g. if last drawn salary of
a person (basic plus DA) is Rs. 2,600 per month, his salary per day will be Rs. 100 (2,600
divided by 100). Thus, the employee is entitled to get Rs. 1,500 [15 days multiplied by
Rs. 100 daily salary] for every year of completed service. If he has completed 30 years of
service, he is entitled to get gratuity of Rs. 45,000 (Rs. 1,500 multiplied by 30).
Maximum gratuity payable under the Act is Rs. 3.50 lakhs (the ceiling was Rs. 1,00,000
which was increased to 2.50 lakhs on 24.9.97 by an ordinance which was later increased
to Rs 3.50 lakhs while converting the ordinance into Act].
MAXIMUM GRATUITY PAYABLE – Maximum gratuity payable is Rs 4 lakhs.
[Section 4(3)]. [Of course, employer can pay more. Employee has also right to get more
if obtainable under an award or contract with employer, as made clear in Section 4(5)].

INCOME-TAX EXEMPTION - Gratuity received upto Rs. 3.50 lakhs is

exempt from Income Tax. Gratuity paid above that limit is taxable. [Section 10(10) of
Income Tax Act]. - - However, employee can claim relief u/s 89 in respect of the excess
amount.

No Compulsory insurance of gratuity liability – Section 4A provides that every employer

must obtain insurance of his gratuity liability with LIC or any other insurer. However,
Government companies need not obtain such insurance. If an employee is already
member of gratuity fund established by an employer, he has option to continue that
arrangement. If an employer employing more than 500 persons establishes an approved
gratuity fund, he need not obtain insurance for gratuity liability. - - However, this Section
has not yet been brought into force. Hence, presently, such compulsory insurance is not
necessary.

Gratuity cannot be attached - Gratuity payable cannot be attached in execution of any

decree or order of any civil, revenue or criminal court, as per Section 13 of the Act.

Industrial Disputes act

An industrial dispute may be defined as a
conflict or difference of opinion between
management and workers on the terms of
employment. It is a disagreement between an
employer and employees' representative; usually
a trade union, over pay and other working
conditions and can result in industrial actions.
When an industrial dispute occurs, both the
parties, that is the management and the
workmen, try to pressurize each other. The
management may resort to lockouts while the
workers may resort to strikes, picketing or
 gheraos.

As per Section 2(k) of Industrial Disputes

Act,1947, an industrial dispute in defined as any
dispute or difference between employers and
employers, or between

employers and workmen, or between workmen and which is connected with the
employment or non-employment or the terms of employment or with the conditions of
labor, of any person.

This definition includes all the aspects of a dispute. It, not only includes the disagreement
between employees and employers, but also emphasizes the difference of opinion
between worker and worker. The disputes generally arise on account of poor wage
structure or poor working conditions. This disagreement or difference could be on any
matter concerning the workers individually or collectively. It must be connected with
employment or non-employment or with the conditions of labor.

From the point of view of the employer, an industrial dispute resulting in stoppage of
work means a stoppage of production. This results in increase in the average cost of
production since fixed expenses continue to be incurred. It also leads to a fall in sales and
the rate of turnover, leading to a fall in profits. The employer may also be liable to
compensate his customers with whom he may have contracted for regular supply. Apart
from the immediate economic effects, loss of prestige and credit, alienation of the labor
force, and other non-economic, psychological and social consequences may also arise.
Loss due to destruction of property, personal injury and physical intimidation or
inconvenience also arises.

For the employee, an industrial dispute entails loss of income. The regular income by
way of wages and allowance ceases, and great hardship may be caused to the worker and
his family. Employees also suffer from personal injury if they indulge into strikes n
picketing; and the psychological and physical consequences of forced idleness. The threat
of loss of employment in case of failure to settle the dispute advantageously, or the threat
of reprisal action by employers also exists.

Prolonged stoppages of work have also an adverse effect on the national productivity,
national income. They cause wastage of national resources. Hatred may be generated
resulting in political unrest and disrupting amicable social/industrial relations or
community attitudes.

The Inter-State River Water Dispute

Act-1956
In order to promote integrated and optimum development of waters of inter-state
rivers and river valleys, under Entry 56 of List-I of the Constitution, Parliament
has enacted the River Boards Act, 1956. This act contemplated the appointment
of river boards by the central government in consultation with the state
governments. It is expected that these boards would help in coordinated and
optimum utilization of river waters and promote development of irrigation,
drainage, water supply. Food control and hydro-electric power.

As per the Act the “Water dispute” means any dispute or difference
between two or more state governments with respect to:

a) The use, distribution or control of waters of, or in any inter-state river or

river valley; or

b) The interpretation of the terms of any agreement relating to the use

distribution or control of such water or the implementation of such
agreement; or

c) The levy of any water rate in contravention of the prohibition contained

in the Act.

If it appears to the government of any state that a water dispute with the
government of another state has arisen or is likely to arise by reason of the fact
that interest of the state, or if any of the inhabitants there of in the waters of an
inter-state river or river valley have been, or are likely to be, affected prejudicially
by:-

a) any executive action or legislation taken or passed or proposed to

be taken or passed by the other state; or,
 b) the failure of the other state or any of their power with respect to the
use, distribution or control of such waters; or

c) the failure of other state to implement the terms of any agreement

relating to the use, distribution or control of such water, the state
govt. may, in such form and manner as may be prescribed, request
the Central Government to refer the water dispute to a Tribunal for
adjudication.

When any request is received from any State Government in respect of

any water dispute and the Central Government shall, within a period not
exceeding one year from the date of receipt of such request, by notification in the
official Gazette constitute a Water Dispute Tribunal for the adjudication of the
water dispute. Such Tribunal shall investigate the matters referred to it and
forward to the Central Government a report setting out the facts as found by it
and giving its decision on the matters referred to it within a period of three years.
It the members of the Tribunal differ in opinion on any point, the point shall be
decided by the majority. The Tribunal shall have the some powers as are vested
in a civil court under the Code of Civil Procedure, 1908, in respect of the
following matters namely:

I) summoning and enforcing the attendance of any person and

examining him on both;

II) requiring the discovery and production of documents and

material objects;

III) issuing commissions for the examination of witnesses or for legal

investigation;

IV) any other matter which may be prescribed

Under the Act-1956 the union government has set up many water
Tribunals like the Krishna Tribunal, the Narmada Tribunal, The Godavari
Tribunal, the Cauveri Tribunal, The Ravi, Beas Tribunal etc. But the main
problem with respect to Tribunals is inordinate delay at every stage. Even the
inability of the states to have a dispute referred to a Tribunal unless the union
government is satisfied that no negotiated settlement is possible, causes delay.
Generally delay occurs at three states- 1) in setting up the Tribunal 2) in the
announcement of the award and 3) in implementation of the award.
 In the last few decades it has been apparent that only the formation of
Tribunals and their suggestions are not sufficient to cope with the problem of
river-water sharing. The awards of different Tribunal are not backed by enforcing
mechanism. Recently the dispute over the implementation of the Cauveri
Tribunal has once again flamed this issue. In 1998 the Parliamentary Standing
committee on Water Resources, chaired by former union minister for rural area
and employment, Mr. K. Yerran Naidu, in its report, urged the government to
come forward with a legislation to transfer the subject of “Water “ from the State
List to the Concurrent List. The committee observed that the ministry of water
resources had been rendered weak and ineffective in getting, various resources
projects implemented within a time frame in view of the original constitutional role
it had to play. The committee said drastic and remedial measures would have to
be undertaken within a time frame lest all progress on this front should come to a
standstill. The Sarkaria Commission on centre-state relation had made
recommendations for amendments to the existing Inter-State Water Dispute Act,
1956.

Constitutional and legal provisions

India is union of States. The constitutional provisions in respect of

allocation of responsibilities between the State and Centre fall into three
categories: The Union List (List-I), the State List (List-II) and the Concurrent List
(List-III). Article 246 of the Constitution deals with subject matter of laws to be
made by Parliament and by Legislature of the States. As most of the rivers in the
country are inter-State, the regulation and development of water is matter
included in Entry is subject to the provision of Entry 56 of List-I i.e Union List.
The specific provisions in this reagard are under:

Article 246: 1) Notwithstanding anything in clauses (2) and (3), Parliament has
exclusive power to make laws with respect to any of the matters enumerated in
List I in the Seventh Schedule (in this Constitution referred to as "Union List").

1. Notwithstanding anything in clauses ( 3), Parliament, and subject to clause (1),

the legislature of any State also, have power to make laws with respect to any of
the matters enumerated in List III in the Seventh Schedule (in this Constitution
referred to as the "Concurrent List").

2. Subject to clauses (1) and (2), 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 in the Seventh Schedule (in this Constitution referred to as
the "State List").

3. Parliament has power to make laws with respect to any matter for any part of
the territory of India not included in a State notwithstanding that such matter is
enumerated in the State List.
Article 262: In case of disputes relating to waters, Article 262 provides:

1. Parliament may be law provide for adjudication of any dispute or complaint

with respect to the use, distribution or control of the water of, or in, any inter-state
river or river valley.

2. Notwithstanding anything in this Constitution, Parliament may, by law

provide that neither the Supreme Court nor any other court shall exercise
jurisdiction in respect of any such dispute or complaint as is referred to in
Clause (1).

As such, the Central Government is conferred with powers to regulate and

develop inter-state rivers under Entry 56 of List I of Seventh Schedule to the
extent declared by Parliament by law to be expedient in the public interest.

It also has the power to make laws for the adjudication of any dispute
relating to waters of inter-state river or river valley under Article 262 of the
Constitution.

Hence the Constitution does not have any machinery for adjudication
of water disputes. The constitution empowers parliament to make such
provisions as it think fit for adjudication of such disputes. It provides for
reference of such a dispute to tribunals on receipt of an application from a
state when the Union Government is satisfied by negotiations. The major
criticism against the existing arrangement are 1) they involve inordinate
delay in securing settlement of such dispute 2) there is no provision for an
adequate machinery to enforce the award of the Tribunal.

The state cannot legislate on use of waters of inter-state rivers and

river valley beyond their state boundaries. In the constitution water is a
matter comprised in Entry 17 of List-II. This entry is subject to the
provisions of Entry 56 of List-I. The result is that no state can effectively
legislate inter-state river water for its own benefits. Only Parliament can
effectively regulate by law the beneficial use and distibution of such waters
among the states. Secondly, the quantity of wate avialable to each of the
states depends upon the equitable share of the other states. Thirdly a dispute
about the waters of an inter-state river can arise from any actual and
proposed legislation of a state.