Legal Environment of

Business
- An Overview of Curriculum
 Unit I – INTRODUCTION TO LEGAL
ENVIRONMENT
 Philosophy of Law Applicability to
Business Management
 Meaning of Law Awareness on
Litigation
 Purpose of Law

 Sources of Law

 Classification of Law

…..Contd..
 Unit I – INTRODUCTION TO LEGAL
ENVIRONMENT
 Torts Civil Wrong

 Malfeasance Driving without License

 Misfeasance Rash Driving

 Non-feasance Professional Negligence

 Tort vis-à-vis Contract No Privity of Contract

 Tort vis-à-vis Crime Crime against Society /

Tort – Individual
 General Conditions of
Right/Injury/Damage
Liability in Torts
…..Contd..
 Unit I – INTRODUCTION TO LEGAL
ENVIRONMENT
 National Law and International Law
 Nature of International Law Binding States
Common Law /
 Evolution of Mercantile Law/ Mercantile
Business Law Law / Equity
Law
 International Business Law
WTO / GATT
 Justice Delivery System in India
 Civil and Criminal Law
 Classification of Courts in India Awareness
 Unit II – BUSINESS CONTRACTS

 Legal Elements of Contracts

Agreement / MOU
 Agreement / Contract
Implications of
 Formation of Contracts Incapacity

 Classification of Contracts Enforceability

Standard Form
/ Agreements
 Void Agreements
 Valid Contracts and
Limitations
 Voidable Contracts Fraud / Misrep /
Coercion
…..Contd..
 Unit II – BUSINESS CONTRACTS

 Remedies for Breach of

Contract
Unilateral Breach
 Suit for Rescission
Negative Relief /
 Suit for Injunction Breach of Faith
 Suit for Specific Where Damages
are inadequate
Performance
Monetary Relief
 Suit for Damages
Beyond Damages
 Penalty by Courts – Interest
 Suit for Quantum Meruit Reasonable Value
of Performed Part
of Contract
…..Contd..
 Unit II – BUSINESS CONTRACTS

 Contracts of Agency Expressed and

Implied
 Creation of Agency Right of Principal
is Duty of Agent
 Rights and Duties of Parties
By Revocation /
 Termination of Agency By Law

 Contracts of Guarantee
Specific and
 Types of Guarantees Continuing
Co-extensive
 Liability of Surety
Creditors Seek
 Discharge of Surety Waivers
An Indemnity
 Bank Guarantee …..Contd..
 Unit II – BUSINESS CONTRACTS

 Contracts of Indemnity
Damages / Costs
 Rights of Indemnity Holder Entitlement

when Sued
 Letter of Credit Contracts
 Features of a Letter of Credit Bank Guarantees
Default by Buyer
 Parties to a Letter of Credit Import – Export
Transactions
 Documents under a Letter of UCP
Credit …..Contd..
 Unit II – BUSINESS CONTRACTS

 Employment Contracts
 The Employer-Employee At Will
Relationship
Liquidated
 Checklist of Standard Damages / Data
Clauses Privacy /
Confidentiality
 Special Rights in Contracts
Right of
 Lien Retention
Combining
 Set-off – Banker’s Right Accounts …..Contd..
 Unit II – BUSINESS CONTRACTS

 Documentation of Commercial
Recital /
Contracts Consideration /
Covenant
 Important Clauses in Signatures /
Attestation
Commercial Contracts State / Central /
 Stamp Duty Timing

 Registration Notice / In Rem

Law of Land
 Applicable Law
Beyond Control of
 Force Majeure Parties
 Notice Requirement for
Ending Legal
 Arbitration Clause Relationship
Inclusion in
 Checklist for Standard Agreements
Clauses Risk of Loss
Protected
 Unit III – NON-CORPORATE BUSINESS
ENTITIES
 Sole Proprietorship Advantages and
Disadvantages
 Features of Sole
Proprietorship
 One Person Company (OPC)
 Hindu Undivided Family (HUF)
Business Units
 Meaning and Features Family Business
 Distinction between a
Company and a Hindu
Undivided Family Business …..Contd..
 Unit III – NON-CORPORATE BUSINESS
ENTITIES
 Partnership Firms – Need for
registration
The Partnership Act, 1932
 Legal Formalities and
Registration of Firms
[Sections 58 and 59]
 Limited Liability Partnerships
Yet to be passed
(LLP)
 Salient Features of the
Proposed LLP
…..Contd..
 Unit III – NON-CORPORATE BUSINESS
ENTITIES
 Cooperative Societies Associations with
Common Interests
 Requirements for forming a
Cooperative Society
 Registration of a
Cooperative Society
 Non-Profit Companies
Sec.25 - Company
 Features of a Non-Profit
Company
 Registration Formalities
…..Contd..
 Unit III – NON-CORPORATE BUSINESS
ENTITIES
 Non-Governmental Society / Trust
Organizations (NGO)
 NGO as a Society
 NGO as a Trust
 Insolvency Law and
Implications
 Insolvent Defined Fraud of Insolvent
Discharge of
 Acts of Insolvency Insolvent

 Consequences of Insolvency
 Insolvency Proceedings
Unit IV – LAW RELATING TO CORPORATE
BUSINESS ENTITIES
 Unit V – PROPERTY LAW FOR BUSINESS

 Classification of Property

 Movable and Immovable

Property
 Tangible and Intangible
Property
 Contract of Sale – Movable
Risk – Possession –
Property Ownership – By
Owner / Non-Owner
 Transfer of Title …..Contd..
Unit V – PROPERTY LAW FOR BUSINESS

 Borrowing against Property as

Security
 Hypothecation Enforcement of
Security –
 Pledge and Hypothecation –
Possession –
Bank Advances
Sale
 Mortgage of Immovable
Property
 Hire Purchase of Property
No Indian law –
 Legal Aspects of Hire To be Treated
as Contracts
Purchase Agreements …..Contd..
Unit V – PROPERTY LAW FOR BUSINESS

 Lease of Property
 Essential Features of a Transfer of Right to
Enjoy
Lease
 Exchange / Gift / Assignment of

Property
 Exchange
 Gift
Actionable Claims
 Assignment of Property
…..Contd..
 Unit V – PROPERTY LAW FOR BUSINESS

 Intellectual Property Rights (IPR)

 Classification of Intellectual
Property Rights Patents –

 Various Categories of Trademarks –

Copyrights – GIs.
Intellectual Property
 Protection of Intellectual
Property Rights
 Legal Framework for IPR
Protection
 Geographical Indications of
Goods
Unit VI – Business and Tax Laws
 Income tax (Direct)
 Individuals, HUF, Business entities, companies
 Administered by CBDT-Central Board of Direct
Taxes
 Taxable:
 Salaries, House property (Not used for business)
 Profits and gains from business
 Other sources-Lotteries, welfare schemes
 Exempted:
 Agricultural income, scholarships
 Wealth tax (Direct)
 Net wealth of individual assets-House
 Excluded-House allotted by company (5lakhs)
 Occupies/ lets it out for commercial purposes
 Vehicles/yachts
 Cash in hand upto 50,000/.
 Exempted:
 Agri land, trees animals
 Building occupied by the cultivator
 Central excise
 Duty on product manufactured in India
 Exempted- Liquor, opium ( State list)
 Applicable:
 Movable goods
 Marketable goods
 Sales tax
 Goods must be in existence in State
 Manufactured in the State
 On payment title gets transferred
 Applicable:
 Interstate sales
 Payable at the source state from where
movement of goods starts
 Customs duty (Indirect on
manufacturer)
 Schedule I-Exports- 12 nautical miles
 Schedule II-Imports

 Value added tax (VAT)

 Destination state collects tax from the
customer
 Multipoint levy of tax at different stages of
product-only once
 Fringe benefits (FB tax)
 Employer to employee
 Monetary- In addition to salary
 Non-monetary –service, facilities, gifts
 Employer pays taxes
Unit VII – Financial Services – Legal and
Regulatory Environment

…..Contd..
 Banking Law and Regulation
Banking Regulation Act, 1949
 Banking-Accepts investments /deposits of
money repaid on demand.
 Business of bank:
 Borrow, raise, loan, agent of govt guarantee,
selling, acquiring property
 Regulates Licensing of banking companies by
RBI:
 Companies capacity to pay present , future depositors
 Affairs of company are not against the interest of the
depositors
  Has adequate capital structure and earning capacity
 Public interest would be served.
 Cancels license:
 Company ceases to do business.
 Regulates management of banks:51% of
directors
 Have special knowledge
 No substantial interest in S.25 companies
 Must be proprietors of trading
Reserve Bank of India Act, 1934
(1948,1997)
 Issues currency
 Banker to the Govt
 Lends to banks
 Supervises other banks
 Foreign exchange- buys and sells
 Controls non-banking institutions:
 Compulsory registration of NBFC
 Inspect NBFC
 Negotiable Instruments Act,
1881(1988,2002)
Relates to Promisory notes, Bills of exchange, Cheques,
and Hundies
 Promisory note (IT Act not applicable)
 Writing, unconditional undertaking to pay
 Signature of maker of note
 Definite, unconditional in money
 Identify the person receiving the money
 Properly stamped as per Indian Stamps Act.
 Kinds of NI
 Negotiable by Statute: Recognizes only
promissory notes, bills of exchange and
cheques.
Negotiable by Custom or Usage:
 Government promissory notes
 Banker’s drafts and pay orders, hundies,
 Delivery orders and railway receipts for goods
 Bearer Instrument: A promissory note, bill of exchange
or cheque is payable to the bearer
 Order Instrument: It is expressed to be payable on
order
 Inland Instrument- Is drawn or made in India upon any
person resident but is made payable in a foreign country.
 Foreign instrument: Is drawn outside India and made
payable outside or inside India
 Demand Instrument: Time for payment is specified or is
payable at sight is an instrument payable on demand
 Inchoate or Incomplete Instrument: A
person signs and delivers to another, a
stamped blank instrument giving an
authority to the holder to make it complete
 Escrow: An Ni delivered conditionally or
for a special purpose as a collateral
security or for safe custody not for
transferring absolute property
 Promissory Note
 An “instrument in writing containing an
unconditional undertaking, signed by the maker
to pay a certain sum of money only to, or to the
order of a certain person, or to the bearer of the
instrument.
 Parties- maker and payee.
 In writing
 Express promise to pay
 Promise must be definite and unconditional
 Signature of maker
 Sum payable must be certain
 Must be stamped before or at the time of its execution
 Bill of Exchange or Inland Bill
 Payment of debt by traders of one country
to the other.
 Unconditional order
 Maker directs a person to pay money to
certain person or bearer of instrument
 Parties to NI
 Holder: Can in his own name hold
 the possession of the instrument, and
 recover or receive its amount due from the
parties
 Holder in due course:
 Must prove that it acquired it for valuable
consideration in good faith.
 Acquired the instrument any time before the
amount became payable.
 Had no sufficient cause to believe that there
existed any defect in the title of his immediate
transferor.
 Acted honestly and exercised reasonable
caution while acquiring it.
INDORSEMENTS (Section 15 )

 It is the writing of a person’s name on the

face or back of a negotiable instrument or
on a slip of paper, for the purpose of
negotiation.
 It can be blank or general, special or full,
restrictive, partial and conditional or
qualified.
 Cheques
 It is a bill of exchange drawn on a specified
banker and not expressed to be payable
otherwise than on demand includes electronic
image of tranquated cheque .
 Crossing of Cheques
 Open cheques: Can be encashed directly across
the counter by presenting to the drawee bank
 Crossing of a cheque: A direction is given to the
paying bank to pay the money to a bank or to a
particular bank.
 Electronic Cheque: An exact mirror image of a paper
cheque and that is generated, written and signed by a
secure system ensuring the minimum safety standards
with the use of digital signature (with or without
biometrics signature) and asymmetric crypto system.
 A truncated cheque: A cheque which is truncated
during the clearing cycle, either by the clearing house or
by the bank whether paying or receiving payment,
immediately on generation of an electronic image for
transmission, substituting the further physical movement
of the cheque in writing.
 Protection to Paying Banker
 Protection to the Collecting Banker
 Dishonor of Negotiable Instruments
 LIABILITY OF DRAWER
 LIABILITY OF DRAWEE BANK
 Liability of the Drawee Bank for Wrongful Dishonor
 Liability of the Drawee Bank where the Drawer’s
Signature is Forged
 Liability of ‘Maker’ of Note and ‘Acceptor’ of Bill
 Liability of Indorser
 DISHONOR OF CHEQUES
CRIMINAL OFFENCE
 Punishment- Section 138 up to two years.
 The period of notice -30 days.
 Immunity to the nominee director from being prosecuted
(Section 142)
 Discretionary power to waive the period of one month
prescribed for taking cognizance of the case
 Courts to try the offence summarily
 Summary trial -imposes punishment of imprisonment up
to one year and fine exceeding Rs.5,000.
 Service of summons- by speed post or by such
courier services as approved by a Court of
Sessions ( Section 144).
 Summons refused - deemed to have been
served.
 Evidence of complaint through an affidavit is
permitted.
 The offence is compoundable.
 Section 138
 Presentation of Cheque- within six
months
 Holder in due course to the drawer :
 Make a demand for payment by way of a
written notice within 30 days of receipt of
information of the dishonored cheque
 The drawer should have failed to make
payment within fifteen days of the receipt of
the notice
 Securitization and Reconstruction of
Financial Assets and Enforcement of
Security Interest (SARFAESI) Act, 2002
Helps Banks and Financial Institutions in recovery
their Non-Performing Assets (NPAs):
 Securitization of assets: Sells the secured NPA
loans to investors through Securitization
Company .
 Transfer of NPAs to asset Reconstruction
Company for disposal of assets and realizing the
proceeds.
 Enforcement of security interest
Figure 1
 Unit VII – Financial Services – Legal and
Regulatory Environment
 Essential Elements of Insurance Contract
 Legal Principles of Insurance
• Good Faith (Uberrimae Fide)
• Insurable Interest
• Law of Indemnity
• Proximity of Cause
• Risk Mitigation of loss
• Subrogation
• Contribution

…..Contd..
 Standard Clauses in Insurance Policies

 Name of the plan

 Profits
 Basis of participation in profits- cash bonus,
deferred bonus, simple or compound
reversionary bonus;
 Benefits and the contingencies payable
 Date of commencement and date of maturity
 The premium
The details of age of entry
 The policy requirements for (a) conversion to paid up policy, (b)
surrender (c) non-forfeiture and (d) revival of lapsed policies
 Contingencies excluded
 Details of nomination, assignment, and loans on security
 special clauses
 Insurance Ombudsman, grievance redressal mechanism for claims
redressal
 The Public Liability Insurance Act, 1991
 The Insurance Regulatory and
Development Authority Act, 1999’
 Regulate insurance business
 Maintains accounts and records
 Protects the interest of policyholders
 Assignment
 nomination of policy,
 settlement of insurance claim,
 surrender value of policy and
 other terms and conditions of contract of
insurance.
 Unit VII – Financial Services – Legal and
Regulatory Environment
 Securities Law and Regulation
 Market Regulation by
Companies Act, 1956
 The Securities Contracts
(Regulation) Act, 1956 – An Overview
 Regulatory Role of SEBI
 Role of Stock Exchanges
 Regulation of Stock Exchanges
 Trading of Securities
 Listing of Securities
 Regulation of Depositories
Unit VIII – BUSINESS TRANSACTIONS AND
CYBER LAW
 Legal Framework for IT related
E-Commerce and
Transactions
Online Contracts
 The Information Technology
Act, 2000
 Click – Wrap Agreements
 Authentication of Electronic
Records
 Meaning of Electronic Record
 Authentication by – Digital
Signatures …..Contd..
Unit VIII – BUSINESS TRANSACTIONS AND
CYBER LAW
 Attribution of Electronic Records
E-Commerce and
 Acknowledgment of Receipt
Online Contracts
of Electronic Record
 Time and Place of Dispatch
and Receipt of Electronic
Record
 Security Provisions (Secure
Digital Signature)

…..Contd..
Unit VIII – BUSINESS TRANSACTIONS AND
CYBER LAW
 Legal Status for Electronic
Truncated Cheques
Records
Electronic Funds
 Amendments to Negotiable
Transfer
Instruments Act
 Amendment to RBI Act, 1934
 Amendment to Banker’s
Books Evidence Act, 1891 –
Inclusion of Electronic
Data/Records as Evidence
…..Contd..
Unit VIII – BUSINESS TRANSACTIONS AND
CYBER LAW
 Cyber Offences and Penalties Disc / Tape /
Individuals /
 Offences and Penalties under
Properties /
I.T. Act, 2000
Organizations /
Society
Unit IX – COMPETITION AND CONSUMER
PROTECTION
 Consumer Protection Law in Non-

India Commercial
Transactions
 Scope of the Consumer
including
Protection Act, 1986 Services
 Consumer Protection
(Amendment) Act, 2002
 Consumer Redressal
Mechanisms

…..Contd..
 Unit IX – COMPETITION AND CONSUMER
PROTECTION
 Competition Law in India Regulation of
Anti-
 Need for the Competition Law
Competitive
 Regulatory Objectives of the Agreements /
Competition Law Abuse of

 Framework of Competition Dominant

Position /
Act, 2002
Combinations /
Mergers

…..Contd..
 Unit IX – COMPETITION AND CONSUMER
PROTECTION
 Restrictive and Unfair Trade Includes
Services Price /
Practices
Sale
 Trade Practices
 Restrictive Trade Practices
 Unfair Trade Practices
 Product Liability Defects and

 Meaning of Product Liability Losses to

Consumers
 Legal Issues
…..Contd..
 Unit IX – COMPETITION AND CONSUMER
PROTECTION
 Public Interest Litigation in
India Public Interest
 Procedure to File Public at Large

Interest Litigation
 Relief Available through
Public Interest Litigation
 Judicial Activism
 Class Action Suits in US
 Procedural Aspects
Unit X – ENVIRONMENT PROTECTION AND
BUSINESS OBLIGATIONS
 Environmental Pollution
 Sources, Causes and Effects
 Kinds of Pollution
 Environmental Law Liability Where no
Negligence is charged
 Rules of Strict liability and
Absolute Liability
Absolute liability without any exceptions
 The Common Law Remedies
 Applicability of Criminal Law IPC – Public Nuisance /
Fouling of Public
Utility / Atmosphere
Noxious to Health /
Negligence with
 Environmental Legislation in Explosives
India – Overview
…..Contd..
 Unit XI – Alternative Dispute Resolution
 Efficacy of ADR
 Advantages of ADR
 Disadvantages of ADR
 Mediation – Arbitration – Litigation:
A Comparative Note
 Arbitration Speedy
• Types of Arbitration Resolution of
Disputes
• Definition of Arbitration
• Arbitration Agreement
 Conciliation
• Chief Elements in Conciliation Processes
• Mediation Vis-à-vis Conciliation
 Mediation
 Negotiation …..Contd..
 Unit XI – Alternative Dispute Resolution
 Arbitration and Conciliation Law in India
 Scope
 Commencement
 No. of Conciliators
 Institutional Assistance in Securing the Conciliator
 Conciliator’s Procedure
 Role of the Parties
 Procedure to be Adopted by the Conciliator(s)
 Legal Effect of Settlement
 Disclosure and Confidentiality
 Admissions
 Parallel Proceedings
 Conciliator not to Act as Arbitrator or Counsel
 Cost and Deposit
 Admissibility of Evidence in Other Proceedings.