BUSINESS LAW

Unit I: Introduction to Business law

1.1 Introduction, Nature of Law

Meaning and Nature of Law

An ancient time people were free. They ruled by themselves. When people lived
with group then they made rule to manage their behavior and conduct. Then
after gradually they became ruler and ruled. Senior person of the group might be
setup the rule and regulation at earlier time. The society gradually developed
and changed. In the changing context rule and regulation also be changed. In
course of time various laws were enacted and amended. All activities of natural
persons as well as artificial persons are regulated and guided by laws. Law is a
formal mechanism of social control. By changing nature of law there is not
universal definition of law. It depends on the contexts and perceptions.

In general, the term 'law' means a set of rules. Those rules are made by the
authorities. Public laws are made and implemented by state authority. But
private laws are imposed by the party in according to existing laws.

Law is an English word derived from the Stoic term 'Lag'. It means Stable and
universal. In general sense, law means the command of the sovereign power to
manage and regulate the external human activities. Law is a general term and
has contextual meaning. It is used in different places within different senses and
names. Still, it is impossible to define it in a single term. Many literatures have
been created, many books have been written by many writers on this topic.
However, it has not unanimous definition.

Definition of Law

John Austin says: A law is a rule of conduct imposed and enforced by the
sovereign.

According to Salmond: Law is the body of principles recognized and applied by

the state of administration of Justice.

According to Justice Holms: Law is that what Justice says in his decision.
According to Roscoe Pound: Law is the body of principles, recognized or
enforced by public and regular tribunals in the administration of Justice.

Lawrence, Robert and Peter State that: The law refers to the body of
philosophy, principles, standards and rules which the Courts apply in deciding
cases brought before them.

Origin and Nature of Law

Law is inseparable part of society. It is the standard to maintain the relation

between the society and its members. In the absence of law, society becomes
destroyed and creates the situations of disorder, painfulness and anarchy.

The nature of law denotes its inseparable and inherent qualities. It can be to
fulfill the needs of contemporary society. The need of society is determined by
its members and they make law to fulfill their requirement. For this purpose law
can play significant role to regulate, control and provide guidance to the society.
the nature of law can be found as follows.

 Law is made and administered by the competent authority which is

known as sovereignty.

 Law cannot avoid the principles of natural justice. It should be based on

reason and rationality.

 It is the rule of conduct of the society. It is based on common interest of

the society and it tries to maintain the balance of interest for social
solidarity and harmony.

 It has uniformity in action.

 It is the most powerful in the world. Law is more powerful than the
lawmakers.

 Law and Justice are interrelated.

 It is rigid and equally enforceable to all persons in the society. No one

can escape from it.
Purpose of Law

The purpose of law is concerning to meet or fulfill the certain objectives, which
are as follows:

 To maintain the peace and security in society.

 To maintain the social and political stability in the society.
 To maintain the social solidarity and harmony in the society.
 To contribute for strengthening the public welfare, national economy and
individual and commercial interest.
 To prohibit criminal activities and harmful human conduct in society.
 To contribute to make developed, prosperous and civilized country in the
international community.

Meaning and Definition of Business law

Business law, is also known as commercial law or corporate law. Business law
is defined as the body of legislation governing the rights, relationships, and
behavior of businesses and individuals engaged in commerce, merchandising
trade, and sales. It deals with both private and public law issues and is
sometimes seen as a branch of civil law.

The Teutonic word “Lag,” which means “definite,” is the source of the English
term “law.” On this foundation, the law can be characterized as a clear code of
conduct and interpersonal connections. It also refers to a standard code of
conduct that applies to all citizens of the state equally. The general
circumstances of human activity in the state are prescribed and regulated by
law.

Scope of Business Law

The scope of Business law is very wide and varied. It includes law relating to
contracts, partnership, sale of goods, negotiable instruments, companies,
insolvency, insurance, carriage of goods, etc.

Business law is concerned with the study of rights and obligations arising out of
Business transactions between Business persons. Business persons are persons
who carry on commercial transactions. They may be individuals, partnership
concerns or joint stock companies.
Knowledge of Business law is essential to merchants. It helps the merchants to
avoid conflicts with the persons with whom he comes into business contacts.

Main sources of Business Law

Indian Business law is based largely upon the English Business law. Prior to the
enactment of the various Acts constituting Business law, the personal laws of
the parties to suit regulated Business transactions. The rights of Hindus were
governed by the Hindu Law and that of Muslims by the Mohammedan Law.

In case of persons other than Hindus and Muslims, the Courts applied the
principles of English Law. Further, where laws and usage of Hindus or Muslims
were silent on any point, the principles of English Law were applied.
The main sources of Indian Business Law are:
1. English Business Law.
2. Statute Law.
3. Judicial Decisions.
4. Customs and Usage.

1. English Business Law

The English law is the most important source of Indian Business law. Many
rules of English law have been incorporated into Indian law through statutes and
judicial decisions. The sources of English law are:
 Common Law
This law is known as judge made law. It is based upon customs and practices
handed down from generation to generation. It is the oldest unwritten law. The
English Courts developed these over centuries.
 Equity
Equity is also unwritten law. It is based upon concepts of justice developed by
the judges whose decisions become precedents. It grew as a system of law
supplementary to the common law and covered the deficiencies of the common
law. Its rules were applied in cases where the rules of common law were
considered harsh and oppressive.
The Judicature Acts of 1873 and 1875 abolished the distinction between
Common Law and Equity so that they are now applied to all cases.
 Statute Law
Statute law is one, which is laid down in the Acts of Parliament. Hence, it acts
as the most superior and powerful source of law. It overrides any rule of
common law or Equity.
 Case Law
This is also an important source of the English Business law. It is built upon the
decisions of the Judges. It is based on the principle that what has been decided
in earlier case is binding in similar future case also unless that there is a change
in the circumstances of the case.
 A Lex Mercatoria or Law Merchant
It is also one of the important sources of English Business law. A lex mercatoria
or law merchant consists of legal principles based on customs and usage. They
developed first as a separate system of law and subsequently became part of the
common law.
2. Statute Law
A Bill passed by the parliament and signed by the President becomes a "Statute"
or an Act. Most of the Indian laws are embodied in the various Acts passed by
the Central as well as State legislators. The Indian Contract Act, 1872, the Sale
of Goods Act, 1930, the Companies Act, 1956 are some of the examples of the
statute law.
3. Judicial Decisions
Judicial decisions are also called as case laws. They referred to as precedents
and are binding on all Courts having jurisdiction lower to that of the Court,
which gave the judgement. The Courts in deciding cases involving similar
points of law also follow them.
4. Customs and Usage

Customs and usage plays an important role in regulating business transactions.

A well-recognized custom or usage can even override the statute law. Most of
the business customs and usage have been already codified and given legal
sanctions in India. Some of them have been ratified by the decisions of the
competent Courts of law.
Definition of Business
The term business is understood and explained in different ways by different
people. For some, business is an activity, for some it is a method of transacting,
for some others, it is a method of money making and some people argue that
business is an organized activity to achieve certain pre- determined goals or
objectives. Dictionary meaning of business is: the act of buying and selling of
goods and services, commerce and trade. Based on all these meanings of
business, we may define business as: gainful activity through which various
elements of society conduct exchanges of the desirable things.
Nature of Business
Business may be understood as the organized efforts of enterprise to supply
consumers with goods and services for a profit. Businesses vary in size, as
measured by the number of employees or by sales volume. But, all businesses
share the same purpose to earn profits.
The purpose of business goes beyond earning profit. There are:
 It is an important institution in society.

 Be it for the supply of goods and services

 Creation of job opportunities

 Offer of better quality of life

 Contributing to the economic growth of the country.

Hence, it is understood that the role of business is crucial. Society cannot do

without business. It needs no emphasis that business needs society as much.
Business Goals:
Profit - Making profit is the primary goal of any business enterprise.
Growth - Business should grow in all directions over a period of time.
Power - Business houses have vast resources at its command. These resources
confer enormous economic and political power
Employee satisfaction and development - Business is people. Caring for
employee satisfaction and providing for their development has been one of the
objectives of enlightened business enterprises.
Quality products and services - Persistent quality of products earns brand
loyalty, a vital ingredient of success.
Market leadership - To earn a niche for oneself in the market, innovation is the
key factor.
Challenging - Business offers vast scope and poses formidable challenges.
Joy of creation - It is through business strategies new ideas and innovations are
given a shape and are converted into useful products and services.
Service to society - Business is a part of society and has several obligations
towards it.