Master of Business Administration - Semester 3 MB 0051: “Legal Aspects of Business (4 credits) ASSIGNMENT- Set 1

Q1. Discuss the nature and significance of business law? Ans:- The term „law‟ is used in many senses: you may speak of the law of physics, mathematics, science, or the laws of the football or health. In its widest sense, „law‟ means any rule of conduct, standard or pattern, to which actions are required to conform; if not conformed, sanctions are imposed. When we speak of the law of a State, we use the term „law‟ in a special and strict senseSignificance of law

1. Law is a body of rules:- These rules prescribe the conduct, standard or pattern to which actions of the persons in the state are required to conform. However, all rules of conduct do not become law in the strict sense. We resort to various kinds of rules to guide our lives. For example, our conduct may be guided by a rule such as “do not be arrogant” or “do not be disrespectful to elders or women”. These are ethical or moral rules by which our daily lives are guided. If we do not follow them, we may lose our friends and their respect, but no legal action can be taken against us.

2. Law is for the guidance or conduct of persons :– both human and artificial. The law is not made just for the sake of making it. The rules embodied in the law are made, so as to ensure that actions of the persons in the society conform to some predetermined standard or pattern. This is necessary so as to ensure continuance of the society. No doubt, if citizens are „self-enlightened‟ or „self-controlled‟, disputes may be minimized, but will not be eliminated. Rules are, therefore, drawn up to ensure that members of the society may live and work together in an orderly manner. Therefore, if the rules embodied in the law are broken, is used to enforce obedience, and certain consequences ensue.

3. Law is imposed :- Law is imposed on the members to bring about an order in the group, enabling it to continue and prosper. It is not something which may or may not be obeyed at the sweet will of the members of society. If you cannot impose a rule it is better not to have it. Thus, law is made obligatory on the members of the society.

4. Law is enforced by the executive :- Obviously, unless a law is enforced it ceases to be a law and those persons subject to it will regard it as dead. For example, if A steals B‟s bicycle, he may be prosecuted by a court and may be punished. Also, the court may order the restitution of the bicycle to its rightful owner i.e., B. If the government passes many laws but does not attempt to enforce them, the citizens lose their respect for government and law, and society is greatly weakened. The force used is known as sanction which the state administers to secure obedience to its laws.

5. The state :- A state is a territorial division, with people therein subject to a uniform system of law administered by some authority of the state. Thus, law presupposes a state.

6. Content of law :- The law is a living thing and changes throughout the course of history. Law responds to public opinion and changes accordingly. Law can never be static. Therefore, amendments are made in different laws from time to time. For example, the Monopolistic and Restrictive Trade Practices Act, 1969, has been subjected to many amendments since its inception in 1969.

7. Two basic ideas involved in law :- The two basic ideas involved in any law are: (i) to maintain some form of social order in a group and (ii) to compel members of the group to be within that order. These basic ideas underlie formulation of any rules for the members of a group. A group is created because first, there is a social instinct in the people to live together and secondly, it helps them in self-preservation. Rules are made by the members of the group, so that the group doesn‟t whither away.

8. Law is made to serve some purpose which may be social, economic or political :- Some examples of „law‟ in the widest sense of the term. „Law‟ in its widest sense may include:

a. Moral rules or etiquettes, the non-observance of which may lead to public ridicule,

b. Law of the Land the non-observance of which may lead to arrest, imprisonment, fines, etc.,

c. Rules of international law, the non-observance of which may lead to social boycott, trade-sanctions, cold war, hot war, proxy war, etc.

Q2. Define contract of indemnity. Describe the rights of the indemnifier and the indemnity holder.

Ans:-- Meaning of indemnity- Secs.124 and 125 provide for a contract of indemnity. Sec.124 provides that a contract of indemnity is a contract whereby one party promises to save the other from loss caused to him (the promisee) by the conduct of the promisor himself or by the conduct of any other person. A contract of insurance is a glaring example of such type of contracts. A contract of indemnity may arise either by (i) an express promise or (ii) operation of law, e.g., the duty of a principal to indemnify an agent from consequences of all lawful acts done by him as an agent.

The contract of indemnity, like any other contract, must have all the essentials of a valid contract. These are two parties in a contraction of identity indemnifier and indemnified. The indemnifier promises to make good the loss of the indemnified (i.e., the promisee).

Example: A contracts to indemnify B against the consequences of any proceeding which C may take against B in respect of a certain sum of Rs 200. This is a contract of indemnity.

Rights of the indemnified (i.e., the indemnity holder)- He is entitled to recover from the promisor: (i) All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies; (ii) All costs of suit which he may have to pay to such third party, provided in bringing or defending the suit (a) he acted under the authority of the indemnifier or (b) if he did not act in contravention of orders of the indemnifier and in such a way as a prudent man would act in his own case; (iii) All sums which may have been paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the indemnifier and was one which it would have been prudent for the promisee to make.

Rights of the indemnifier-The Act makes no mention of the rights of indemnifier. However, his rights, in such cases, are similar to the rights of a surety under Sec.141, viz., he becomes entitled to the benefit of all the securities which the creditor has against the principal debtor whether he was aware of them or not.

Q3. What is Partnership? Briefly state special features of a partnership on the basis of which its existence can be determined under the Indian Partnership Act?

Ans:-- Partnership is defined as “the relationship between persons who have agreed to share profits of a business carried on by all, or by any of them acting for all”. On analysis of the definition, certain essential elements of partnership emerge. These elements must be present so as to form a partnership and are discussed below.

1. Partnership is an association of two or more than two persons:- There must be at least two persons who should join together to constitute a partnership, because one person cannot become a partner with himself. These persons must be natural persons having legal capacity to contract. Thus, a company (which is an artificial person) cannot be a partner. Similarly, a partnership firm cannot be a partner of another partnership firm. As regards maximum number of partners in a partnership firm, Sec.11 of the Companies Act, 1956, puts the limit at 10 in case of banking business and 20 in case of any other business.

2. Partnership must be the result of an agreement between two or more persons:- An agreement presupposes a minimum number of two persons. As mentioned above, a partnership to arise, at least two persons must make an agreement. Partnership is the result of an

agreement between two or more persons (who are known as partners after the partnership comes into existence). 3. The agreement must be to carry on some business:- The term „business‟ includes every trade, occupation or profession [Sec.2(b)]. Though the word „business‟ generally conveys the idea of numerous transactions, a person may become a partner with another even in a particular adventure or undertaking (Sec.8). Unless the person joins for the purpose of carrying on a business, it will not amount to partnership. 4. The agreement must be to share profits of the business:- The joint carrying on of a business alone is not enough; there must be an agreement to share profits arising from the business. Unless otherwise so agreed, sharing of profits also involves sharing of losses. But whereas the sharing of profits is an essential element of partnership, sharing of losses is not.

Example: A, a trader, owed money to several creditors. He agreed to pay his creditors out of the profits of his business (run under the creditors‟ supervision) what he owed to them. Held, the arrangement did not make creditors partners with A in business [Cox v. Hickman, (1860) 8 H.L.C., 268].

Formation of partnerships All the essential elements of a valid contract must be present in a partnership as it is based on an agreement. Therefore, while constituting a partnership. The following points must be kept in mind:

1. The Act provides that a minor may be admitted to be benefits of partnership.

2. No consideration is required to create partnership. A partnership is an extension of agency for which no consideration is necessary.

3. The partnership agreement may be express (i.e., oral or writing) or implied and the latter may be inferred from the conduct or the course of dealings of the parties or from the circumstances of the case. However, it is always advisable to have the partnership agreement in writing.

4. An alien friend can enter into partnership, an alien enemy cannot.5. A person of unsound mind is not competent to enter into a

partnership.6. A company, incorporated under the Companies Act, 1956 can enter

into a contract of partnership.Duration of partnership The duration of partnership may or may not be fixed. It may be constituted even for a particular adventure.Partnership at will In accordance with Sec.7, a partnership is called a partnership at will where;

(i) it is not constituted for a fixed period of time and

(ii) there is no provision made as to the determination of partnership in any other way.

Therefore such a partnership has no fixed or definite date of termination. Accordingly death or retirement of a partner does not affect the continuance of such a partnership.

Particular partnership In accordance with Sec.8 a particular partnership is one which is formed for a particular adventure or a particular undertaking. Such a partnership is usually dissolved on the completion of the adventure or undertaking. Limited partnership In this type of partnership, the liability of certain partners is limited to the amount of capital which they have agreed to contribute to the business. In a limited partnership, there will be at least one general partner whose liability is unlimited and one or more special partners whose liability is limited.

Q4. What remedies are available to a seller for breach of contract of sale?Ans:-- Remedies for Breach of a Contract In addition to the rights of a seller against goods provided in Secs.47 to 54, the seller has the following remedies against the buyer personally. (i) suit for price (Sec.55); (ii) damages for non-acceptance of goods (Sec.56); (iii) suit for interest (Sec.56). 1 Suit for price (Sec.55) Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay the price, the seller can sue the buyer for the price of the goods. Where the property in goods has not passed to the buyer, as a rule, the seller cannot file a suit for the price; his only remedy is to claim damages. Example: A sold certain goods to B for Rs 5,000 and the price was agreed to be paid before the expiry of ten days of the contract. B fails to pay the price within the stipulated time. A can file a suit for price against B even though the goods have not been delivered or the property in goods has not been passed to B. 2 Suit for damages for non-acceptance (Sec.56) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance. Where the property in the goods has not passed to the buyer and the price was not payable without passing of property, the seller can only sue for damages and not for the price. The amount of damages is to be determined in accordance with the provisions laid down in Sec.73 of the Indian Contract Act, 1872. Thus, where there is an available market for the goods prima facie, the difference between the market price and the contract price can be recovered.3 Suit for interest (Sec.61)When under a contract of sale, the seller tenders the goods to the buyer and the buyer wrongfully refuses or neglects to accept and pay the price, the seller has a further right to claim interest on the amount of the price.

In the absence of a contract to the contrary, the court may award interest at such rate as it thinks fit on the amount of the price. The interest may be calculated from the date of the tender of the goods or from the date on which the price was payable. It is obvious that the unpaid seller can claim interest only when he can recover the price, i.e., if the seller’s remedy is to claim damages only, then he cannot claim interest.4 Buyer’s remedies against sellerThe buyer has the following rights against the seller for breach of contract:

(i) damages for non-delivery (Sec.57); (ii) right of recovery of the price; (iii) specific performance (Sec.58); (iv) suit for breach of condition; (v) suit for breach of warranty (Sec.59); (vi) (anticipatory breach (Sec.60); (vii) recovery of interest (Sec.61).

Q5. Examine the rights of a consumer enshrined under the Consumer Protection Act, 1986.

Ans:-- Rights of Consumers For the first time in the history of consumer legislation in India, the Consumer Protection Act, 1986 extended a statutory recognition to the rights of consumers. Sec.6 of the Act recognizes the following six rights of consumers:

1. Right to safety, i.e., the right to be protected against the marketing of goods and services which are hazardous to life and property.

2. Right to be informed, i.e., the right to be informed about the quality, quantity, potency, purity, standard and price of goods or services, as the case may be, so as to protect the consumer against unfair trade practices.

3. Right to choose: It means right to be assured, wherever possible, access to a variety of goods and services at competitive prices. In case of monopolies, say, railways, telephones, etc., it means right to be assured of satisfactory quality and service at a fair price.

4. Right to be heard, i.e., the consumers‟ interests will receive due consideration at appropriate forums. It also includes right to be represented in various forums formed to consider the consumers‟ welfare.

5. Right to seek redressal: It means the right to seek redressal against unfair practices or restrictive trade practices or unscrupulous exploitation of consumers. It also includes right to fair settlement of the genuine grievances of the consumers.

6. Right to consumer education: It means the right to acquire the knowledge and skill to be an informed consumer.

Q6. Write short notes on the following:

a. Copy right

b. License

Ans:-- a. Meaning of copyright (Sec.14)

The term „copyright‟ means the exclusive right, by virtue of, and subject to the provision of the Act:

(a) in the case of literary, dramatic or musical work, not being a computer programme – (i) to reproduce the work in any material form including the storing of it in any medium by electronic means; (ii) to issue copies of thework to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work; (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in (i) to (vi);

(b) in the case of computer programme – (i) to do any of the acts specified in clause (a) above; (ii) to sell or give on hire, or offer for sale or hire any copy of the computer programme, regardless of whether such copy has been sold or given on hire on earlier occasions;

(c) in the case of an artistic work – (i) to reproduce the work in any material form including depiction in three dimensions of a two – dimensional work or in two dimensions of a three – dimensional work; (ii) to communicate the work to the public; (iii) to issue copies of the work to the public not being copies already in circulation; (iv) to include the work in any cinematograph film; (v) to make any adaptation of the work; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in (i) to (iv) above;

(d) in the case of a cinematograph film – (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire; or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the film to the public.

(e) In the case of a sound recording – (i) to make any other sound recording embodying it; (ii) to sell or give on hire, or offer for sale or hire, any copy of the sound recording regardless of whether such

copy has been sold or given on hire on earlier occasions; (iii) to communicate the sound recording to the public.

b. License

Licence by owners of copyrightSec.30 provides that the owner of the copyright in any existing work or the prospective owner of the copyright in any future work may grant any interest in the right by licence in writing signed by him or by his duly authorised agent. But in the case of a licence relating to copyright in any future work, the licence shall take effect only when the work comes into existence.

Compulsory licence in works withheld from publicSec.31 provides that at any time during the term of copyright in any Indian work which has been published or performed in public a complaint may be made to the Copyright Board that the owner of copyright in the work

(a) has refused to re-publish or allow the republication of the work or has refused to allow the performance in public of the work and by reason of such refusal the work is withheld from the public; or

(b) has refused to allow communication to the public by broadcast of such work or in the case of a sound recording the work recorded in such sound recording, on terms which the complainant considers reasonable.

Compulsory Licence in unpublished Indian works (Sec.31A)Where in the case of an Indian work, the author is dead or unknown or cannot be traced or the owner of the copyright in such work cannot be found, any person may apply to the Copyright Board for a licence to publish such work or translation thereof in any language. Before making an application, the applicant shall publish his proposal in one issue of a daily newspaper in the English language having circulation in the major part of the country and where the application is for the publication of a translation in