Introduction to Legal Aspects of Business

Introduction To Legal Aspects of

Business

• In Man’s association with people in different capacities, he is expected to observe a code of conduct or a set of rules. • The objective of these rules is to make

human association possible & conducive for the welfare of the state & its people

• LAW IS A GENERAL TERM:•Citizen : rules to obey• Lawyer: vocation• Legislator: rules which he has

created• Judge: guiding principles to apply to

decision.

•Since it is not possible to give a single accurate definition, the term law is preceded by an adjective e.g. Civil Law, Criminal Law, Mercantile Law•Law includes all the rules and principles which regulate our relation with other individuals and with the State.

•State regulates the conduct of its people by a set of rules. •Such rules of conduct, if recognised by the State and enforced by it on people is termed as Law.

IS LAW STATIC?• Law is not static. As circumstances &

conditions in a society change, laws are changed to fit the requirements of the society. As such, law prevailing in a society at any point of time must be in conformity with the general sentiments, customs & aspirations of its people.

OBJECT OF LAW

•Object of law is order; result of order is that men are enabled to look ahead with some sort of security as to the future.• In the Indian Context it is to establish

Socio - Economic Justice and remove existing imbalance in the socio- economic structure.

NEED FOR THE KNOWLEDGE OF LAW

IGNORENTIA JURIS NON EXCUSAT

(IGNORANCE OF LAW IS NOT AN EXCUSE)

NEED FOR THE KNOWLEDGE OF LAW

•A businessman should be aware of legal principles so as to help him in avoiding conflict with the persons with whom he comes into business contact.

Recent landmark judgments that have a significant bearing on our dealings in the business & financial world

1. P. V. Suresh vs. Insurance Ombudsman, Kerala High Court, 16.02.2012 ( an insurer has to prove fraud to reject a claim)• Lady dies of cervical cancer – insured by husband – she

failed to mention auyurvedic treatment for rheumatoid arthritis while buying the policy – claim rejected by Insurance Company – Court upheld the claim - Court held that the insurer must prove the policyholder’s statements were fraudulent and involved suppression of material fact. • Impact: Insurance company cannot get away by simply

listing ‘suppression of fact’ as reason for rejecting the claim. It has to prove that the information supposedly hidden by the policyholder was material, that is, had a direct bearing to the case and there was an element of fraud involved.


2. Suraj Lamps & Industries vs State of Haryana, Supreme Court, 11.10. 2011 (no property sale on general power of attorney)• Property could be lawfully transferred only

through a registered sale deed – every property sale has to be duly registered.• Impact: SA/GPA/WILL transactions, where a purchaser pays

the full price, but instead of getting a deed of conveyance gets a SA/GPA/WILL as a mode of transfer, either at the instance of the vendor or at his own instance are history.


3. Ganga Kushan's appeal, Supreme Court, May 2012 (Guarantor liable to repay loan if debtor defaults)• Ganga Kishun, who had stood as a guarantor to a bank loan,

raised by one Ganga Prasad, who had died without clearing it. Ganga Kishun had come to the apex court against the Uttar Pradesh government's decision to recover the loan arrears from him after the death of principal debtor Ganga Prasad.

• While dismissing Ganga Kishun's appeal, the apex court, however, faulted the government's decision to auction Ganga Kishun's entire stretch of land for Rs 25,000 to recover an arrear worth Rs 8,500 only and not confining the auction to only 1/3rd of the land which could have fetched the arrears.

• Impact: Provoke people into thinking twice before becoming a guarantor for a bank loan.


4. United India Insurance Company vs Laxmamma, Supreme Court, 17 April 2012 (insurer has to pay if a policy is cancelled after an accident)• United India Assurance collected the premium cheque

and issued the policy. The cheque got dishonoured and there was an accident resulting in death of the relative of the respondent. The insurance company cancelled the policy after the date of the accident citing cheque bounce as the reason of cancellation. The Supreme Court did not want the respondent to suffer in this case and ruled in favour of the claimant.

• Impact: Judgement takes care of the lacuna, wherein a mishap occurs before the policyholder is informed about the cancellation of a policy.


5. Shivappa Malappa Isapure vs Ganpat Malappa Isapure, Bombay High Court, 28.01.2010. (ancestral family property cannot be gifted)• Mr Mallappa Isapure had two wives. In 1959 he divided his

ancestral property located in Miraj between the children of his two wives. The second wife Chandrabai claimed that in 1941, her husband had gifted to her a portion of the property out of love and that gifted portion is in the possession of the first wife's sons.• The sons contested the claim, saying that as it is a joint

family property, it cannot be gifted.• Impact: Applies only to HUF’s & other religions do not necessarily

recognise the system of joint property.


6. Harsha Nitin Kokate vs Saraswat Co-op Bank & others, Bombay High Court, 20.04.2010 (nominee, not heir, inherits shares)

• In 2008, Harsha filed a petition in the court seeking permission to sell her deceased husband’s shares, for which her nephew was the nominee. Nithin Kokate died in July 2007 and made his nephew the nominee in July 2006 for the shares held in the demat account of the depository participant cell of the bank. The court held that the wife has no right over the shares as the provisions of the Companies Act mandated that the nominee inherit them.

• Impact: Provisions of the Companies Act override the legality of the will. As per Sec 109 A of the Companies Act, the nominee legally inherits the shares after the death of the original shareholder even if the latter has been named someone else in the will


7. C. Venkatachalam vs Ajithkumar C. Shah, Supreme Court, 29.10.2011 (non-lawyers can appear before consumer courts)• Appeal by the Bar Council of India against a 2002 Bombay

High Court judgment – Earlier a District forum had upheld two tour operators demand that non-advocates should not be allowed to represent consumers.

• Impact: A welcome move as it will simplify procedures and promote easy access for members of the public to consumer forums. One of the reasons for this decision is that the small amount of compensation granted in consumer disputes may not make it economically viable for appellants to factor in the heavy cost of legal representation.


8. Noel Dominic Periera vs Pamela Ethel Kuhn & others, Bombay High Court, 29.09.2010. (only blood relations can be heirs)• One of the defendants, who was a claimant to the

property of Late Merlyn Loretta Patton was the stepson of Merlyn’s brother Derrick – related to Derrick’s second wife by blood, not to his stepfather or Merlyn.

• Impact: If there is no will, the law of succession takes over and the deceased’s property is divided accordingly. Indian Succession Act does not make a distinction between heirs related by half blood and full blood. The Hindu Succession Act states that heirs by full blood shall be preferred.


9. Sayar Kumari vs State of Orissa & others, Delhi High Court, 9.10.2009 (video recording of a will is legal)• Probate of will – Sayar Kumari’s husband’s grandmother’s

will – contested by her father-in-law – court goes through the physical copies of the will, as well as a video recording of the execution – process of signing the will and getting it attested by two witnesses

• Impact: Makes the execution of the will foolproof to an extent. Eliminates to a large extent the questions of genuineness or the capacity of the testator to make the will. A mere recitation of the document’s contents is not accepted.

SOURCES OF LAW(With respect to Mercantile Law)

• THE ENGLISH MERCANTILE LAW• Customs, usage and tradition • Decisions of Judges in similar

situations• Act of parliament• Laws prevailing among traders • Roman law…..

SOURCES OF LAW(With respect to Mercantile Law)

• LAW ENACTED BY PARLIAMENT OR STATE LEGISLATURE•PRECEDENTS SET BY PREVIOUS

JUDICIAL DECISIONS•CUSTOMS AND USAGE

INDIAN SCENARIO

• FLAWS & LAWS• THE INDIAN LEGAL SYSTEMS COULD

CONSIDER MIGRATING FROM JURASSIC PARK•WHY DO WHEELS OF JUSTICE GRIND

SLOWLY?

Ubi Jus Ibi Remedium• Ubi Jus Ibi Remedium is a Latin legal maxim

which means "where there is a right there is a remedy". • The basic principle contemplated in the

maxim is that, when a person's right is violated the victim will have an equitable remedy under law. • The maxim also states that the person whose

right is being infringed has a right to enforce the infringed right through any action before a court. • All law courts are also guided with the same

principle of Ubi Jus Ibi Remedium.

Jurisdiction of courts

• Jurisdiction means the power, right and authority to interpret and apply law. • There are various types of jurisdiction, but

the broadest categories are appellate jurisdiction (the right to hear a case on appeal from another court) and original jurisdiction, (the right to hear the case as the original trial court).

Jurisdiction of courts

• Both are related to subject-matter jurisdiction which determines the type of case (subject) a court may hear and personal jurisdiction, that determines the entities whose cases the court may judge, as opposed to territorial jurisdiction, which covers the physical area over which the court has authority. And then there is the pecuniary jurisdiction (amount of claim).

Civil Law vs Criminal LawCivil Law Criminal Law

Definition: Civil law deals with the disputes between individuals, organizations, or between the two, in which compensation is awarded to the victim.

Criminal law (also known as penal law) is the body of statutory and common law that deals with crime and the legal punishment of criminal offenses.

Burden of proof: "Preponderance of evidence" Burden of proof is initially on the plaintiff and then switches to the defendants.

"Beyond a reasonable doubt": Burden of proof is always on the state/government.


Examples: Landlord/tenant disputes, divorce proceedings, child custody proceedings, property disputes (real estate or material), etc.

Theft (by deception or unlawful taking), assault, robbery, trafficking in controlled substances, etc.

Type of punishment: A defendant in civil litigation is never incarcerated and never executed. Losing defendant in civil litigation only reimburses the plaintiff for losses caused by the defendant’s behavior. Either party (plaintiff or defendant) can be found at fault.

A guilty defendant is punished by either incarceration in a jail or fine paid to the government, or, in exceptional cases, the death penalty. Defendant can be found guilty or not.


Case filed by: Private party Government

Appeal: Either party may appeal a decision in a civil suit.

Only the defendant may appeal a court ruling in a criminal case. The prosecution cannot appeal if the defendant is found not guilty.

Note: The distinction between civil and criminal law cannot always be maintained because some acts are considered both as crimes as well as civil wrongs.

V for Victim

• In law, the accused has a million ways to escape. But the victim is consigned to the gallows.

V for Victim

• There is a place in our courts for the judge, the accused, the lawyers and witnesses. But there is no seat for the victim though his/her plight remains central to the case.

The Dice is Loaded

• Here's how the legal system favours the accused and not the victim: • No involvement of victim and his family in court

proceedings, except when summoned as witnesses • Accused can hire lawyer (s) of his choice. The

victim has to go along with the public prosecutor engaged by the state.

The Dice is Loaded

• No accountability of public prosecutor. He/she gets time-bound promotions not linked to performance. • The victim or his family cannot file an appeal

against an unfair verdict. That is the state’s prerogative. The victim’s side can only file a revision petition on grounds of procedural oversight. • Rights of the accused, including right to silence, is

detailed in law. It is, however, silent about the victim’s rights.

The Dice is Loaded

• The accused has the right to know the evidence framed by the prosecution. The victim has no access to information from the defence side.

• Delay in judgment gives the accused greater

opportunity to win over witnesses

• If the accused is influential, he can tamper with evidence, compromise investigators, even judges

Comment• I sometimes feel the criminal justice system does not

exist to give justice anymore but has been reduced to give employment to advocates, sub-standard public prosecutors and judges.

Comment

• If the prime minister is answerable, why not the judges? If electing them would make them answerable, then let them be elected!•While judges of the lower courts are

monitored by the high court, there is hardly any accountability for judges of the high courts and the Supreme Court. They can only be impeached by Parliament. The judges think that there is nothing between them and God.

Comment

• The judge sits on the podium and presides, with an earmarked place for the accused, the lawyers, the witness and the public. There should definitely be a prominent place for the victim inside the courtroom. We appear to have forgotten that the legal system exists only to give him justice.

‘Locus standi’

• In law, standing or locus standi is the term for the ability of a party to demonstrate to the court sufficient connection to and harm from the law or action challenged to support that party's participation in the case.

Public Interest Litigation

• In Indian law, public interest litigation means litigation for the protection of the public interest. • It is litigation introduced in a court of law, not by

the aggrieved party but by the court itself or by any other private party. • It is not necessary, for the exercise of the court’s

jurisdiction, that the person who is the victim of the violation of his or her right should personally approach the court.


• Public interest litigation is the power given to the public by courts through judicial activism.

• The seeds of the concept of public interest litigation were initially sown in India by Krishna Iyer J., in 1976 in Mumbai Kamagar Sabha vs. Abdul ThaiMumbai Kamagar Sabha vs. Abdul Thai (Trade Union was allowed to file a case even though it had no locus standi)

• However, the person filing the petition must prove to the satisfaction of the court that the petition is being filed for a public interest and not just as a frivolous litigation by a busy body.


• Such cases may occur when the victim does not have the necessary resources to commence litigation or his freedom to move court has been suppressed or encroached upon. • The court can itself take cognizance of the

matter and proceed suo motu or cases can commence on the petition of any public-spirited individual.

Law of Limitation

• The 'Law of Limitation' prescribes the time-limit for different suits within, which an aggrieved person can approach the court for redress or justice. • The suit, if filed after the exploration of time-limit, is

struck by the law of limitation.• It's basically meant to indirectly punish persons who go

into a long slumber over their rights.• The statutory law was established in stages. The very first

Limitation Act was enacted for all courts in India in 1859. And finally took the form of Limitation Act in 1963.

Equality before law

• Article 14 in The Constitution Of India 1949• The State shall not deny to any person equality

before the law or the equal protection of the laws within the territory of India (Prohibition of discrimination on grounds of religion, race, caste, sex or place of birth.)

Principle of Natural Justice• In India there is no statute laying down the

minimum procedure which administrative agencies must follow while exercising decision-making powers. This minimum fair procedure refers to the principles of natural justice.• Natural justice is a concept of common law and

represents higher procedural principles developed by the courts, which every judicial, quasi-judicial and administrative agency must follow while taking any decision adversely affecting the rights of a private individual. • Natural justice implies fairness, equity and equality.

Principle of Natural Justice

• The principle of natural justice encompasses following two rules: - • Nemo judex in causa sua - No one should be

made a judge in his own cause or the rule against bias. • Audi alteram partem - Hear the other party or

the rule of fair hearing or the rule that no one should be condemned unheard. • (Natural Justice is another name of common-sense

Justice)

No one should be made a judge in his own cause…….

• ‘Judges, like Caesar’s wife, should be above suspicion. The Principle is not confined merely to the case where the Judge is an actual party to a cause, but applies to a cause in which he has an interest. An “Interest”, has been defined as a legal interest or a pecuniary interest and is to be distinguished from “favour”. Such an interest will disqualify a Judge. The interest (or bias) which disqualifies must be one in the matter to be litigated. A mere general interest in the general object to be pursued will not disqualify a magistrate. The interest or bias which disqualifies is an interest in the particular case, something reasonably likely to bias or influence the minds of the magistrates in the particular case. The Law in laying down this strict rule has regard, not to the motive which might bias the Judge but it is to promote the feeling of confidence in the administration of Justice. ’ Lecture delivered by Justice T.S.Sivagnanam at Tamil Nadu State Judicial Academy on 01.06.2009to the newly recruited Civil Judges (JR Division) during Induction Programme 2009

Rule of bias• PERSONAL BIAS:• When there is a face off between a deciding or authoritative

party and someone who is either on his side or against him, there occurs something called personal bias that may either be positive or negative in its effect.

• This sort of bias is characteristic of judge-witness, prosecutor-judge, and judge-witness-prosecutor combinations.

• An illustration would be Mineral Development Corporation Ltd. V State of Bihar, the Court quashed the Government’s notification that cancelled the petitioners mining license as there was political rivalry between the minister and the petitioners in a previous criminal case.

Rule of bias

• PECUNIARY BIAS:• When an adjudicating body has any financial

interest, even to a very paltry extent, its decision would be subject to the suspicion of pecuniary bias.

Rule of bias• OFFICIAL BIAS:• The subject of this project, official bias, has often emerged as

a matter of dispute in many cases both in India and other countries as well. Official bias is, in most cases, characteristic of disputes in administrative activities, where the judging authority has sizeable interest in the prosecution.

• Gullapalli Nagesh Rao v APSRTC, where the government nationalised road transport. The contention of bias was rooted on the fact that the Secretary of Road Transport Department who heard the matter was biased as he was in charge of commencing the scheme as well as adjudging its prudence.

Rule of bias• PREJUDGMENT OF ISSUES:• A person who made a prior statement on the subject matter

can not be a judge on disputes on the same subject matter.

COMPONENTS OF RIGHT TO FAIR HEARING.• Right to notice.• Time, place and nature of hearing.• Legal authority under which hearing is to be

held.• Statements of specific charges which the

person has to meet.• Right to know the evidence against him.• Right to present case and evidence.• Right to cross-examination.• Right to counsel.

Some Exceptions to the Rule of Right to be Heard.

• Some exceptions to the rule of fair hearing as recognised by courts are as follows.• Public Interest: - Where defence and state

secrets are involved. • Emergency: Urgency is pleaded as an excuse for

not complying the principles of Natural Justice.

Some Exceptions to the Rule of Right to be Heard.• Impracticability: In extreme situations it may

highly impracticable to comply the rules. In Radha Krishna V. Osmaina University (AIR 1974) the decision of the university cancelling the entire MBA examination on the reason of mass copying with out hearing students held valid.

Principle of Natural Justice

• The other principle which have been stated to constitute elements of Natural Justice are• The Court / Tribunal must act honestly and

impartially and not under the dictation of other persons to whom authority is not given by Law.

Thank you!

Introduction to Legal Aspects of Business

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