Business Regulatory Framework

Unit 1

Definition
Mercantile law refers to the body of laws that regulate commercial transactions and activities. It
includes areas such as contracts, sales, partnerships, agency, and the rights of creditors and debtors.
The primary objective of mercantile law is to provide a framework that promotes business
efficiency, protects the interests of parties involved, and maintains order in the marketplace. By
establishing clear rules and guidelines, it helps in minimizing disputes and enhancing commercial
transactions.

Mercantile Law vs. Business Law

Definition

Mercantile Law: Specifically governs commercial transactions and activities related to trade and
commerce. It focuses on rules concerning contracts, sales, agency, and partnerships.

Business Law: A broader category encompassing all laws that regulate business operations,
including mercantile law, employment law, intellectual property, and corporate law.

Scope

Mercantile Law: Deals exclusively with commercial transactions and relationships between
merchants and businesses.

Business Law: Covers a wide range of legal areas affecting businesses, including corporate
governance, taxation, consumer protection, and environmental regulations.

Focus

Mercantile Law: Primarily concerned with the rights and duties of parties in commercial
transactions, aiming to facilitate trade and resolve disputes efficiently.
Business Law: Addresses all legal aspects of running a business, including compliance with
regulations, employee relations, and financial transactions.

Applicability

Mercantile Law: Applies specifically to traders and commercial entities involved in buying and
selling goods and services.

Business Law: Relevant to all types of businesses, regardless of their nature or size, encompassing
both commercial and non-commercial enterprises.

Types of Business Law

Contract Law

• Governed by the Indian Contract Act, 1872, which lays down the framework for the
formation, execution, and enforcement of contracts.

• Key elements include offer, acceptance, consideration, capacity, and legality.

• Contracts can be void or voidable based on certain conditions, such as lack of consent or
legality.

Employment Law

• Covers various labor laws that protect the rights of employees and govern employer-
employee relationships.

• Key laws include the Factories Act, 1948, Industrial Disputes Act, 1947, and
Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

• These laws address issues such as wages, working conditions, termination, and labor
disputes.

Intellectual Property Law

Intellectual property (IP) law encompasses the legal rights associated with creations of the
mind, including inventions, literary and artistic works, designs, symbols, names, and images used
in commerce. IP law aims to foster innovation and creativity by providing creators with exclusive
rights to their works, allowing them to benefit commercially from their inventions and ideas.

Patents:

• Protect inventions and processes for a limited period (typically 20 years from the filing
date).

Copyrights:

• Protect original works of authorship, such as literature, music, films, software, and visual
art.

• Last for the life of the author plus 70 years (in many jurisdictions).

Trademarks:

• Protect symbols, names, and slogans used to identify goods or services and distinguish
them from others.

• Can be renewed indefinitely as long as they are in use.

Trade Secrets:

• Protect confidential business information that provides a competitive edge, such as

formulas, processes, customer lists, and marketing strategies.

• No formal registration is required; protection lasts as long as the information remains

secret.

Tax Law

• Encompasses laws related to the taxation of individuals and businesses, including direct
and indirect taxes.

• Key legislation includes the Income Tax Act, 1961 and the Goods and Services Tax
(GST) Act, 2017.

• Ensures compliance with tax obligations and provides guidelines for tax planning and
reporting.
Securities Law

Securities law governs the issuance, trading, and regulation of financial instruments, such
as stocks, bonds, and derivatives. The primary aim is to protect investors, ensure fair and efficient
markets, and facilitate capital formation. In India, the main regulatory body for securities is the
Securities and Exchange Board of India (SEBI).

Securities law plays a vital role in maintaining the integrity of financial markets and
protecting investor interests. By regulating the issuance and trading of securities, it fosters
confidence in the capital markets, encouraging investment and facilitating economic growth.
Understanding these laws is crucial for investors, companies, and professionals operating within
the financial sector.

Labour law:

Labour law encompasses the legal framework governing the relationship between
employers and employees. It addresses various aspects of employment, including working
conditions, wages, benefits, rights, and responsibilities. Labour laws aim to protect workers' rights,
promote fair labor practices, and establish standards for workplace safety and equity.

Understanding the various aspects of labour law is essential for employers, employees, and
legal professionals to navigate the complexities of employment relationships and comply with
applicable regulations. By fostering a balance between the interests of employers and employees,
labour law contributes to social justice and economic stability.

Difference Between Employment Law and Labour Law

Employment law and labour law are often used interchangeably, but they encompass
different aspects of the employer-employee relationship. Understanding these distinctions is
crucial for navigating the legal landscape of the workplace.
Employment Law

Employment law primarily governs the individual relationship between employers and
employees. It focuses on the rights, obligations, and protections afforded to individual workers.

Scope:
Covers various aspects of employment, including:

o Employment contracts and agreements

o Employee rights and protections (e.g., anti-discrimination, minimum wage)
o Termination and severance procedures
o Workplace policies (e.g., harassment, health and safety)
Focus:
Emphasizes individual rights and responsibilities, addressing issues such as:

o Job descriptions

o Performance evaluations

o Individual disputes between an employee and their employer

Labour Law
Labour law deals with the collective relationship between employers and groups of employees,
typically represented by trade unions. It focuses on the rights and duties of all workers within a
specific industry or sector.

Scope:
Covers various collective aspects, including:

o Collective bargaining agreements

o Union organization and representation

o Industrial relations

o Strikes, lockouts, and collective disputes

Focus:
Emphasizes collective rights and responsibilities, addressing issues such as:

o Workers’ rights to organize and unionize

o Negotiations for better wages and working conditions

o Resolutions of disputes at the collective level

Business Laws in India

The Indian Contract Act, 1872
The Indian Contract Act, 1872, is a key piece of legislation governing contracts in India. It
lays down the framework for the formation, execution, and enforcement of contracts. The Act
defines a contract as an agreement enforceable by law, emphasizing elements such as offer,
acceptance, consideration, and the intention to create legal relations. It also outlines various types
of contracts, including void, voidable, and contingent contracts. Furthermore, the Act addresses
issues related to breach of contract and the remedies available, such as damages and specific
performance. Certain sections of the Act are supplemented by other laws, such as the Sale of Goods
Act and the Partnership Act. Overall, it plays a crucial role in regulating commercial transactions
and protecting the interests of parties involved.

The Sale of Goods Act, 1930

The Sale of Goods Act, 1930, regulates the sale of goods in India and establishes the rights
and duties of buyers and sellers. It defines a "sale" as a transfer of ownership of goods from the
seller to the buyer for a price, distinguishing it from other types of transactions. The Act covers
essential topics such as the formation of a contract, conditions and warranties, and the rights of
both parties in the event of a breach. It also specifies various types of goods, including specific,
ascertained, and unascertained goods. The Act outlines the seller's rights, such as the right to
payment and the right to lien, as well as the buyer's rights, including the right to reject goods and
the right to sue for damages. Additionally, it includes provisions for the transfer of title and risk
associated with goods. Overall, the Act aims to create a fair-trading environment and protect the
interests of both buyers and sellers.

The Indian Partnership Act, 1932

The Indian Partnership Act, 1932 governs partnerships in India, outlining the rights and
duties of partners. It defines a partnership as the relation between persons who agree to share the
profits of a business carried on by all or any of them acting for all. The Act emphasizes the
importance of a partnership agreement, which can specify terms and conditions governing the
partnership. It outlines key concepts, including the types of partners (active, sleeping, and nominal)
and the concept of limited liability partnerships (LLPs) introduced later under a separate act. The
Act also addresses the dissolution of partnerships, detailing procedures for voluntary and
involuntary dissolution. Additionally, it stipulates the liabilities of partners, including joint and
several liabilities for partnership debts. Overall, the Indian Partnership Act provides a legal
framework to facilitate business collaborations while protecting the interests of partners.

The Limited Liability Partnership (LLP) Act, 2008

The Limited Liability Partnership (LLP) Act, 2008, provides a framework for the formation
and regulation of LLPs in India. An LLP combines the benefits of a partnership and a corporation,
offering limited liability to its partners while allowing for flexible management structures. The Act
defines an LLP as a partnership in which some or all partners have limited liabilities, protecting
their personal assets from business debts. It requires a minimum of two partners to form an LLP
and mandates the registration of the LLP with the Registrar of Companies. The Act outlines the
rights and duties of partners, management procedures, and compliance requirements, promoting
transparency and accountability. Additionally, LLPs enjoy certain tax advantages and are easier to
manage compared to traditional companies. Overall, the LLP Act fosters entrepreneurship by
encouraging small and medium-sized enterprises to form partnerships with limited liability.
The Companies Act, 2013

The Companies Act, 2013, is a comprehensive legislation that governs the incorporation,
regulation, and dissolution of companies in India. It replaced the Companies Act of 1956, aiming
to enhance corporate governance and protect the interests of stakeholders. The Act categorizes
companies into various types, including private, public, and one-person companies, each with
specific regulatory requirements. It establishes a framework for the management of companies,
detailing the roles and responsibilities of directors and the rights of shareholders. The Act also
mandates compliance with accounting standards and auditing practices to ensure transparency and
accountability in financial reporting. Additionally, it introduces provisions for corporate social
responsibility (CSR), requiring certain companies to allocate funds for social welfare activities.
Overall, the Companies Act serves to promote a robust corporate environment while safeguarding
the rights of investors and consumers.

Scope of Mercantile Law:

Mercantile Law, also known as Commercial Law, encompasses the set of legal rules that
govern commercial transactions, business practices, and the relationships between merchants and
consumers.

Key Areas Covered

1. Contract Law

o Nature: Governs the formation, interpretation, and enforcement of contracts.

o Importance: Essential for ensuring that agreements are legally binding and
providing remedies for breach.

o Types of Contracts: Includes sales contracts, service agreements, and partnership

agreements.

2. Partnership Law

o Nature: Regulates partnerships, outlining rights, duties, and liabilities of partners.

 o Importance: Establishes how partners can operate together, share profits, and
manage disputes.

o Key Aspects: Formation, dissolution, and the relationship with third parties.

3. Sale of Goods

o Nature: Focuses on transactions involving the sale and purchase of goods.

o Importance: Provides guidelines on the rights and obligations of buyers and

sellers.

o Key Provisions: Conditions, warranties, delivery, and payment terms.

4. Negotiable Instruments

o Nature: Covers instruments like cheques, promissory notes, and bills of exchange.

o Importance: Facilitates trade by providing secure means of payment and credit.

o Key Principles: Transferability, endorsements, and holder in due course rights.

5. Insolvency Law

o Nature: Addresses the legal status of individuals or businesses unable to pay debts.

o Importance: Provides a framework for debt recovery and equitable distribution

among creditors.

o Key Aspects: Liquidation, bankruptcy proceedings, and creditor rights.

6. Insurance Law

o Nature: Governs insurance contracts and the relationships between insurers and
policyholders.

o Importance: Provides financial protection against risks and uncertainties.

o Key Concepts: Risk assessment, premiums, claims, and liability.

7. Carriage of Goods

o Nature: Regulates the transportation of goods by land, sea, or air.

 o Importance: Establishes the responsibilities of carriers and the rights of shippers.

o Key Elements: Terms of carriage, liability for loss or damage, and freight
agreements

The scope of Mercantile Law is vast and integral to facilitating smooth commercial operations. It
provides a structured legal framework that protects the interests of all parties involved in trade,
ensuring fairness, accountability, and efficient dispute resolution. Understanding these principles
is essential for anyone engaging in business activities.

Sources of Mercantile law:

The sources of Indian Mercantile Law constitute of the following:

❖ English Mercantile Law: The Indian mercantile law is heavily based on the English one.
Although, necessary changes made to suit the context of Indian conditions, local customs, and
rules. It is dependent on English mercantile Law, as even now, in the absence of laws relating to
any matter in the Indian law, the courts use English law to make their decisions.

❖ Acts enacted by Indian Legislation : The major acts that have been enacted by the Indian
legislation which are related to mercantile law are: Indian Contract Act(1872), Sale of Goods
Act(1930), Indian Partnership Act(1932), Negotiable Instruments Act(1881), The Arbitration and
Conciliation Act(1996), The Insurance Act(1938), The Carriers Act(1865), The Presidency Town
Insolvency Acts(1909) and Provincial Insolvency Act (1920).

❖ Judicial Decisions: In terms of business law, judicial decisions or precedents are past decisions
of the court that are used to solve cases with similar characteristics, where there is a conflict of
interest, and no clear judgment can be made. Thus, judicial decisions or precedents often become
new rules or laws. The judicial decisions are universally considered as a source of law.

❖ Customs and Trade Usages: A very large part of Indian Law has finally been codified.
However, many Indian statutes make special provisions. Thus, the effect of rules laid down in a
particular act is conditional to any special custom or usage of trade.