Legal Aspects of Business

Indian Contract Act, 1872

A contract is an agreement enforceable by law. An agreement arises from an offer by one party and acceptance by another, with communication of both, and becomes a contract when supported by lawful consideration and lawful object and made by competent parties with free consent. Offer must be definite and communicated, distinguishing it from an invitation to offer such as a shop display or advertisement inviting tenders. Acceptance must be absolute, unqualified and communicated in the prescribed manner, and silence generally does not amount to acceptance. Consideration is something of value given in return, which may move from the promisee or any other person, and must be real, lawful and not past in the sense of a voluntary act already completed without expectation, subject to recognised exceptions such as a promise to compensate a voluntary act or a time-barred debt in writing.

Competency requires majority age, sound mind, and no disqualification by law. An agreement with a minor is void, and a minor cannot be made liable even by misrepresenting age, though a minor's property may be liable for necessaries supplied. Free consent requires absence of coercion, undue influence, fraud, misrepresentation and mistake. Coercion involves threats forbidden by law, undue influence involves domination of will in a relationship of trust, fraud involves deliberate false statement intended to deceive, misrepresentation involves an innocent false statement, and mistake may be bilateral about an essential fact, which can void the agreement. An agreement without free consent is generally voidable at the option of the party whose consent was vitiated, not automatically void. Lawful object and consideration require that the purpose is not forbidden by law, fraudulent, injurious, immoral or opposed to public policy, and agreements in restraint of trade, marriage or legal proceedings are generally void, subject to reasonable exceptions such as sale of goodwill with reasonable restraint.

Performance must be exact and by the promisor or an authorised agent, and time is of the essence only where the parties intended it or the nature of the subject requires it. Discharge occurs by performance, agreement, impossibility, lapse of time, operation of law, or breach. Initial impossibility voids the agreement, while supervening impossibility, such as destruction of the subject matter or a change in law, discharges the contract, but mere commercial difficulty or increased cost does not. Breach may be actual, failure to perform when due, or anticipatory, refusal before the due date, and remedies include damages, which compensate loss naturally arising or contemplated by the parties, with no compensation for remote loss, and mitigation requiring the injured party to take reasonable steps to reduce loss. Specific performance may compel performance where damages are inadequate, particularly for unique subject matter, and injunction may restrain a breach of a negative promise. Quasi-contracts impose obligations resembling contract where justice requires, such as payment for necessaries, money paid by mistake, or benefits received under a void agreement. Special contracts include indemnity, where one party promises to save another from loss, guarantee, where a surety promises to perform on a principal debtor's default, bailment, delivery of goods for a purpose with return, pledge, bailment as security, and agency, where an agent binds the principal within authority.

Sale of Goods Act and Negotiable Instruments Act

A contract of sale of goods transfers property in goods from seller to buyer for a price, where goods are movable property other than money and actionable claims. A sale transfers property immediately, while an agreement to sell transfers it at a future time or on conditions, becoming a sale when the time arrives or conditions are fulfilled. If goods perish before a sale but after an agreement to sell, the agreement is avoided, while if specific goods perish before sale without the seller's knowledge, the contract is void. Price must be money consideration, fixed by the contract, by a course of dealing, or by a reasonable price where not fixed. Existing goods are owned by the seller at the time of contract, future goods are to be manufactured or acquired later, and specific goods are identified and agreed at the time of contract, as opposed to unascertained goods identified only later by description.

Conditions are stipulations essential to the main purpose, whose breach gives a right to repudiate and claim damages, while warranties are collateral stipulations whose breach gives only a right to damages. A buyer may elect to treat a breach of condition as a breach of warranty, and in certain cases, such as acceptance of goods or where the contract cannot be severed, a condition is treated as a warranty. Implied conditions include title, that the seller has the right to sell, correspondence with description where goods are sold by description, fitness for the buyer's disclosed purpose where the buyer relies on the seller's skill, merchantable quality, and correspondence with sample where sold by sample. The rule that no one can give a better title than they have protects owners, subject to exceptions for sale by a mercantile agent, by a seller or buyer in possession, by estoppel, or under a voidable title before avoidance. Property passes when the parties intend it to pass, inferred from terms, conduct and delivery, with rules for specific goods in a deliverable state, goods to be put in a deliverable state, and unascertained goods ascertained and appropriated with notice. Risk generally passes with property unless otherwise agreed, and delivery, acceptance and payment follow the contract terms, with the unpaid seller retaining rights of lien, stoppage in transit, and resale in defined circumstances.

A negotiable instrument is a written document that promises or orders payment of money and is transferable by delivery or endorsement, including promissory notes, bills of exchange and cheques. A promissory note is a promise by the maker to pay, a bill of exchange is an order by the drawer to the drawee to pay the payee, and a cheque is a bill drawn on a bank payable on demand. Negotiation transfers the instrument, by mere delivery for bearer instruments and by endorsement plus delivery for order instruments, and a holder in due course who takes in good faith, for value, before maturity and without notice of defect obtains a title free from prior defects. Presentment for acceptance applies to bills requiring acceptance, presentment for payment is required to charge parties, and noting and protest record dishonour formally. Dishonour by non-acceptance or non-payment gives the holder a right against prior parties after due notice, and dishonour of a cheque for insufficiency of funds carries penal consequences where the statutory conditions, including demand within time, are met. Forgery gives no title, and a forged endorsement cannot pass a valid claim, while crossing a cheque restricts its payment through a banker, with general, special and account payee crossings giving different levels of protection.

Companies Act, LLP and Competition Act

A company is an incorporated association with separate legal personality, perpetual succession, limited liability of members, and the ability to own property, contract and sue in its own name. The veil of incorporation is generally respected, but courts may lift it where incorporation is used for fraud, evasion of legal obligations, or to defeat public interest. Formation requires a memorandum stating name, registered office, objects, liability and capital, and articles governing internal management, together with incorporation documents and registration. Shares, debentures and deposits are governed by prospectus, allotment, share capital and borrowing rules, and a prospectus must not contain untrue statements, with liability for misstatement falling on those responsible. Directors manage the company under the board, subject to duties of care, loyalty, good faith and avoidance of conflicts, and are appointed, removed and remunerated under statutory and articles provisions. Meetings of shareholders and the board follow notice, quorum, voting and resolution rules, with ordinary resolutions for routine matters and special resolutions for important matters, and minutes record decisions.

Accounts, audit and disclosure protect shareholders and creditors: books must be kept, financial statements prepared and audited, annual returns filed, and dividends paid only out of profits under prescribed conditions. Oppression and mismanagement remedies allow members to seek relief where affairs are conducted prejudicially, and investigation may be ordered where fraud or misconduct is suspected. Winding up ends the company's life, voluntarily by members or creditors or compulsorily by tribunal order, with a liquidator realising assets, paying creditors in statutory order, and distributing any surplus to members. A limited liability partnership combines partnership flexibility with limited liability: partners are agents of the partnership but not of each other, liability is limited to agreed contribution, and the partnership has separate personality, with registration, designated partners, and filing obligations. It suits professional and small businesses that want internal flexibility without exposing personal assets beyond contribution, though it cannot raise equity capital like a company.

Competition law prohibits anti-competitive agreements, abuse of dominant position, and combinations that cause appreciable adverse effect on competition. Horizontal agreements between competitors to fix prices, limit production, share markets or rig bids are presumed harmful, while vertical agreements such as tie-ins, exclusive supply, resale price maintenance and refusal to deal are examined for their actual effect. Abuse of dominance includes predatory pricing below cost to eliminate rivals, denial of market access, unfair conditions, and leveraging dominance from one market to another. Dominance itself is not unlawful; only its abuse is. Combinations through mergers, acquisitions and amalgamations above thresholds require notification and approval, with remedies including modification or prohibition where competition would be harmed. Enforcement through investigation, orders, penalties and directions aims to protect competition as a process, which benefits consumers through lower prices, better quality and innovation, rather than protecting individual competitors from rivalry.

IT Act, RTI Act, IPRs and GST

Information technology law gives legal recognition to electronic records and digital signatures, treating electronic records as equivalent to paper where statutory conditions on authenticity, integrity and attribution are met. It addresses electronic governance, digital signatures and electronic signature certificates, and certifying authorities that verify identities. It creates offences and penalties for unauthorised access, damage to computer systems, data theft, identity theft, cheating by impersonation using computer resources, and publication of obscene or sexually explicit material, with intermediaries given conditional safe harbour where they observe due diligence and act on actual knowledge of unlawful content. Data protection principles, including lawful processing, purpose limitation, data minimisation, accuracy, storage limitation and security, govern personal data, with rights for data principals and obligations for data fiduciaries, though the detailed regime continues to evolve through rules and enforcement practice. For business, the practical points are to use recognised electronic signatures, preserve electronic evidence, secure systems, respect intermediary duties, and treat customer data as a regulated asset, not merely a marketing resource.

The right to information law empowers citizens to seek information held by public authorities, subject to exemptions for national security, commercial confidence, personal privacy, and information that would impede investigation or parliamentary privilege, with a public interest override where disclosure serves a larger public good. Public authorities must proactively publish records, designate information officers, respond within prescribed time, and face appeal to information commissions where requests are refused or delayed. For businesses dealing with government, this means tender, contract and regulatory information may be disclosable, so confidentiality claims must be specific and justified, not blanket.

Intellectual property rights protect creations of the mind. Patents protect novel, inventive and industrially applicable inventions for a limited term, in exchange for public disclosure. Copyright protects original literary, artistic, musical and dramatic works and related rights, arising on creation without registration, though registration aids proof. Trademarks protect signs distinguishing goods or services, and well-known marks receive broader protection against dilution. Designs protect visual appearance, geographical indications protect goods linked to a place and its reputation, and trade secrets are protected through confidentiality and contract. Infringement remedies include injunctions, damages, accounts of profit and seizure of infringing goods. Goods and services tax is a destination-based, multi-stage tax on supply of goods and services, with input tax credit allowing tax paid on inputs to be set off against tax on outputs, so that tax falls on value added at each stage rather than cascading on the full price. Supplies are classified by place of supply, with integrated tax on inter-state supplies and central plus state tax on intra-state supplies, and businesses must register where thresholds are met, issue tax invoices, file returns, and maintain records, with anti-profiteering and compliance provisions aimed at passing rate benefits to consumers and deterring evasion.

Condition versus warranty

Sale versus agreement to sell