BUSINESS LAW. (As per the Revised Syllabus of Mumbai University for B.Com., Semester II, [Accounting and Finance], w.e.f

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2 BUSINESS LAW (As per the Revised Syllabus of Mumbai University for B.Com., Semester II, [Accounting and Finance], w.e.f K. R. BULCHANDANI Solicitor, Advocate Supreme Court, Notary Public, Ex-Sr. Counsel, Government of India, Ex-Professor, Government Law College, Mumbai. Author of Business Law & Business Law (for Management) ISO 9001:2008 CERTIFIED

3 AUTHOR No part of this publication shall be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the author and the publisher. FIRST EDITION : 2016 Published by : Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd., Ramdoot, Dr. Bhalerao Marg, Girgaon, Mumbai Phone: / , Fax: himpub@vsnl.com; Website: Branch Offices : New Delhi : Pooja Apartments, 4-B, Murari Lal Street, Ansari Road, Darya Ganj, New Delhi Phone: , ; Fax: Nagpur : Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur Phone: , ; Telefax: Bengaluru : Plot No , 2nd Main Road Seshadripuram, Behind Nataraja Theatre, Bengaluru Phone: , , Hyderabad : No , Lingampally, Besides Raghavendra Swamy Matham, Kachiguda, Hyderabad Phone: , ; Mobile: Chennai : New-20, Old-59, Thirumalai Pillai Road, T. Nagar, Chennai Mobile: Pune : First Floor, "Laksha" Apartment, No. 527, Mehunpura, Shaniwarpeth, (Near Prabhat Theatre), Pune Phone: / ; Mobile: Lucknow : House No 731, Shekhupura Colony, Near B.D. Convent School, Aliganj, Lucknow Mobile: Ahmedabad : 114, SHAIL, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura, Ahmedabad Phone: ; Mobile: Ernakulam : 39/176 (New No: 60/251) 1st Floor, Karikkamuri Road, Ernakulam, Kochi , Phone: , ; Mobile: Bhubaneswar : 5 Station Square, Bhubaneswar (Odisha). Phone: , Mobile: Kolkata : 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank, Kolkata , Phone: , Mobile: , DTP by : Sudhakar Shetty Printed at : Geetanjali Press Pvt. Ltd., Nagpur, on behalf of HPH. (ii)

4 SYLLABUS Revised Syllabus of courses of B.Com. (Accounting and Finance) Programme at Semester II with effect from the Academic Year Core Courses (CC) 6. BUSINESS LAW Business Regulatory Framework - I Modules at a Glance Sr. No. Modules No. of Lectures 1 Law of Contract Sale of Goods Act Negotiable Instrument Act Consumer Protection Act Total 60 Sr. No. Modules / Units 1 Law of Contract 1872 (a) Nature of Contract (b) Classification of Contracts (c) Offer and Acceptance (d) Capacity of Parties to Contract (e) Free Consents (f) Consideration (g) Legality of Object (h) Agreement Declared Void (i) Performance of Contract (j) Discharge of Contract (k) Remedies for Breach of Contract (l) Indemnity (m) Guarantee (n) Bailment and Pledge (o) Agency 2 Sale of Goods Act 1930 (a) Formation of Contract of Sale (b) Goods and their Classifications (c) Price, Conditions and Warranties (d) Transfer of Properties in Goods (e) Performance of Contract of Sales (iii)

5 (f) Unpaid Seller and his Rights (g) Sale by Auction (h) Hire Purchase Agreement 3 Negotiable Instrument Act 1881 (a) Definition of Negotiable Instruments (b) Features of Negotiable Instruments (c) Promissory Note (d) Bill of Exchange and Cheque (e) Holder and Holder in due Course (f) Crossing of a Cheque (g) Types of Crossing (h) Dishonour and Discharge of Negotiable Instruments 4 Consumer Protection Act 1986 (a) Salient Features (b) Definition of Consumers (c) Deficiency in Service (d) Defects in Goods (iv)

6 QUESTION PAPER PATTERN (THEORETICAL COURSES) Maximum Marks: 75 Questions to be set: 05 Duration: 2½ Hrs. All Questions are Compulsory Carrying 15 Marks each. Question Particular Marks No. Q-l Objective Questions 15 Marks (A) Sub Questions to be asked 10 and to be answered any 08 (B) Sub Questions to be asked 10 and to be answered any 07 (*Multiple Choice/True or False/Match the Columns/Fill in the Blanks) Q-2 Full Length Question 15 Marks OR Q-2 Full Length Question 15 Marks Q-3 Full Length Question 15 Marks OR Q-3 Full Length Question 15 Marks Q-4 Full Length Question 15 Marks OR Q-4 Full Length Question 15 Marks Q-5 (A) Theory questions 08 Marks (B) Theory questions OR 07 Marks Q-5 Short Notes 15 Marks To be asked 05 To be answered 03 Note: theory question of 15 marks may be divided into two sub-questions of 7/8 and 10/5 marks. (v)

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8 TO MY PARENTS & MY DESTINY (vii)

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10 MR. JUSTICE BAKHTAVAR LENTIN, Retired Judge, Bombay High Court. FOREWORD TO 15TH REVISED EDITION ON BUSINESS LAW Writing a foreword is a chore with rarely an exception. The exception is Business Law by Mr. K. R. Bulchandani, when writing a foreword becomes a pleasure. What is easy to read is difficult to write. For both, the gratitude of the reader must go to the author. Business Law is divided into two sections with an indepth analysis of four Acts in each. It is a mine of information with updated case law for S.Y.B.Com. students for whom it is essentially intended, as it is also for the layman. The language is simple, the material well cohesed and the presentation lucid. I need not wish the book a success because a success it will be. 12th August BAKHTAVAR LENTIN Chateau Marine Marine Drive Bombay (ix)

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13 (xii)

14 FOREWORD TO THE FIFTH EDITION ON BUSINESS LAW FOR MANAGEMENT (xiii)

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16 C. K. THAKKER Chief Justice, Bombay High Court. FOREWORD TO 2ND EDITION ON BUSINESS LAW FOR MANAGEMENT I have glanced through Business Law for Management by Mr. K.R. Bulchandani. Dividing into two parts and again in several sections, the author has discussed all subjects in simple and lucid manner. Fundamental principles of law have been explained and highlighted with reference to leading English and Indian cases. The author has rightly stated: Lucidity and simplicity have been adopted without sacrificing the essentialities. Over and above the Law of Contract, the author has dealt with other subjects connected with Mercantile law. Basic principles of Company Law, law relating to Securities, Foreign Exchange, Restrictive Trade Practices, Consumer Protection, Essential Commodities, Environmental Pollution and Protection have also been discussed. I wish the publication success. 1st May, C.K. THAKKER (xv)

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18 Y.K. Sabharwal Chief Justice House, J. Mehta Road, Malabar Hill, Mumbai Tel.: Off: Res FOREWORD TO 1ST EDITION OF BUSINESS LAW FOR MANAGEMENT It is my pleasure to contribute a Foreword to this extremely useful Book, which comprehensively provides to students and professionals the in-depth study of relevant provisions of various Acts in one text. In two parts, the learned author has ably dealt with various topics, such as Law of Contract, Bailment and Pledge, Agency, Sale of Goods, Negotiable Instruments, Foreign Exchange and Securities and Stock Exchange. I congratulate Mr. K.R. Bulchandani for painstaking efforts in bringing out this publication and wish him all success. 5th August, (Y.K. SABHARWAL) (xvii)

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20 A WORD OF ADVICE (xix)

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22 PREFACE (xxi)

23 CONTENTS 1. Introduction to Law Law of Contract [The Indian Contract Act, 1872] [Sections 1 to 75] 3. Law of Contract with Law of Indemnity & Guarantee Law of Bailment & Pledge & Law of Agency [Sections 124 to 238] 4. Law of Sale of Goods [The Sale of Goods Act, 1930] 5. Law of Negotiable Instruments [The Negotiable Instruments Act, 1881] 6. Law of Consumer Protection [The Consumer Protection Act, 1986] (xxii)

24 INTRODUCTION TO LAW 1 WHAT IS LAW? Law in simple term means rules. Law means Acts, Rules, Regulations and other enactments to the Act. It is a very wide term and includes different sets of acts, rules and regulations regulating external human actions and conduct of individuals in their dealings with other individuals and with the Government. With the growth of society and welfare State, civilisation has demanded a reformed set of law, time and again. Law has, therefore, been often subject to changes to meet the practical needs of society and at the same time, attempting to achieve some sort of security and uniformity in its application. In simple words, the term law denotes rules of conduct enforced by the State. Legally, a set of rules alone is not sufficient unless: (i) it is enforced by the State; (ii) the State to enforce law is a Sovereign State; (iii) it receives due recognition; (iv) it attempts to achieve some sort of security and uniformity in its application. Rules which have above characteristics are called law. Law includes all the rules, regulations and principles which regulate our relations with other individuals and with the State. DEFINITION OF LAW Austin has defined law in the following words: A law is a rule of conduct imposed and enforced by the Sovereign. Salmand defined law as the body of principles recognised and applied by the State in the administration of justice. Holland defined law as rule of external human actions enforced by Sovereign Political Authority. Woodrow Wilson defined law as: that portion of the established habit and thought of mankind which has gained distinct and formal recognition in the shape of uniform rules backed by the authority and power of the Government. According to Anson: The object of law is order and the result of order is that men are enabled to look ahead with some sort of security as to the future. Although human actions cannot be reduced to the uniformities of nature, men have now endeavoured to reproduce by law something approaching to this uniformity. 1

25 2 BUSINESS LAW Law when enacted has to observe the following principles: (i) it should as far as possible be in conformity with custom and usage of the people, i.e., it should not offend local customs and usages of the society; (ii) it should move with the society, i.e., it should be vulnerable to changes. It should not be a static or rigid piece of legislation. Law, therefore, is not static. It changes with times, customs and needs of the society. The primary object of law is to regulate human relations with other individuals and with the State. As a social being, man comes in contact with people in different capacities; with landlord as a tenant, with Government as a tax payer and so on and so forth. In all these associations he is expected to observe a code of conduct or a set of rules. This set of rules embodied in Law and enforced by State makes human associations possible and conducive to the welfare of the State and its people. SOURCES OF INDIAN LAW The following are the sources of Indian Law: 1. English Law: The English Law is the principal source of Indian Law. English law originates from the following sources: (i) Maritime Usages or Law of Merchant: During the 14th and 15th centuries, maritime law based on customs and usages came to be recognised as the primary basis of English Mercantile Law. (ii) English Common Law: English Common Law was based on justice, equity and good conscience which was developed on the customs, usages and traditions prevalent from centuries. Common Law was found to be inadequate as it was unwritten and its principles were applied whenever subsequent disputes of similar nature arose. (iii) Roman Law: Where customs and usages did not exist, Roman Law was applied. (iv) Rules of Equity: Where common law was harsh and oppressive, Judges applied rules of justice in their decisions which became precedents. Rules of Equity were the codification of these rules of justice in the form of precedents. Rules of Equity and Common Law were applied simultaneously. (v) Statutes of British Parliament: British Parliament enacted laws which were enforced by the Courts. British Statutes override the rules of Common Law and rules of equity. (vi) English Judicial Decisions: Judicial decisions or British Common Law or precedents form a very important source of law today. Decisions in future cases with similar facts are based on already decided cases. In [B.O.I Finance Ltd. v. The Custodian AIR 1997 SC 1952], Supreme Court has observed that the decision of the Courts in England, based on common law principles have been applied and followed by the Courts in India. 2. Indian Statutes: The Central and State Legislatures enact laws in India, which are applied by the Courts in India. Prior to 1872, English Courts used to apply personal law of the parties to the suit. In 1872, the Indian Contract Act was passed which is one of the oldest enactments in India. The Indian Contract Act is based on English Common Law Rules. 3. Judicial Decisions: Interpretation of Statutes by Judges and their application depending on the facts of each case, meting out justice to the aggrieved parties has today formed a very important source of law. Where Indian Statutes, customs or usages are silent, Courts apply law based on English judgements which came to be recognised as an important basis of law in our country. Application of judicial decisions in previous cases to subsequent similar cases forms a very important source of law today.

26 INTRODUCTION TO LAW 3 4. Customs and Usages: Customs and usages in practice for a long time, in the absence of any statutory rules or which are not opposed to any statutory rules, are binding on the parties to the contract. Customs and usages should be ancient, reasonable and constant. Customs when accepted by the Court and incorporated in a judicial decision become a legal custom. WHAT IS BUSINESS LAW? The terms business, commercial and mercantile are synonymous. Day-to-day transactions between individuals, or between individuals on the one hand and Government or local bodies on the other, involving one or the other form of obligation is a business transaction. The growth of business made it imperative for the Parliament and State Legislatures to introduce new pieces of legislation and amend the existing legislations to regulate various business transactions. As huge amount of labour and capital are involved, it is obvious that in a socialistic form of State like India, wealth should be adequately distributed to bridge the gap between the haves and have-nots. To achieve this object, law regulates the various transactions of the business community. Although it is not possible for a layman to learn every branch of law yet he must acquaint himself with the general principles of law of the country for, ignorance of law is no excuse. Business Law is a branch of General Law. It relates to industry, trade and commerce. It includes law interalia relating to contracts, sale of goods, partnerships, negotiable instruments, companies, co-operative societies etc. Consumers are a special constituent of any business. The consumers movement has gained significant importance of late. Consumers Protection Act not only recognises the importance of safeguarding the right and interest of the consumers but also puts every business on alert and answerable to the consumer, the ultimate master. Foreign exchange is regulated by Foreign Exchange Management Act, 1999 (FEMA). With the advent of e-business and global attainments, Law on Information Technology, Law of Competition with protection under Intellectual Property Rights have assumed importance and are a modern commercial law regulating business. Business Law is not altogether distinct and separate from other branches of law. In its application, recourse is often taken to other pieces of legislation. Every law is interrelated though classified into different branches of law.