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An Update on Business Laws for Commerce and Management

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The book An Update on Business Laws for Commerce and Management is designed to provide the reader a basic understanding of laws relating to business focusing on the students studying Mercantile Law at the Diploma Level, Graduation Level (B.Com, BBM and BBA) at the Post Graduation Level and also for those taking up professional courses like CA-CPT and CS foundation.

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Mercantile Law

1

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MERCANTILE LAW

1.1

INTRODUCTION TO LAW

The term �law� is used in many senses. Depending upon the context in which the term is used, we speak of the laws of science, ethics, games and sport, etc. In the context of physical and natural sciences the term law means uniformity in nature and in other branches of knowledge, the term refers to rule of external human action. Therefore, whether it is scientific law, social law or moral law, the term �law� in its widest sense means a rule of action.

Law, in simple terms mean �rules�. Rules include a set code of conduct to regulate external human actions and conduct in their dealing with each other and with the government. Man is a social being and comes into contact with people in different capacities. In all his associations, he is expected to observe a code of conduct. The basic objective of law is to make human associations possible and conducive to the welfare of the society. For example, with a vehicle mechanic for repair of the vehicle, with a tailor to get a dress stitched, with the government as a taxpayer or with the seller of goods, as a buyer. In all these associations, he is expected to observe code of conduct � these are called rules. The objective of these rules is to make human association conducive for the welfare of the State and its people.

 

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10 An Update on Business Laws for Commerce and Management

2

THE INDIAN CONTRACT

ACT, 1872

2.1 INTRODUCTION TO THE INDIAN CONTRACT ACT 1872

The term CONTRACT is derived from the Latin term �contracum�, which means to �draw together�.

Section 2(h) of the Indian Contract Act defines a contract as �an agreement enforceable by law�. Salmond defines a contract as �an agreement creating and defining obligations between the parties�. The definitions therefore imply that there should be an agreement between two parties which can be enforced in a court of law.

What is an agreement? An agreement can be described as a promise or a set of promises. Section

2(e) of the Act defines an agreement as �every promise and every set of promises, forming consideration for each other, is an agreement.� Accordingly, a contract is an agreement and an agreement is a set of promise between two parties. A contract therefore requires two parties, one making an offer called the promisor or offerer, to another person called the promisee or offeree. The law of contracts is primarily concerned with self-imposed obligations. Therefore, the parties to a contract do enjoy freedom of contract and the rights and duties created by them can be enforced even though the terms of the contract are harsh or unfair to one party.

 

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The Indian Contract Act, 1872 51

Illustration: Contracts of �uberrimae fidei�, (which means contracts entered with utmost good faith), where there is legal obligations to disclose all the facts like contracts of insurance, contract for purchase of shares in companies, contracts of insurance, contract of marriage engagements, partnership contracts etc.

5. There is no duty to disclose facts which are within the knowledge of both the parties. Silence in such cases will not amount to fraud.

(c) Fraud Contracts not Voidable

∑ Where the defrauded party could discover the truth by ordinary care.

Illustration: A by misrepresentation leads B erroneously to believe that 2000 tonnes of sugar is manufactured at A�s sugar factory. B examines the accounts of the factory which shows only 1500 tonnes of sugar being manufactured. B later buys the sugar factory from A. B cannot avoid or rescind the contract on account of A�s misrepresentation. This is because B could identify or discover the truth by ordinary care.

 

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The Sale of Goods Act, 1930

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THE SALE OF GOODS

ACT, 1930

3.1 INTRODUCTION TO THE SALE OF GOODS ACT, 1930

The Sale of Goods is the most common of all commercial transactions. A knowledge of the main principles is of this Act is of utmost importance to all concerned. The law relating to the Sale of

Goods is contained in the Sale of Goods Act 1930. Prior to this Act, the law of Sale of Goods was contained in Chapter VII of the Indian Contract Act, 1872. The Act covers topics such as the concept of sale of goods, delivery of goods and passing of ownership. The Act also covers the field of documents of title to goods and the transfer of ownership on the basis of the transactions and documents, between the buyer and the seller, warranties and conditions arising out of sale and other obligations of the buyer and the seller.

(A) Scheme of the Act

The Act came into force on the 1st of July , 1930 and extends to the whole of India, except the State of Jammu and Kashmir. It is to be noted that the sections quoted in this chapter refer to the Sale of Goods Act, 1930, unless otherwise stated. The Sale of Goods Act, recognises freedom of contract, similar to the Indian Contract Act 1872 , and the parties are free to make their terms and conditions.

 

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The Indian Partnership Act, 1932

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THE INDIAN PARTNERSHIP

ACT, 1932

4.1 INTRODUCTION TO THE INDIAN PARTNERSHIP ACT, 1932

(A) Scheme of the Act

Partnership is a form of business organization, where two or more people, having common interest, join together for jointly carrying on some business. The law relating to partnership in India is embodied in the Indian Partnership Act, 1932. Before this Act could come into force, the provisions of Sections 239 to 266 of the Indian Contract Act governed a partnership. This Act was given effect to from the 1st of October, 1932. However, Section 69, which deals with the effect of non-registration of firms, came into force from 1st October 1933. The Act extends to the whole of India except the State of Jammu & Kashmir. According to Sec 3, since partnership comes into existence only by a contract between people who later become partners of the firm, the provisions of the Indian Contract Act, continue to apply to partnership firms.

(B) Definition

Section 4 of the Indian Partnership Act defines a partnership as �Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all�. Partnership is therefore an association of two or more individuals who engage themselves in a commercial activity through joint efforts, labour, skill with the intention of dividing the profits and bearing the loss arising out of such association.

 

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