Legal Aspects of Business

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Master of Business Administration - Semester 3
MB 0051: “Legal Aspects of Business
(4 credits)
(Book ID: B1207)
ASSIGNMENT- Set 1
Name SANJAY NAITHANI
Registration No. 1205016967
Assignment (60 marks)
Note: Assignment Set -1 must be written within 6-8 pages. Answer all questions.
Q1. Discuss the nature and significance of business law.
Answer: The term "Law" is used in many senses: you may speak of the law of physics, mathematics,
science, or the laws of the football or health. In its widest sense, "law" means any rule of conduct,
standard or pattern, to which actions are required to conform; if not conformed, sanctions are imposed.
When we speak of the law of a State, we use the term "law" in a special and strict sense.
Significance of law
Law is a body of rules
These rules prescribe the conduct, standard or pattern to which actions of the persons in the state are
required to conform. However, all rules of conduct do not become law in the strict sense. We resort to
various kinds of rules to guide our lives. For example, our conduct may be guided by a rule such as “do
not be arrogant” or “do not be disrespectful to elders or women”. These are ethical or moral rules by
which our daily lives are guided. If we do not follow them, we may lose our friends and their respect, but
no legal action can be taken against us.

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Law is for the guidance or conduct of persons
Both human and artificial. The law is not made just for the sake of making it. The rules embodied in the
law are made, so as to ensure that actions of the persons in the society conform to some predetermined
standard or pattern. This is necessary so as to ensure continuance of the society. No doubt, if citizens
are „self-enlightened ‟or self-controlled", disputes may be minimized, but will not be eliminated. Rules
are, therefore, drawn up to ensure that members of the society may live and work together in an
orderly manner. Therefore, if the rules embodied in the law are broken, is used to enforce obedience,
and certain consequences ensue.
Law is imposed
Law is imposed on the members to bring about an order in the group, enabling it to continue and
prosper. It is not something which may or may not be obeyed at the sweet will of the members of
society. If you cannot impose a rule it is better not to have it. Thus, law is made obligatory on the
members of the society.
Law is enforced by the executive
Obviously, unless a law is enforced it ceases to be a law and those persons subject to it will regard it as
dead.
For example
If A steals Bs bicycle, he may be prosecuted by a court and may be punished. Also, the court may order
the restitution of the bicycle to its rightful owner i.e., B. If the government passes many laws but does
not attempt to enforce them, the citizens lose their respect for government and law, and society is
greatly weakened. The force used is known as sanction which the state administers to secure obedience
to its laws.
The state
A state is a territorial division, with people there in subject to a uniform system of law administered by
some authority of the state. Thus, law presupposes a state.
Content of law
The law is a living thing and changes throughout the course of history. Law responds to public opinion
and changes accordingly. Law can never be static. Therefore, amendments are made in different laws
from time to time. For example, the Monopolistic and Restrictive Trade Practices Act, 1969, has been
subjected to many amendments since its inception in 1969.
Two basic ideas involved in law
The two basic ideas involved in any law are:
I. To maintain some form of social order in a group and
II. To compel members of the group to be within that order. These basic ideas underlie
formulation of any rules for the members of a group. A group is created because first, there is a
social instinct in the people to live together and secondly, it helps them in self-preservation.
Rules are made by the members of the group, so that the group doesn’t whither away.
Law is made to serve some purpose which may be social, economic or political
Some examples of law in the widest‟ sense of the term. Law in its widest sense may include‟

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Moral rules or etiquettes, the non-observance of which may lead to public ridicule,
Law of the Land the non-observance of which may lead to arrest, imprisonment, fines, etc.,
Rules of international law, the non-observance of which may lead to social boycott, trade-
sanctions, cold war, hot war, proxy war, etc.
Q2. What is Partnership? Briefly state special features of a partnership on the basis of which its
existence can be determined under the Indian Partnership Act?
Answers: Partnership is defined as “the relationship between persons who have agreed to share profits
of a business carried on by all, or by any of them acting for all”. On analysis of the definition, certain
essential elements of partnership emerge. These elements must be present so as to form a partnership
and are discussed below.
Partnership is an association of two or more than two persons
There must be at least two persons who should join together to constitute a partnership, because one
person cannot become a partner with himself. These persons must be natural persons having legal
capacity to contract. Thus, a company (which is an artificial person) cannot be a partner. Similarly, a
partnership firm cannot be a partner of another partnership firm. As regards maximum number of
partners in a partnership firm, Sec.11 of the Companies Act, 1956, puts the limit at 10 in case of banking
business and 20 in case of any other business.
Partnership must be the result of an agreement between two or more persons
An agreement presupposes a minimum number of two persons. As mentioned above, a partnership to
arise, at least two persons must make an agreement. Partnership is the result of an agreement between
two or more persons (who are known as partners after the partnership comes into existence)
.
The agreement must be to carry on some business
The term business includes every trade, occupation or profession [Sec. 2(b)]. Though the word business
generally conveys the idea of numerous transactions, a person may become a partner with another even
in a particular adventure or undertaking (Sec.8). Unless the person joins for the purpose of carrying on a
business, it will not amount to partnership.
The agreement must be to share profits of the business
The joint carrying on of a business alone is not enough; there must be an agreement to share profits
arising from the business. Unless otherwise so agreed, sharing of profits also involves sharing of losses.
But whereas the sharing of profits is an essential element of partnership, sharing of losses is not.
Example:
A trader owed money to several creditors. He agreed to pay his creditors out of the profits of his
business (run under the creditor’s supervision) what he owed to them. Held, the arrangement did not
make creditors partners with A in business [Cox v. Hickman, (1860) 8 H.L.C., 268].
Formation of partnerships
All the essential elements of a valid contract must be present in a partnership as it is based on an
agreement. Therefore, while constituting a partnership. The following points must be kept in mind.

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 The Act provides that a minor may be admitted to be benefits of partnership.
 No consideration is required to create partnership. A partnership is an extension of agency for
which no consideration is necessary.
 The partnership agreement may be express (i.e., oral or writing) or implied and the latter may
be inferred from the conduct or the course of dealings of the parties or from the circumstances
of the case. However, it is always advisable to have the partnership agreement in writing.
 An alien friend can enter into partnership, an alien enemy cannot.
 A person of unsound mind is not competent to enter into a partnership.
 A company, incorporated under the Companies Act, 1956 can enter into a contract of
partnership.
Duration of partnership
The duration of partnership may or may not be fixed. It may be constituted even for a particular
adventure
Partnership at will
In accordance with Sec.7, a partnership is called a partnership at will where.
 It is not constituted for a fixed period of time and
 There is no provision made as to the determination of partnership in any other way. Therefore
such a partnership has no fixed or definite date of termination. Accordingly death or retirement
of a partner does not affect the continuance of such a partnership.
Particular partnership
In accordance with Sec.8 a particular partnership is one which is formed for a particular
adventure or a particular undertaking. Such a partnership is usually dissolved on the completion
of the adventure or undertaking.
Limited partnership
In this type of partnership, the liability of certain partners is limited to the amount of capital
which they have agreed to contribute to the business. Ina limited partnership, there will be at
least one general partner whose liability is unlimited and one or more special partners whose
liability is limited.
Q3. Examine the rights of a consumer enshrined under the Consumer Protection Act, 1986.
Answer: Rights of Consumers
For the first time in the history of consumer legislation in India, the Consumer Protection Act, 1986
extended a statutory recognition to the rights of consumers. Sec.6 of the Act recognizes the following six
rights of consumers:
Right to safety
i.e. the right to be protected against the marketing of goods and services which are hazardous to life and
property.
Right to be informed

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i.e., the right to be informed about the quality, quantity, potency, purity, standard and price of goods or
services, as the case may be, so as to protect the consumer against unfair trade practices.
Right to choose
It means right to be assured, wherever possible, access to a variety of goods and services at competitive
prices. In case of monopolies, say, railways, telephones, etc., it means right to be assured of satisfactory
quality and service at a fair price.
Right to be heard
i.e., the consumer’s interests will receive due
Consideration at appropriate forums. It also includes right to be represented in various forums formed
to consider the consumers welfare.
Right to seek redressal
It means the right to seek redressal against unfair practices or restrictive trade practices or unscrupulous
exploitation of consumers. It also includes right to fair settlement of the genuine grievances of the
consumers.
Right to consumer education
It means the right to acquire the knowledge and skill to be an informed consumer
Q4. What do you mean by bailment? What are the requisites of a contract of bailment? Explain.
Answers: Definition of bailment (Sec.148)
Bailment is defined as the “delivery of goods by one to another person for some purpose, upon a
contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of
according to the directions of person delivering them”. The person delivering the goods is called the
bailer and the person to whom the goods are delivered is called the bailee. The explanation to the above
Section points out that delivery of possession is not necessary, where one person, already in possession
of goods contracts to hold them as bailee.
The bailee is under an obligation to re-deliver the goods, in the iroriginal or altered form, as soon as the
time of use for, or condition on which they were bailed, has elapsed or been performed”.
A delivers some clothes to B, a dry cleaner, for dry cleaning.
A delivers a wrist watch to B for repairs.

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A lends his book to B for reading.
A delivers a suit-length to a tailor for stitching.
A delivers some gold biscuits to B, a jeweler, for making jewellery.
Delivery of goods to a carrier for the purpose of carrying them from one place to another.
Delivery of goods as security for the repayment of loan and interest thereon, i.e., pledge.
From the definition of bailment, the following characteristics should benoted:
Delivery of goods
The essence of bailment is delivery of goods by one person to another for some temporary purpose.
Delivery of goods may, however, be actual or constructive. Actual delivery may be made by handing
over goods to the bailee. Constructive delivery may be made by doing something which has the effect of
putting the goods in the possession of the intended bailee or any person authorized to hold them on his
behalf (Sec.149).
Example:
A holding goods on behalf of B, agrees to hold them on behalf of C, there is a constructive transfer of
possession from C to A.
Bailment is based on a contract
In bailment, the delivery of goods is upon a contract that when the purpose is accomplished, they shall
be returned to the bailer. For example where a watch is delivered to a watch repairer for repair, it is
agreed that it will be returned, after repair, on the receipt of the agreed or reasonable charges.
Return of goods in specie
The goods are delivered for some purpose and it is agreed that the specific goods shall be returned.
Return of specific goods (in specie) is an essential characteristic of bailment. Thus, where an equivalent
and not the same is agreed to be returned, there is no bailment.
Ownership of goods
In a bailment, it is only the possession of goods which is transferred and not the ownership thereof,
therefore the person delivering the possession of goods need not be the owner; his business is to
transfer possession and not ownership.
Q5. Name the instruments which are recognized as negotiable instruments by the Negotiable
Instruments Act, 1881
Answers: An Instrument as referred to in the Act is a legally recognized written document, whereby
rights are created in favor of one and obligations are created on the part of another. The word
negotiable means transferable from one person to another either by mere delivery or by endorsement
and delivery, to enable the transferee to get a title in the instrument. An instrument may possess the

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characteristics of negotiability either by statute or by usage. Promissory note, bill of exchange and
cheque are negotiable instruments by statute as they are so recognized by Sec.13. There are certain
instruments which are recognized as negotiable instruments by usage. Thus, bank notes, bank drafts,
share warrants, bearer debentures, dividend warrants, scripts and treasury bills are negotiable by usage.
An instrument is called negotiable if it possesses the following features.
Freely transferable
Transferability may be by (a) delivery, or (b) by endorsement and delivery.
Holder's title free from defects
The term negotiability means that not only is the instrument transferable by endorsement and/or
delivery, but that its holder in due course acquires a good title notwithstanding any defects in a previous
holder's title. A holder in due course is one who receives the instrument for value and without any
notice as to the defect in the title of the transferor.
The holder can sue in his own name
Another feature of a negotiable instrument is that its holder in due course can sue on the instrument in
his own name.
A negotiable instrument can be transferred infinitum, i.e., can be transferred any number of
times, till its maturity.
Q6. a) Write short note on Intellectual property right.
b) A leaves a cow in the custody of B to be taken care of. The cow gives birth to a calf. Who will
take the calf and why?
Answer:
Intellectual Property Rights (IPR): Intellectual property (IP) is a legal concept which refers to creations
of the mind for which exclusive rights are recognized. Under intellectual property law, owners are
granted certain exclusive rights to a variety of intangible assets, such as musical, literary, and artistic
works; discoveries and inventions; and words, phrases, symbols, and designs. Common types of
intellectual property rights include copyright, trademarks, patents, industrial design rights, trade dress,
and in some jurisdictions trade secrets. A trademark, a copyright, or a patent right are incorporeal
assets. These are known as IPR. For instance, musical copyright in respect of songs, tunes and literary
and artistic copyright belong to the author as his property. Thus, in this case of IPR, the subject matter of
proprietary interest is not the product (such as a book, a cassette), but the exclusive right of the author
or singer or inventor to publish a book, record music, or manufacture a particular thing or allow others
to do so only at his behest.
So Intellectual property right can be easily defined as “A right that is had by a person or by a company
to have exclusive rights to use its own plans, ideas, or other intangible assets without the worry of
competition, at least for a specific period of time. These rights can include copyrights, patents,
trademarks, and trade secrets. These rights may be enforced by a court via a lawsuit. The reasoning
for intellectual property is to encourage innovation without the fear that a competitor will steal the
idea and / or take the credit for it.”
b) A leaves a cow in the custody of B to be taken care of. The cow gives birth to a calf. Who will take
the calf and why?

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Answer: If A has given the cow to B only for custody to take care of (may be in his absence), then A
continues to be the owner of the cow, as he has not sold it to B. Hence A will get the cow back from B
along with the calf. This is just like giving your own flat on rent to a lessee who does not get ownership
rights over the flat but only possesses it for a fee.
If A still owns the cow, then A owns the calf. If A has given the cow to B to keep, then B owns the calf. If
A has promised payment to B for care of the cow, but hasn't paid, then B should keep the calf as
payment.