Lecture 2 - Legal Environment | Business Environment - Business Basics PDF Download

 Page 1


 
1                                                       Institute of lifelong learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
PAPER: BUSINESS ENVIRONMENT 
LESSON: LEGAL ENVIRONMENT 
LESSON DEVELOPER: MS.DEEPIKA DEWAN,  
ASSISTANT PROFESSOR 
COLLEGE/DEPT: BHARATI COLLEGE 
UNIVERSITRY OF DELHI 
REVIEWER: PROF. K.M. UPADHYAY, 
RETIRED PROF. AND HEAD, DEPARTMENT OF 
COMMERCE AND BUSINESS 
STUDIES, JAMIA MILIA ISLAMIA 
 
 
 
 
 
 
 
 
 
 
 
Page 2


 
1                                                       Institute of lifelong learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
PAPER: BUSINESS ENVIRONMENT 
LESSON: LEGAL ENVIRONMENT 
LESSON DEVELOPER: MS.DEEPIKA DEWAN,  
ASSISTANT PROFESSOR 
COLLEGE/DEPT: BHARATI COLLEGE 
UNIVERSITRY OF DELHI 
REVIEWER: PROF. K.M. UPADHYAY, 
RETIRED PROF. AND HEAD, DEPARTMENT OF 
COMMERCE AND BUSINESS 
STUDIES, JAMIA MILIA ISLAMIA 
 
 
 
 
 
 
 
 
 
 
 
 
2                                                       Institute of lifelong learning, University of Delhi 
 
Table of Contents 
 Chapter : Legal Environment 
? 1: Learning Outcomes 
? 2: Introduction 
? 3: Regulatory Framework of Legal Environment in India 
? 4: Need to Study Legal Environment 
? 4.1: For Business 
? 4.2: For Consumer 
? 5: Legal Laws and Policies for Indian Business System 
? 5.1: Indian Contract Act 
? 5.2: Industrial( Development and Regulation) Act  
? 5.3: Competition Act 
? 5.4: Consumer Protection Act 
? 5.5: Right to Information Act 
? 5.6: Foreign Exchange Management Act 
? 5.7: Companies Act 
? 5.8: Indian Trademark Act 
? 5.9: Industrial Dispute Act 
? 5.10: Essential Commodities Act 
Summary  
Exercises 
Glossary 
References 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page 3


 
1                                                       Institute of lifelong learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
PAPER: BUSINESS ENVIRONMENT 
LESSON: LEGAL ENVIRONMENT 
LESSON DEVELOPER: MS.DEEPIKA DEWAN,  
ASSISTANT PROFESSOR 
COLLEGE/DEPT: BHARATI COLLEGE 
UNIVERSITRY OF DELHI 
REVIEWER: PROF. K.M. UPADHYAY, 
RETIRED PROF. AND HEAD, DEPARTMENT OF 
COMMERCE AND BUSINESS 
STUDIES, JAMIA MILIA ISLAMIA 
 
 
 
 
 
 
 
 
 
 
 
 
2                                                       Institute of lifelong learning, University of Delhi 
 
Table of Contents 
 Chapter : Legal Environment 
? 1: Learning Outcomes 
? 2: Introduction 
? 3: Regulatory Framework of Legal Environment in India 
? 4: Need to Study Legal Environment 
? 4.1: For Business 
? 4.2: For Consumer 
? 5: Legal Laws and Policies for Indian Business System 
? 5.1: Indian Contract Act 
? 5.2: Industrial( Development and Regulation) Act  
? 5.3: Competition Act 
? 5.4: Consumer Protection Act 
? 5.5: Right to Information Act 
? 5.6: Foreign Exchange Management Act 
? 5.7: Companies Act 
? 5.8: Indian Trademark Act 
? 5.9: Industrial Dispute Act 
? 5.10: Essential Commodities Act 
Summary  
Exercises 
Glossary 
References 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3                                                       Institute of lifelong learning, University of Delhi 
 
1. Learning Outcomes 
 
After reading this lesson, you’ll be able to 
? define the Indian legal system, 
? understand the rules and implications of legal system, 
? identify the loopholes in legal system that affect the Indian business 
environment, 
? appreciate the role of legal rules and regulations which shape the structure of 
Indian business system, 
? apply the knowledge of legal environment to understand the business 
operations. 
 
2. Introduction 
 
The main motive of every business is to earn profit by providing the different kinds 
of products & services to the consumers, according to their needs. No business can 
be run efficiently in the absence of rules and regulations.  If there are no policy, law, 
rules and regulations for the business firms, we cannot expect people's welfare from 
the business. So, legal rules are required to control the working of business and 
frame the policies for the growth of business. All legal rules and regulations for 
business, directed by the government, is called legal environment.  
 
Legal system of a country is framed by the Government. In every country, 
government is responsible to frame rules, regulations, policies, and regulate the 
business activities. All the rules, policies and regulations together form the legal 
environment of business.  
 
Figure 1: Legal Environment of Business 
 
 
 
 
 
 
 
 
Rules to be 
Followed
Legal 
Environment 
of Business
Page 4


 
1                                                       Institute of lifelong learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
PAPER: BUSINESS ENVIRONMENT 
LESSON: LEGAL ENVIRONMENT 
LESSON DEVELOPER: MS.DEEPIKA DEWAN,  
ASSISTANT PROFESSOR 
COLLEGE/DEPT: BHARATI COLLEGE 
UNIVERSITRY OF DELHI 
REVIEWER: PROF. K.M. UPADHYAY, 
RETIRED PROF. AND HEAD, DEPARTMENT OF 
COMMERCE AND BUSINESS 
STUDIES, JAMIA MILIA ISLAMIA 
 
 
 
 
 
 
 
 
 
 
 
 
2                                                       Institute of lifelong learning, University of Delhi 
 
Table of Contents 
 Chapter : Legal Environment 
? 1: Learning Outcomes 
? 2: Introduction 
? 3: Regulatory Framework of Legal Environment in India 
? 4: Need to Study Legal Environment 
? 4.1: For Business 
? 4.2: For Consumer 
? 5: Legal Laws and Policies for Indian Business System 
? 5.1: Indian Contract Act 
? 5.2: Industrial( Development and Regulation) Act  
? 5.3: Competition Act 
? 5.4: Consumer Protection Act 
? 5.5: Right to Information Act 
? 5.6: Foreign Exchange Management Act 
? 5.7: Companies Act 
? 5.8: Indian Trademark Act 
? 5.9: Industrial Dispute Act 
? 5.10: Essential Commodities Act 
Summary  
Exercises 
Glossary 
References 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3                                                       Institute of lifelong learning, University of Delhi 
 
1. Learning Outcomes 
 
After reading this lesson, you’ll be able to 
? define the Indian legal system, 
? understand the rules and implications of legal system, 
? identify the loopholes in legal system that affect the Indian business 
environment, 
? appreciate the role of legal rules and regulations which shape the structure of 
Indian business system, 
? apply the knowledge of legal environment to understand the business 
operations. 
 
2. Introduction 
 
The main motive of every business is to earn profit by providing the different kinds 
of products & services to the consumers, according to their needs. No business can 
be run efficiently in the absence of rules and regulations.  If there are no policy, law, 
rules and regulations for the business firms, we cannot expect people's welfare from 
the business. So, legal rules are required to control the working of business and 
frame the policies for the growth of business. All legal rules and regulations for 
business, directed by the government, is called legal environment.  
 
Legal system of a country is framed by the Government. In every country, 
government is responsible to frame rules, regulations, policies, and regulate the 
business activities. All the rules, policies and regulations together form the legal 
environment of business.  
 
Figure 1: Legal Environment of Business 
 
 
 
 
 
 
 
 
Rules to be 
Followed
Legal 
Environment 
of Business
 
4                                                       Institute of lifelong learning, University of Delhi 
 
 
3. Regulatory Framework of Legal Environment in India 
 
Formation of business is a very crucial process. Violation of law can lead to the shut 
down of the business. It is essential for every business to follow all the rules and 
regulations, connected to the law, whether it is a partnership firm, company, 
cooperative society or any other form of business. For example, if two persons, 'A' 
and 'B', want to start a partnership firm, both have to follow the “Partnership Act, 
1932”; the “Companies Act, 2013”, in case of a company. These laws provide a base 
to start a business and give guidelines to carry out the future activities. The 
Companies Act, 2013, defines: how to form a company, who can form the company, 
what is required in the memorandum and articles of association, how to conduct 
meetings, what are the responsibilities of the directors, and how to wind up a 
company’s business operations. Hence, the regulatory framework, in the form of acts 
and policies, is essentially required for Business.  
 
 
Value Addition 1: Did You Know? 
Forms of Business Organization 
Whether to start a business as a partnership firm or as a company or as a sole 
proprietor? This is the first basic question that a person faces who wants to start 
any business. Follow the link given below to have detailed knowledge regarding 
forms of business organization that a person can choose. 
Source: 
http://smallb.in/sites/default/files/knowledge_base/forms_of_business_organisation
.pdf 
 
Legal environment opens a number of opportunities for a business and, at the same 
time, puts restrictions on it. Every business is obliged to follow the rules, created by 
the different acts, to run the business smoothly, without the intervention of 
government. In the scenario of globalization, the number and scope of the acts have 
increased. When so many producers have been selling the same products in the 
market, the quality check and price control become essential. With the increasing 
interaction of Indian economy with the other economies of the world, government’s 
responsibility, to see that the business activities are being carried out  in the interest 
of public, has also increased. Responsibility of the development of business activities 
also lies on the shoulders of the government. So, there is a need that every business 
should understand and follow the laws, rules and regulations, i.e. legal environment 
of India, so that different opportunities can be capitalized by the business 
organizations. 
 
4. Need to Study Legal Environment 
 
Value Addition 2: Did You Know? 
Unawareness is No Excuse 
People of a country doing business transactions must have the knowledge of the 
related laws. Ignorance of any law is of no defense and not a reason for escape. 
Therefore, “I was not aware about this law”, is not a ground for freedom from 
Page 5


 
1                                                       Institute of lifelong learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
PAPER: BUSINESS ENVIRONMENT 
LESSON: LEGAL ENVIRONMENT 
LESSON DEVELOPER: MS.DEEPIKA DEWAN,  
ASSISTANT PROFESSOR 
COLLEGE/DEPT: BHARATI COLLEGE 
UNIVERSITRY OF DELHI 
REVIEWER: PROF. K.M. UPADHYAY, 
RETIRED PROF. AND HEAD, DEPARTMENT OF 
COMMERCE AND BUSINESS 
STUDIES, JAMIA MILIA ISLAMIA 
 
 
 
 
 
 
 
 
 
 
 
 
2                                                       Institute of lifelong learning, University of Delhi 
 
Table of Contents 
 Chapter : Legal Environment 
? 1: Learning Outcomes 
? 2: Introduction 
? 3: Regulatory Framework of Legal Environment in India 
? 4: Need to Study Legal Environment 
? 4.1: For Business 
? 4.2: For Consumer 
? 5: Legal Laws and Policies for Indian Business System 
? 5.1: Indian Contract Act 
? 5.2: Industrial( Development and Regulation) Act  
? 5.3: Competition Act 
? 5.4: Consumer Protection Act 
? 5.5: Right to Information Act 
? 5.6: Foreign Exchange Management Act 
? 5.7: Companies Act 
? 5.8: Indian Trademark Act 
? 5.9: Industrial Dispute Act 
? 5.10: Essential Commodities Act 
Summary  
Exercises 
Glossary 
References 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3                                                       Institute of lifelong learning, University of Delhi 
 
1. Learning Outcomes 
 
After reading this lesson, you’ll be able to 
? define the Indian legal system, 
? understand the rules and implications of legal system, 
? identify the loopholes in legal system that affect the Indian business 
environment, 
? appreciate the role of legal rules and regulations which shape the structure of 
Indian business system, 
? apply the knowledge of legal environment to understand the business 
operations. 
 
2. Introduction 
 
The main motive of every business is to earn profit by providing the different kinds 
of products & services to the consumers, according to their needs. No business can 
be run efficiently in the absence of rules and regulations.  If there are no policy, law, 
rules and regulations for the business firms, we cannot expect people's welfare from 
the business. So, legal rules are required to control the working of business and 
frame the policies for the growth of business. All legal rules and regulations for 
business, directed by the government, is called legal environment.  
 
Legal system of a country is framed by the Government. In every country, 
government is responsible to frame rules, regulations, policies, and regulate the 
business activities. All the rules, policies and regulations together form the legal 
environment of business.  
 
Figure 1: Legal Environment of Business 
 
 
 
 
 
 
 
 
Rules to be 
Followed
Legal 
Environment 
of Business
 
4                                                       Institute of lifelong learning, University of Delhi 
 
 
3. Regulatory Framework of Legal Environment in India 
 
Formation of business is a very crucial process. Violation of law can lead to the shut 
down of the business. It is essential for every business to follow all the rules and 
regulations, connected to the law, whether it is a partnership firm, company, 
cooperative society or any other form of business. For example, if two persons, 'A' 
and 'B', want to start a partnership firm, both have to follow the “Partnership Act, 
1932”; the “Companies Act, 2013”, in case of a company. These laws provide a base 
to start a business and give guidelines to carry out the future activities. The 
Companies Act, 2013, defines: how to form a company, who can form the company, 
what is required in the memorandum and articles of association, how to conduct 
meetings, what are the responsibilities of the directors, and how to wind up a 
company’s business operations. Hence, the regulatory framework, in the form of acts 
and policies, is essentially required for Business.  
 
 
Value Addition 1: Did You Know? 
Forms of Business Organization 
Whether to start a business as a partnership firm or as a company or as a sole 
proprietor? This is the first basic question that a person faces who wants to start 
any business. Follow the link given below to have detailed knowledge regarding 
forms of business organization that a person can choose. 
Source: 
http://smallb.in/sites/default/files/knowledge_base/forms_of_business_organisation
.pdf 
 
Legal environment opens a number of opportunities for a business and, at the same 
time, puts restrictions on it. Every business is obliged to follow the rules, created by 
the different acts, to run the business smoothly, without the intervention of 
government. In the scenario of globalization, the number and scope of the acts have 
increased. When so many producers have been selling the same products in the 
market, the quality check and price control become essential. With the increasing 
interaction of Indian economy with the other economies of the world, government’s 
responsibility, to see that the business activities are being carried out  in the interest 
of public, has also increased. Responsibility of the development of business activities 
also lies on the shoulders of the government. So, there is a need that every business 
should understand and follow the laws, rules and regulations, i.e. legal environment 
of India, so that different opportunities can be capitalized by the business 
organizations. 
 
4. Need to Study Legal Environment 
 
Value Addition 2: Did You Know? 
Unawareness is No Excuse 
People of a country doing business transactions must have the knowledge of the 
related laws. Ignorance of any law is of no defense and not a reason for escape. 
Therefore, “I was not aware about this law”, is not a ground for freedom from 
 
5                                                       Institute of lifelong learning, University of Delhi 
 
law or punishment. 
 
Every business is supposed to be aware of the legal environment of the country. 
Each and every form of business enterprise, whether it is a firm, company or 
cooperative society, is governed by some act. With the passing time, it has been 
realized and observed that a business is also responsible towards the society and 
environment. Therefore, many laws have been formulated to make business more 
sensitive towards environment and people, living in the society. It is essential for a 
business as well as consumers, not only to understand and analyze the legal 
environment but also to understand the significance of the rules and acts in the 
economy. 
 
Laws provide protection to the well being and health of the community, employees, 
and others. Therefore, it is essential to understand the need of legal environment. 
The following factors explain the need of legal environment: 
 
(a) Protection to Community  
Legal laws like, Arms and Ammunition Act, Essential Commodities Act, etc., have 
been introduced by the government to protect the interest of consumers and 
community as a whole. 
 
(b) Protection to Employees  
Laws like, Industrial Dispute Act, Company and Compensation Act, Employees Wage 
Act, Factories Act, have been introduced to protect the employees from any kind of 
unfair discrimination or harassment at work place and provide legal assistance to 
them. 
 
(c) Protection to Health  
Health and Social Care Act, 2012, was introduced to make local authorities like, 
MCD, more responsible towards people’s health. 
 
(d) Protection to Consumers  
Consumer Protection Act has provided a platform to consumers to file complaints 
against the exploitation by producers and manufacturers. It protects the rights of 
consumers. Consumer Protection Act ensures that consumers are getting wide 
variety of quality products and provides redressal forum to consumers. 
 
(e) Protection to Business  
Companies Act 2013, Sale of Goods Act, Indian Contract Act, and Negotiable 
Instruments Act provide protection to the Business.  
 
All the above mentioned factors show that it is necessary to understand the 
implications of legal environment because it affects the whole economy. 
 
4.1 For Consumer 
A consumer should be aware of his rights, given by the constitution, so that nobody 
can take undue advantage of him. Right to hear, to be informed, to safety, to