Indian Regulatory Framework Chapter Notes | Business Laws for CA Foundation PDF Download

Overview

Introduction

• Have you ever considered why you are studying the subject of law? Is it solely because it is part of the syllabus, or is it because this knowledge will be necessary as a member of the Institute of Chartered Accountants of India?
• Understanding the law is crucial for becoming a competent Chartered Accountant, as they often serve as the initial point of contact for various legal matters. Thus, possessing legal knowledge is essential for advising management and clients on legal issues at a fundamental level.
• For those interested in specializing in taxation, it’s important to recognize that tax laws are indeed laws. To excel in taxation, you should have a foundational understanding of the country's legal and regulatory framework. This framework aims to establish a consistent set of rules and regulations governing interactions in both personal and business contexts.
• Historically, humanity has transitioned from a hunter-gatherer society to an agricultural and then industrial society, ultimately resulting in a complex social structure. Throughout this evolution, the need for laws and regulations has been essential to guide behaviour and address violations through punishment.
• Regarding ancient law, the “Code of Hammurabi” is recognized as the oldest known written law. King Hammurabi ruled Babylon from 1792 BC to 1758 BC and inscribed the code on large stone slabs, which he ordered to be placed throughout the city for public awareness. He also appointed judges to ensure adherence to these laws.
• In 450 BC, a collection of laws was inscribed on 12 bronze tablets in Rome, known as the Twelve Tables, which is considered the first comprehensive code in any civilization. The purpose of these tables was to safeguard public rights and provide remedies for wrongs. All Roman citizens were expected to be aware of these laws, which were amended over time as needed.

In this subject, you will be introduced to numerous laws. Therefore, this chapter will begin with an exploration of how laws are created and enforced.

What is Law? 

Law consists of obligations and responsibilities established by the government to ensure societal welfare and deliver justice. 

The legal system in India mirrors the social, political, economic, and cultural dimensions of our diverse nation.

Sources of Law

•  The primary sources of law in India include the Constitution, statutes or laws enacted by Parliament and State Assemblies, judicial precedents, and, in certain cases, established customs and usages. 
•  India operates as a parliamentary democracy, governed by a constitution that serves as the foundation and source for all laws. 
•  Representatives are elected to both Parliament and the legislative assemblies of the states. 
•  These representatives create laws at the parliamentary or state level, making Parliament the ultimate law-making authority. 
•  Laws passed by Parliament may apply nationwide or to specific regions, while state legislative laws are applicable only within their respective states. 
•  The Government of India Act, of 1935, enacted by the Parliament of the United Kingdom, served as a precursor to the Constitution of India. 
•  It transitioned the government structure from “unitary” to “federal,” distributing powers between the Centre and the States to mitigate disputes. 
•  The Federal Court was established in 1937 with appellate, original, and advisory jurisdiction, dealing with civil and criminal cases and advising the Governor-General on public opinions. 
•  The Federal Court functioned for 12 years, adjudicating roughly 151 cases before being replaced by the current Supreme Court of India. 
•  The Constitution of India, adopted in 1950, is the supreme law defining the framework of the democratic system and the law-making process, ensuring laws are created for the people, by the people. 
•  It also safeguards certain Fundamental Rights of citizens, outlines Fundamental Duties, and delineates the powers and responsibilities of both Central and State Governments. 
•  Indian laws are interconnected, forming a hybrid legal system. 
•  The framers of the Constitution divided law-making authority between the Central and State Governments, establishing three lists: the Central List, the State List, and the Concurrent List. 
•  The categorization determines whether a matter is subject to Central or State law. 
•  For instance, Income Tax falls under the Central subject, enforcing a uniform law across India, administered by the Central Government via the Ministry of Finance. 
•  Conversely, certain matters, such as the Levy of stamp duty, allow both Central and State Governments to enact laws. 

The Process of Making A Law

Types of Laws in the Indian Legal System 

The laws in the Indian legal system could be broadly classified as follows:

Criminal Law 

• Criminal law is concerned with laws pertaining to violations of the rule of law or public wrongs and punishment of the same.
• Criminal Law is governed under the Indian Penal Code, 1860, and the Code of Criminal Procedure, 1973 (Crpc).
• The Indian Penal Code, 1860, defines the crime, its nature, and punishments whereas the Criminal Procedure Code, 1973, defines exhaustive procedure for executing the punishments of the crimes.
• Murder, rape, theft, fraud, cheating and assault are some examples of criminal offences under the law. 

Civil Law 

• Disputes between people or organizations are handled under Civil Law.
• Civil courts handle cases where rights and responsibilities are not respected through civil suits.
• The main goal of civil law is to resolve disputes, not to punish individuals.
• The process of administering civil law follows the Code of Civil Procedure, established in 1908 (CPC).
• Civil law canbe divided into several categories, including:
  • Law of Contract
  • Family Law
  • Property Law
  • Law of Tort
• Examples of civil offences include:
  • Breach of contract
  • Non-delivery of goods
  • Non-payment of debts to lenders or sellers
  • Defamation
  • Disputes between landlords and tenants
• 

Common Law 

• A judicial precedent or case law forms part of common law.
• A decision made by the Supreme Court is mandatory for all courts in India, as stated in Article 141 of the Indian Constitution.
• The principle known as Stare Decisis supports the concept of common law.
• Stare Decisis is a Latin term that translates to "to stand by that which is decided."
• This principle emphasizes that courts are required to follow the same rules or decisions set by prior cases when the facts are similar or match closely with previous rulings.
• Courts must adhere to this doctrine when dealing with cases that share significant similarities with earlier decisions.

Principles of Natural Justice 

Natural justice, commonly referred to as Jus Natural, encompasses fundamental principles of justice that transcend written law. The key tenets include Nemo judex in causa sua (meaning “No one should serve as a judge in their own case,” which acts as a rule against bias), audi alteram partem (meaning “hear the other party” or ensure a fair hearing for all parties involved), and reasoned decision as components of Natural Justice. A judgment can modify or overturn common law, but it cannot alter or change statutory law.

Enforcing the Law

• After a law is enacted in parliament, it must be enforced.
• Monitoring compliance with the law is the responsibility of the executive branch.
• Depending on whether the law is a Central or State law, the respective Central or State Government acts as the enforcing authority.
• For this purpose, governmental functions are divided among various ministries.
• Some notable ministries include the Ministry of Finance, the Ministry of Corporate Affairs, the Ministry of Home Affairs, and the Ministry of Law and Justice.
• These ministries are led by ministers and managed by officers from the Indian administrative and other services.
• The Government of India carries out its executive authority through various Government Ministries or Departments of State.
• A Ministry consists of civil servants and is politically accountable through a minister.
• Most significant ministries are overseen by a Cabinet Minister, who is part of the Union Council of Ministers and is usually assisted by a group of junior ministers known as Ministers of State.
• For instance, the Income Tax Act is enforced by the Ministry of Finance through the Central Board for Direct Taxes, which is part of the Department of Revenue and is administered by officers from the Indian Revenue Service.
• Below are some major ministries and the laws they enforce.

The Ministry of Finance

• The Ministry of Finance (Vitta Mantralaya) is a sector within the Government of India focused on the nation's economy, functioning as the Treasury of India.
• It primarily addresses taxation, financial legislation, financial institutions, capital markets, central and state finances, and the Union Budget.
• As a Chartered Accountant, many aspects of your professional life will be influenced by this ministry and its announcements.
• The Ministry is so significant that many ministers have opted to also take on the role of Finance Minister.
• A key function of the Finance Ministry is the presentation of the Union Budget, an annual event eagerly anticipated by both professionals and the public, as it outlines tax rates and budget allocations for the upcoming year.

Who presented the Maximum number of Union Budgets as Finance Minister?
Shri. Morarji Desai holds the record for presenting the highest number of Union Budgets, with 10 budgets during his tenure as Finance Minister from 1962 to 1969. Following him is Shri. P Chidambaram with 9, and Shri. Pranab Mukherjee with 8. Shri. Yashwant Sinha and Dr. Manmohan Singh have presented 8 and 6 budgets respectively.

Constitution of the Ministry of Finance

Departments under the Ministry of Finance

(i) Ministry of Corporate Affairs (MCA)

(ii) The Securities and Exchange Board of India (SEBI)

(iii) Reserve Bank of India (RBI)

(iv) Insolvency and Bankruptcy Board of India (IBBI)- 

Structure of the Indian Judicial System

• Interpretation regulation of Acts and Codes,
• Dispute Resolution,
• Promotion of fairness among citizens.

In the court hierarchy, the Supreme Court is the highest, followed by High Courts and District Courts. High Court decisions are binding within their respective states but only persuasive in others. According to Article 141 of the Indian Constitution, Supreme Court decisions are binding on all High Courts. A Supreme Court ruling is considered final on the issue.

Supreme Court

• The Supreme Court serves as the highest judicial authority.
• It was founded on 26th January 1950.
• The Chief Justice of India holds the top position as outlined in Article 126.
• The main bench of the Supreme Court originally comprised seven members, including the Chief Justice of India.
• Currently, this number has been raised to 34, including the Chief Justice, to accommodate the increasing caseload and demands.
• Individuals can request relief from the Supreme Court by submitting a writ petition in accordance with Article 32.

High Court 

• The highest court of appeal in every state and union territory is the High Court.
• Article 214 of the Indian Constitution mandates the existence of a High Court in each state.
• The High Court possesses appellate, original, and supervisory jurisdiction.
• However, Article 227 of the Indian Constitution restricts a High Court's supervisory authority.
• India has twenty-five High Courts, corresponding to each state and union territory, with six states sharing a single High Court.
• An individual can seek redress for violations of fundamental rights in the High Court by filing a writ under Article 226.

Which is the oldest High Court in India? 
The oldest high court in the country is the Calcutta High Court, established on 2nd July, 1862.

 District Court

• Below the High Courts are the District Courts.
• The Courts of District Judges handle Civil law matters, such as contractual disputes and claims for damages.
• The Courts of Sessions address Criminal matters.
• A civil judge can try suits valued at no more than Rupees two crore under pecuniary jurisdiction.
• Jurisdiction refers to the authority to govern.
• Courts obtain territorial jurisdiction based on their designated areas.
• Cases are resolved according to the local limits where the parties live or where the property in question is located.

Metropolitan Courts

• Metropolitan courts are set up in metropolitan areas in consultation with the High Court where the population exceeds ten lakh.
• The Chief Metropolitan Magistrate possesses the authority of the Chief Judicial Magistrate, while the Metropolitan Magistrate has the powers of a first-class Magistrate.