Law and Business - Govindh K.Bharathan



                                                             By Advocate Govindh.K.Bharathan


          Law is too wide a term to be defined, but can be understood as an attempt to balance Rights against Duties.  Through the ages, this balance had been constantly tilting in favour of duties.  However with the gradual fading out of the concept of the divine right of one individual or family as against the collective duty of thousands of subjects, a new concept has emerged, i.e., the concept that all power rested in the people and that Governments are the people’s agents and nothing more.


          This concept of course grew side by side with the fundamental moorings of law in natural rights.  Belief in such natural rights could either be traced to some divine power or to the accumulated wisdome of common law.  In the words of Archibald Cox:-


“In proposing the first eight amendments to the U.S. Constitution, known as the bill of Rights, James Madison predicted: “Independent tribunals of justice will consider themselves in a peculiar manner the guardians of those rights; they will be an impenetrable bulward against every assumption of power in the Legislative or Executive.”


                     “The Role of the Supreme Court

                     In American Government:”

                     Archibald Cox Oxford University

                     Press 1976. Page 31.


  Again in Fletcher Vs. Pech 10 U.S (6Cranch)87, 143 (1810), Justice William Johnson of the United States Supreme Court stated as follows:


                     “I do not hesitate to declare that a State

                     does not possess the power of revoking its

                     own grants.  But I do it on a general principle,

                     on the reason and nature of things:

                     a principle which will impose laws even on

                     the Deity.”


  It is thus not surprising that of late legal emphasis appears to be shifting, not only in this country but throughout the world, from duties to rights.  The role of courts enforcing statutes or natural law which had hitherto been negative is slowly emerging as a positive force in the dispensation of justice.  In Maneka Gandhi’s case, (1978) 1.SCC 248 at 280., Justice Bhagawati stated:


                      “The attempt of the Court should be to

                      expand the reach and ambit of the

                      fundamental rights rather than attenuate

                      their meaning and content by a

                      process of Judicial Construction.”


          This trend was continued and re-stressed in Francis Mullins case (1980) 2 SCC.275, and Bussainara Khatoon’s case, (1980)1SCC 81, where the positive content of Fundamental Rights was stressed and the dynamic new approach to Fundamental Rights which was highlighted in Maneka Gandhi’s case was cemented into Indian jurisprudence.  In other words shorn of legal parlance, courts are slowly beginning  to enforce legal rights rather then merely preventing violation of such rights by the State.  It is in this context that one has to view the relationship between Business and Law.


          To avoid using phraseology smacking of political overtones, one can classify existing systematic profit oriented business activity into three broad categories: (1) Totally unrestricted; (2) Totally restricted; and (3) Controlled.


          The philosophy of Ayn Rand may at one time have thrilled idealistic and youthful minds, fed with the political philosophy which considered that State as governing best, which governs least.  But hard facts, read in the context of a bread and butter economy have proved that without controls, business, read in the context of a profit oriented system often tends to become oppressively exploitary, and will necessarily have to be kept in check within the bounds of public interest, good conscience and morality.


          It is against this background that one has to read Article 19(1)(g) of the Constitution of India.


          Act 19(1) (g) reads as follows:-


                             All citizens shall have the right to

                             practice any profession or to carry

                             on any occupation trade or business.


However 19(6) (i) gives the state the right to impose reasonable restrictions in the interests of the general public and Art 19(6) (ii) makes this right subject to the right of the State either by itself or through a Corporation owned or controlled by it to carry on any trade business or industry to the exclusion partial or completely of the citizens of the country.


          Again under Article 301, subject to restrictions, trade, commerce and intercourse throughout the territory of India has been declared to be free.  The object of this basically to break down border barriers between the states and to treat the entire country as one unity with a view to encourage trade and commerce.


          Within this framework, several leading decisions handed down from the Supreme Court have defined the perimeters of freedom to conduct any business, as guaranteed by Art 19(1)g. The very concept of what constituted business itself has undergone some rather drastic changes in the hands of the Supreme Court.  Justice V.R.Krishna Iyer in a landmark ruling in Fateh Chands Case (1977 (2) SCC. 670) held after heavily leaning on socio-economic factors, which often looked as it had very little to do with law, that every systematic profit oriented activity, however sinister or diabolic, suppressive or exploitary cannot automatically exalt itself into a trade.  While upholding a law which provided for eradication of rural indebtedness, Mr. Justice Krishna Iyer stated in his characteristic language that every cause claims its martyrs and if a law makes generalization which hurt a few, the courts were helpless in the matter.


          This approach to the concept of trade and business has one highly important facet.  It recommends the socioeconomic factor as a vital element in the restriction of the right of an individual to do any business.  However if trading activities are to be judged by the evil consequences that flow from them, many trades would be rendered automatically illegal.


          It must be remembered that to day we face a situation all over the so called free world where money power is almost synonymous with big business.  However free elections may be, the hard fact remains that money power is one of the vital factors for success in the polls in any democracy.  It is thus not surprising that legislated law often appears to be heavily weighted in favour of big business in the more advance countries of the world.  It is in this context that the emergence of the judiciary as an important factor in controlling the field and ambit of business power should be appreciated.  Often, interpreted law is markedly different from legislated law and it is in this interpretation of law that lies the seed of the conflict between Business and Law.


          The word multi-national implies a terrifying force which has for its field of exploitation the entire third world.  These large conglomerates often wield great power over decision-making both in the advanced as well as in the developing world.  Because their field of activity stretches beyond national borders, the capacity to seek judicial remedy against their actions is often outside the power of the common man who is also more often than not, the victim of their activities.  The Bhopal tragedy opens a new phase in this aspect of law and multi-nationals and it is yet to be seen whether effective legal action not merely punitive, but compensatory in terms of actual financial compensation to the dead and the maimed, can be effectively pursued against the number of deaths is yet to be calculated and again, the effect which a deadly killer gas has on future generations will never be correctly evaluated.  What does one do under such circumstances? Is law powerless in the face of this brute power of a multi-national company which power can be traced without hesitation to its money power?


          Again one has yet to comprehend the ravages inflicted on ecology by big business.  Thousands of acres of evergreen forest land in South America are being daily stripped and cleared to provide premises for establishing industrial units for some large multi-national automotive producers.  The ecological hazards of such large scale denuding of natural forests cannot be measured in terms of money alone, but will have to be evaluated in the contest of the ecological future of the entire geographical area.  The larger questions thus emerge.  Is law helpless in the face of such ruthless exploitation of natural resources by multi-nationals?


          It is here that law will ultimately face its biggest test.  If the victims of the Bhopal tragedy can be compensated by legal action initiated in the United States, this will have enormous restraining force on multi-national corporations in the matter of safety regulations applicable to industrial units establishes in third world countries.  To go one step further, if a multi-national can be prosecuted for causing ecological damages in a third world country, them law would have stood the test and then alone can it emerge victorious in this clash of Titans.


          The origin of this conflict can be traced to the fact that the law is retrained within national boundaries whereas business for ever stretches beyond such frontiers.  One of the strange paradoxes is that with increasing specialization, statue law appears to be shrinking in geographical application. For instance, a law applicable to one part of a state may not be applicable in another.  In sharp contrast however is the law of trade.  It always seek better pasture in other countries.  This is a new fact which will have to be dealt with, with increasing firmness and resolution by advanced countries if the safe future of the third world is to be ensured.


          It is not as if business should ever be at the receiving end of the law.  A new concept of law should develop in India were business can demand its rights.  We are fast approaching a situation were entrepreneurial skill is being checkmated by the bargaining powers of organized labour.  The poor state of industrialization of Kerala for instance, can be traced directly to this malady.  The law has provided for adequate safeguards to labour.  A time has come when the law should start thinking of providing adequate safeguards for industry.  The courts have always ensured the rights of work men and have protected them against exploitation.  The law should now redefine the concept of fundamental right of freedom of the industrialist to establish industries without narrow or regional considerations and the harassment of well organized unions with massive and crippling bargaining power.  This again should be a positive right enforced by the courts, not merely a negative right, which is at best protective in character.


          Another important field of law in business is in taxation.  In some very interesting recent judgments the Courts have recently set the record right on the aspect whether a diligent search for and recourse to loopholes in existing taxation statues to seek to reduce or avoid payment of tax constitutes evasion which can in its turn involve penal consequences.  Present legal thinking is that there is nothing illegal or unethical about attempting to avoid taxation of course using legal methods.  Here again the battle of wits between business and law approaches its finest best.  The principle of law laid down in Attorney General Vs. Richmond and Gordin (1908) 2.K.B page 729, 743 by Farewel L.J that there is no law which prevents a man from avoiding duty which has not yet attached to his property, and that a man is perfectly entitled if he can to avoid the payment of duty which will arise in the future which has not yet attached to any property which he possess has been upheld by several recent rulings of our courts.


          Again, there are several anomalies in corporate law which will have to be ironed out in the setting of a democratic society.  The ancient the archaic transplantation from our colonial past of section 11 of the Indian Companies Act which given a company the right to effuse to register the transfer and the transmission, by operation of law, of the right to any shares or interest, of a member in a company, stands out like a sore thumb while seen in the context of a democratic society.  Several courts in the country have commented on the seeming irrational power given to the directors of a company.  Needless to say that gradually this automatic power is being watered down.  In Bajaj Auto Ltd Vs. N.K.Firodia (1971) 41 Company cases (1) the Supreme Court laid down some of the principles with reference to the exercise of this power.  The discretion of the directors should be exercised bonafide.  However there are other decisions of the same court which cast the burden of proving lack of bonafides on a share-holder who seeks transfer, which will practically result in an unequal fight between such a shareholder and the company which usually has a batter of powerful lawyers.  This archaic concept which has been transplanted directly from our not so distant colonial past should be re-examined in the light of present day realities and whittled down, and the power given to directors to refuse transfer of shares should be severely restricted if not completely abolished in the interest to democratization of company management.   


          But perhaps the most vital aspect of the interaction between business and law would like in the fact that in a world where advances in technology appear to be progressing in geometrical progression, carrying alone with its terrifying speed, the entire economy and social life of the nation, the situation in the field of law in India appears to be if not static, progressing only in arithmetic progression.  The world of business attuned to the perinea principles of survival of the fittest appears to have adapted remarkably to the micro-chip culture.  Advances in technology almost always find corresponding reflections in business methods and business affairs.  Unfortunately law appears to be practically static in comparison resulting in delay in dispensation of justice and the consequent mounting of arrears to such an extent that today, the relief of quick and informal justice appears to be available only in Melas.


          Our legal system is over burdened with anachronisms and antediluvian antedated superfluities which characterized the British system of dispensation of justice.  Even moderately successful business establishments have by now sought the aid of Science and Technology.  Photostatting equipment and computerization of accounts and procedures is a normal feature of most business firms with moderate turnover.  Almost all courts in the country including the highest court of the land still rely upon the typewriter and the laborious practice of physically comparing originals and copies, resulting in huge delays which cause denial of justice.


          Perhaps in the ultimate analysis, the will of the people alone will prevail.  Institutions relevant the time alone will survive.  Inspite of years of exploitation, burdened with the age old crippling curse of poverty, often blinded by superstition and sometimes incredibly out of date with modernity, the much harassed “common man” whose image is a reflection of the soul of this nation, has revealed an intuition and awareness of national needs that borders on the miraculous.  If our legal system is to survive, it must before long prove its utility, equally to the micro-chip culture oriented businessmen ensconced in his paneled air conditioned office as well as to the wizened Bihari peasant pushing his steel tipped plough over his arid fields.  Again, our fragile economy in its present form, of a delicate balance between the two alternatives of free enterprise and total restriction will survive only if it can ultimately prove its utility to the country and its citizens.  And the future of these two institutions will ultimately lie in their interaction and mutual relationship with each other, and the judge will be the people.   

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