THE ROLE OF CONSTITUTION IN DEVELOPING BUSINESS LAWS

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This article is written by K. Sri Satya Sravanthi of 3rd Semester of Damodaram Sanjivayya National Law University, Anakapalle, Andhra Pradesh

ABSTRACT

Constitution is the supreme law of land. It confers powers upon the authorities of the 3 main organs of the government i.e., legislative, executive and judiciary. It not only provides fundamental rights affecting an individual and government but also business laws in a number of ways like bill of rights. This article presents a detailed study on role of constitution in developing business laws. Article begins with introduction and evolution of business laws. It gives synopsis about business laws right from its origin to its current state. It focuses on the constitutional provisions that affect the business laws such as preamble, fundamental rights and directive principles of state policy. It also highlights about the connection between business law and constitutional law, constitutional impact on administrative adjudication or quasi-judicial function and business law regulation of India.

Keywords: Constitution, Business Law, Fundamental rights, Quasi-judicial function.

INTRODUCTION

The term business can be interpreted as the combined efforts of businesses to provide consumers with goods and services while also making a profit. Numerous activities such as production, promotion, wholesaling, retailing, distribution, transportation, warehousing, financing, insurance, consulting, and the like are included under the umbrella term of business.

Business is a company or institution that is engaged in mercantile or commercial activity. It may be referred to the activities of an individual or a group of individuals engaged in sale of goods and provision of services with a motive to make profits.

Business laws are also called as commercial laws[1]. They provide legal framework that govern business activities and transactions. They provide a structure on how to operate, resolve the disputes within business environment. They include contract laws, consumer protection laws, employment law, competition laws and many more. It is a branch of law that governs rights, duties and liabilities of entities that are engaged in business transactions[2]. It is made up of enforceable norms of conduct that regulate business relationships. In short, the buyers and sellers interact in market exchange within rules that indicate boundaries of legal business behavior”[3]. It specifies the rules of conduct that needs to be followed for the establishing successful business transactions among government, business entities and the public. Objectives of business law is to promote industrial growth, lays down procedure for establishment of business, enforces rights, contributes in building healthy business relationships, reduces possibilities of fraud, helps maintain equilibrium, protects consumers and safeguards their rights and promotes fair competition and free trade [4].

EVOLUTION OF BUSINESS LAWS

The concept of company laws can be seen from 3^rd century itself during the reign of Chanakya, the wazir issues 4 duties of king – Raksha, palana, vridhhi and yogakshema which corresponds to protection of wealth of shareholders of company, maintaining the wealth of company with profits, proper utilisation of resources and assets to boost wealth and safeguard interests of shareholders Later, kautilyas arthasastra and neetishastra provided an insight into corporate social responsibility. During agrarian economy, we can see the existence of Hindu Undivided Family system[5].

After the battle of Plassey and Buxar, East India Company was established and has received official declaration known as Royal Charter. In 1844, the first act was passed by the British regarding business or companies which was known as Joint Stock Companies Act. Later, it introduced elements such as Memorandum of Association and Articles of Association. After the British established direct rule in India, we can see number of acts within limited time frame.

Companies Act of 1913 continued even after independence. In 1950, a committee was appointed by the government which led to enactment of Companies Act 1956 and repealed all the previous laws. The Satyam Scam of 2009 shifted the focus to form more stringent laws which led to amendments to the Act[6].

CONSTITUTIONAL PROVISIONS THAT AFFECT BUSINESS LAWS :

(1) The freedom of trade, commerce, and intercourse is outlined in Articles 301-307 of the Constitution of India, 1950, and has its origins in British India. The founders of the Indian Constitution were influenced by Section 92 of the Australian Constitution and accepted it to include Articles 301-307, which are equivalent to Article 19 (1) (g) of the latter. Article 301 states that “trade, commerce, and intercourse shall be free throughout the territory, subject to the other provisions of this Part,” which is in keeping with the fundamental right to practise any activity, trade, or business.

Article 301 – It grants Freedom of trade, commerce and intercourse

Article 302 – Parliamentary authority to impose trade, commerce, and intercourse limitations. The parliament may achieve the same thing by imposing it. Such limits from one state to another or inside India’s territory as may be warranted in the public good.

Article 303 – Limitations on the legislative powers of the Union and the States in matters of trade and commerce. According to the 7th schedule, Parliament shall not pass laws favouring one state over another, with the exemption specified in clause (2).

Article 304 – Restriction on interstate trade, commerce, and intercourse.

Article 305 – Saving of existing laws and laws providing for state monopolies. It empowers the parliament to appoint such authority and confer powers and duties as it thinks necessary.

Article 307 – Appointment of authority for carrying out the purposes of Articles 301-304 [7].

(2) Preamble

Preamble guarantees economic justice, liberty of thought, expression, belief, faith and worship, equality of status and opportunity upon its citizens. It lays down the due duty of care on part of business institutions to provide economic and political justice to everyone. It also states that, there should be equal opportunity to everyone which can be achieved by eradication of poverty[8].

(3) Fundamental rights

Fundamental rights are superior to ordinary laws. They can only be altered by constitutional amendments or the due procedure established by law. Right to equality ( Art 14-18 ) confers that right on citizens to access to shops, restaurants and public entertainment places equally and free access to all the resources that are funded by government or state. Equal employment opportunities to all the citizens irrespective of their religion, caste, sex, descent, race and place of birth.

Right to freedom ( Art 19 to 22 ) promotes the idea of liberty. The business institutions can approach the government and can utilise their freedom of expression and express their problem in order to get a solution for it. Every citizen has the freedom to choose, practice and profess any trade, business or occupation of their choice. Right against exploitation prohibits involuntary work without payment, child labour, forced labour, harassment at workplace and also protects employees from working at hazardous factories.

(4) Directive principles of state policy

They are enshrined in part- 4 of the constitution which aims at justice, liberty, equality and fraternity. It provides adequate means of livelihood for everyone. Secures equal pay for work to both male and female. It regulates economic system of country in purview of not only concentrating the wealth on private individuals wholly but supporting it to a certain extent. Acts like Minimum Wages Act 1948, Factories Act, MRTP Act, Industrial ( development and regulation ) Act, Industrial Policy Act are mainly based on the principles of Directive principles of state policy [9].

BUSINESS LAW AND REGULATIONS IN INDIA :

There are many business laws in India which existed way before independence such as Partnership Act 1932, Indian Contract Act 1872, Sale of goods Act 1930. Banking Regulation Act 1949 was established to regulate private banking companies and manage banks in India. Later, it was amended by the Banking Law ( Amendment ) Act which granted RBI ( the central bank of India ) the power to restrict voting rights and shares acquisition in a bank. Banks are able to issue equity and preference shares under RBI guidelines now. Following economic development, now in 21^st century, the Ministry of Corporate Affairs passed Competition Act 2002 and Limited Liability Act in 2008 which protect consumer interests, prohibit anti-competitive business practices and promote sustainable competition within the markets. Companies Act, 1956 has undergone many changes in this decade. India, as a member of International Labour Organization offers protection for employees that include Industrial Disputes Act 1947, Payment of Bonus Act 1965, Payment of Gratuity Act 1972, Payment of Wages Act 1936 etc [10]. Hence, the companies are registered under Indian Companies Act, 2013 which is the basis of business laws.

CONNECTION BETWEEN CONSTITUTION OF INDIA AND BUSINESS LAWS :

Laws relating to the privileges and immunities of the various state government branches are referred to as constitutional laws. They outline how laws are made, how they should be applied, and how the head of the executive part of a government ought to act. All other laws of a state are built upon this fundamental law[11].

The corpus of law that controls how administrative agencies of the government conduct their business is known as administrative law. Action by a government agency may take the form of rulemaking, adjudication, or the application of a particular regulatory agenda.

It deals with the decision-making of administrative government bodies like tribunals, boards, or commissions that are a component of a national regulatory structure in fields including criminal law, international trade, manufacturing, the environment, taxation, broadcasting, immigration, and transportation.

Administrative law is the species, whereas constitutional law is the genus. They both fall within the umbrella of public law in the modern state. In actuality, they are both significant legal streams that control a variety of state affairs[12]. Property rights protection is one of the primary areas where corporate law and constitutional law converge. . In the context of business law, where enterprises must be able to acquire and use property to operate, this protection of property rights is crucial. As Dicey points out, English common law is what gave rise to the laws that make up a country’s constitutional code in other nations. India has a written constitution, and constitutional law focuses on the fundamental ideas governing the structure and authority of the branches of government. In short, there is always an overlap between administrative and constitutional law [13].

LEGISLATIVE APPROACH :

(1) G.K.Krishnan vs State of Tamil Nadu

The question of law in this case is that whether freedom of trade, commerce and intercourse is an absolute freedom or subjective to reasonable restrictions. The Apex Court made it clear that, as used in Article 301 of the Constitution, the word “free” does not refer to freedom from restriction. Regulations that limit people’s ability to engage in commercial operations contrast with laws that impose standards of appropriate conduct or other restrictions on individuals who do so. This distinction is referred to as regulation. By separating features of the transaction or activity that defined it as trade, commerce, or intercourse from those features that, while invariably present in some form in the transaction or action, are not necessary to the conception, the true solution in any given case can be ascertained. It’s crucial to understand the distinction between the essential elements of trade and commerce and the transaction’s episodes, which may or may not give it that character. A tax that is compensatory or regulatory cannot be used to restrict the freedom of trade or commerce, the Apex Court continued. If the proceeds are utilised to repair, maintain, and upgrade significant roadways, and the collection of the tax doesn’t significantly delay traffic, a compensatory tax is applied based on the kind and volume of road use. Free travel on the roads must be guaranteed without any financial restrictions[14].

(2) Automobile Transport (Rajasthan) Ltd. Vs State of Rajasthan (1962)

In this instance, the respondents argued that Article 301 did not apply to taxes used to pay for road maintenance. The Rajasthan Motor Vehicles Taxation Act of 1951 was not in violation of Article 301 of the Indian Constitution, according to the Supreme Court of India, and the taxes imposed under it were compensatory or regulatory taxes that did not impede the freedom of trade, commerce, and intercourse that was guaranteed by that Article. These taxes were therefore legitimate. The Court stated that in order to be understood properly and as part of a Constitution that contemplated a division of powers between the States and the Union, the concept of freedom of trade, commerce, and intercourse as stated in Article 301 must be placed in the context of everyday society. If so, the concept must recognise the necessity and legitimacy of some form of regulatory control, whether exercised by the Union or the States. The freedom provided by Article 301 does not apply to regulatory or compensatory tariffs placed on the use of commercial facilities because they do not obstruct trade, commerce, or intercourse rather they facilitate it[15].

(3) Kalyani Stores vs State of Rajasthan

In the 1966 case of Kalyani Stores v. State of Orissa, the imposition of excise duty on “foreign spirits” imported into the state was being contested. The petition under Article 226 of the Indian Constitution was being heard by the Supreme Court of India. A 1937 notification issued under Section 27 of the Bihar and Orissa Excise Act, 1915, set the excise charge at Rs. 40 per L.P. gallon until March 31, 1961. With effect from April 1, 1961, a new notification increased it. It was contended on behalf of the appellant that since no “foreign spirits” was produced in the state and no excise duty could be placed on any locally produced “foreign spirits,” no countervailing duty could be put on imported alcohol. A restriction on the freedom of trade, commerce, and intercourse over all of India, as stated in Article 301, was noted by the Apex Court as only being acceptable if it fell under Article 304. Only if there is no distinction between the tax or duty imposed on goods imported from other countries and the tax or duty imposed on equivalent things created or produced in that country can the power under Article 304(a) be used effectively. Since no foreign spirits was made or produced in the state, Article 304 protection was not applicable in this situation[16].

CONCLUSION :

In conclusion, the role of the constitution in developing business laws is a cornerstone of a well-functioning and just economic system. The constitution serves as a fundamental guidepost, outlining the principles and boundaries that shape the legal landscape within which businesses operate. This crucial role can be observed across various dimensions.

Firstly, the constitution establishes the bedrock principles that underpin business laws. Concepts such as the rule of law, separation of powers, and protection of individual rights lay the foundation for a fair and equitable business environment. These principles ensure that businesses can operate with confidence, knowing that their legal rights and responsibilities are safeguarded by the highest law of the land.

Secondly, the constitution provides the framework for legislative action in the realm of business laws. It delineates the scope and limits of government authority, ensuring that business regulations are well-defined and within the boundaries of constitutional legitimacy. This balance between state intervention and business autonomy is crucial for fostering economic growth while preventing overreach. Constitutional provisions safeguarding property rights, enforcing contracts, and ensuring due process are integral to business transactions. Businesses thrive when they can confidently enter into contracts, secure in the knowledge that these agreements will be upheld by the constitutionally mandated legal system. Furthermore, due process protections prevent arbitrary actions that could hinder business operations and economic development.

The constitution’s role extends to the creation of specialized business tribunals and administrative bodies, which offer expertise in resolving intricate commercial disputes. These bodies expedite the resolution of business-related conflicts, promoting efficiency and expertise in legal proceedings.

In a globalized economy, the constitution’s impact transcends borders. International trade agreements and treaties are influenced by constitutional commitments, shaping cross-border business interactions and ensuring harmonization of legal standards.

In essence, the constitution plays a pivotal role in shaping the development of business laws. Its principles guide lawmakers, adjudicators, and businesses alike, fostering an environment of fairness, stability, and progress. As economies evolve and new challenges emerge, the constitution’s influence remains steadfast, adapting to ensure that business laws continue to reflect the ever-changing dynamics of commerce while upholding the core values enshrined in the nation’s supreme legal framework.

[1] https://www.wallstreetmojo.com/business-law/

[2] https://www.shiksha.com/online-courses/articles/understanding-business-law/

[3] https://egyankosh.ac.in/bitstream/123456789/83402/1/Unit-1.pdf

[4] https://legamart.com/community/what-are-the-objectives-of-business-law_libi8zul429375

[5] https://www.studocu.com/in/document/guru-nanak-dev-university/bachelor-of-law/history-evolution-and-development-of-company-law-in-india/39514460

[6] https://lawcorner.in/history-of-company-law-in-india/

[7] https://blog.ipleaders.in/understanding-constitutional-provisions-with-respect-to-trade-and-commerce-within-india-through-case-laws/#Articles_301-307_of_the_Constitution_of_India_1950

[8] https://www.yourarticlelibrary.com/business/4-major-provisions-of-indian-constitution-applicable-to-business/23482

[9] https://www.studocu.com/in/document/bharathiar-university/mba/constitution-and-role-in-business/29530831

[10] https://amritt.com/services/india-business-consulting/business-laws-regulations-in-india/#:~:text=These%20include%20the%20Payment%20of,days%20per%20year%20of%20employment

[11] https://study.com/academy/lesson/constitutional-law-administrative-law-relationship-differences.html

[12] https://strictlylegal.in/all-about-constitutional-law-and-administrative-law/