CHAPTER 1

LAW AND ITS SOURCES

Introduction
 Man is by nature a social being. He comes into contact with other individuals in different capacities. These
contacts or associations are the inevitable consequence of modern civilization. In all these associations, he is
expected to observe a Code of Conduct or a set of rules.
 The object of these set of rules is to
 make human associations possible; and
 ensure that members of the society may live ; and
 work together in an orderly and peaceful manner.
1.1 WHAT IS LAW
 The word `law` is a general term and over a period of time attained different connotations to signify varied
purposes.
 Persons carrying different vocations prefer to identify `law` as to the purpose the prescribed set of rules are
intended to achieve: -
(i) A Citizen may think of law as a set of rules, which he must obey.
(ii) A Lawyer who `practices law` may think of law as a vocation.
(iii) A Legislator may look at law something created by him.
(iv) A Judge thinks of law as a guide and principles to be applied to making decisions.
(v) A Social Scientist may think of law as a means of social control.
(vi) A Legal Philosopher may consider law as `dictate of reason` or `right reasoning.
 It is often preceded by an adjective to give it a more precise meaning e.g. Commercial/ Mercantile law, Civil law,
Criminal law, Industrial law, International law.
 In the legal sense with which we are concerned in our study of Commercial Laws, the definition of `law`
includes all the rules and principles which regulate our relations with other individuals and the
State and which are enforced by the State.
DEFINITON OF `LAW` - ARTICLE 13 (3) OF CONSITTUTION OF INDIA
 Clause 3 of Article 13 of the Constitution of India defines `law` as under
(a) `law` includes any
 Ordinance,
 order,
 bye-law,
 rule,
 regulation,
 notification,
 custom or usage having the force of law;
 An amendment to an existing law is also law.
 `Law` in the context of the provisions of the Constitution of India may also be defined as – “It is an Act passed by
the legislature and assented to by the President of India or Governor of a State.” [Arts 111 and 200 of the
Constitution of India].
1.2 `LAW` AND `STATUTE`
 The Constitution of India does not use the term 'Statute' but it uses the term 'law'. Statute has been defined as
`the written will of the legislature'.
 Thus, Statute or law generally means the laws and regulations of every sort without considering the source from
which they emanate. It is because of this the term `law` and `statute` are some times used interchangeably.
1.3 NEED FOR KNOWLEDGE OF `LAW`
 `Ignorntia juris non excusat` is a familiar maxim. This means `ignorance of law is no excuse`. Although it is not
possible for a layman to be aware of every branch lf law, yet he must acquaint himself with the general principals
of the law of the country.
1.4 FUNCTIONS AND PURPOSE OF `LAW `
1 Justice
2 Continuity and uniformity
3 Impartiality

1.5 LAW IS NOT STATIC

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 Although origins of law in any society may be traced in antiquity, yet law is not static. As circumstances and
conditions in a society change, laws are changed to fit the requirements of the society.
1.6 CLASSIFICATION OF LAW
1. PUBLIC LAW – It is that law which determines and regulates the organization and functioning of the State. It
also determines the relation of the State with its subjects. The following laws form part of the public law: -
a) Constitutional law – It is the basic and fundamental law of the land, which determines the nature of the State
and the structure of the Government. It may be written (as in India, USA and most other countries) or
unwritten (as in England).
b) Administrative law – It is the law, which deals with the structure, functions and powers of the organs of the
Government.
c) Criminal law – It deals with various offences, and has for its object their prevention by providing for and
prescribing certain punishments for them.
2. PRIVATE LAW - It is the law, which regulates relations of the citizens with one another, which are of public
importance. In this sense, the State through its judicial organs adjudicates the matters in dispute between them.
Private law comprises the following fields.
a) Personal laws - It is a special law applicable to a class of people.
b) Law of property – It is law relating to transfer of (immovable) property.
c) Law of obligations – It is law relating to Contract; Quasi contract and Torts
1.7 SOURCES OF LAW
 `Source` means `origin` which something is ultimately derived and often refers to the causes operating before the
thing itself comes into being. Jurists (legal expert) differ widely s to the origin of law. One of the legal
commentator traces its origin in general awareness of the people at any point of time.
CLASSIFICATION OF SOURCES
1. Formal sources – These are the sources from which the law derives its force and validity. Of course,
the only authority from which laws can spring and derive force and validity is State.
2. Material sources – `Material sources of law` refer to the various processes, which result in the
evolution of the materials, which are the constituents of law.
Material sources may be divided into:
a) Legal sources - These are the sources, which are recognized by the law itself as authoritative e.g.
i. Statute law - having its force in legislations;
ii. Case law - having its source in precedents; and
iii. Customary law - having its source in customs.
b) Historical sources - The sources, which have no binding, force and which are nor recognized by law
are referred to as historical sources e.g.
(i) Juristic writings;
(ii) Literary works; and
(iii) Foreign decisions.
1.8 SOURCES OF INDIAN LAW
 The main sources of the Indian law may be summarized as follows: -
(A) PRINCIPAL SOURCES OF INDIAN LAW
I. CUSTOMS OR CUSTOMARY LAW
 Custom is the most ancient of all the sources of law and has held the most important place in the past though it is
importance is now diminishing with the growth of legislation and precedent.
 Custom is a habitual course of conduct observed uniformly and voluntarily by the people concerned. No custom
shall have the force of law if it in manner violates the Fundamental Rights.
Requisites of a valid custom
 In order to be valid and have a binding force as a law, a custom must have the following requisites: -
(i) Antiquity
(ii) Reasonableness
(iii) Continuous observance
(iv) Conformity with Statute law and public policy
(v) Consistency
(vi) Obligatory force.
(vii) Peaceable enjoyment
II. JUDICIAL PRECEDENTS
Doctrine of `stare decisis`
 This doctrine means adherence to the earlier decision and not unsettling things, which are already decided.
 This doctrine is based on expediency and public policy.
Why precedents are recognized
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 The practice of following precedents is necessary to secure the certainty of and predictability of decisions. This
creates confidence in the minds of the litigants and the administration of justice becomes fair.
Hierarchy of Courts
 The general rule of doctrine of precedent as regards hierarchy of Courts is that each Court is absolutely bound by
the decisions of the Courts superior to it. As regards higher Courts, they are, to a certain extent bound by their
own decisions.
 Supreme Court – This is the highest Court in India. Its decisions are binding on all Courts within the territory
of India (Article 141 of the Constitution). The decisions of the Full Bench are binding on the smaller Benches
of the Court.
CASE EXAMPLE
In Golaknath Vs. State AIR (1967) SC 1643, the Supreme Court by a 6-Judge Bench gave a decision
that Fundamental Rights are not amendable. Six years later, the Supreme Court in Kesavananda
Bharti Vs. State of Kerala (1973) SCC 225 by a 13-Judge Bench overruled the Golaknath Case.
 High Courts – the decisions of a High Court are binding on all the Courts below it, within its jurisdiction
(District Courts/Court of Sessions).
 Subordinate or District Courts – These Courts are in districts. They are bound to follow the decisions of the
higher Courts.
SOME IMPORTANT JUDICIAL DOCTRINES
ratio decidendi (reasoning behind the decision)
 A decision of a Court can be seen from two aspects viz
1. What does the case decide between the parties? and
2. What principle or rule of law does it lay down?
 In delivering judgment the judge gives reasons for his decisions, and it is these reasons which may be
important as precedents in future cases. No two cases, which come before the courts, are exactly alike,
and to discover whether there is a binding precedent it is necessary to establish the ratio decidendi, that
is, the exact reason or reasons for the decision.
obiter dictum (an incidental or collateral opinion by a judge)
 It means an incidental or collateral opinion which is uttered by a judge while delivering a judgment and
which is not binding. These are peripheral statements that may be found in the main decision but which do not
deal with the central issue.
 Obiter dicta are not binding, but they may be treated as of "persuasive authority"
CASE EXAMPLE – obiter dicta
In D Cowasji & Co. Vs. State of Mysore (AIR 1975 813), the petitioner claimed refund of a huge amount of
Excise duty paid by it several years after the duty was paid. The Court rejected the claim for refund
pointing out that it would be unjust to require its refund after such lapse of time because the Government
would have, spent the amount for governmental purposes. By this decision the dispute was settled.
But the Court went a step further and added a sentence in judgement as obiter dicta that “nor is there any
provision under which the court could deny refund of tax even if the person who paid it has collected it
from his customers and has no subsisting liability or intention to refund it to them or for any reason it is
impracticable to do so.”
This observation of the Court contained an implication. Excise duty is collected by the manufacturer from
a large number of customers and paid it to the Government. The manufacturer does not pay a pie from his
pocket. If the duty paid by him is ordered to be refunded the beneficiary of refund would be the
manufacturer because he may not be in a position to pay back the Excise duty collected by it to the
customers. It would be impossible for the manufacturer to trace out the customers who were in thousands
or perhaps lakhs. Though the manufacturer had claimed refund of that amount to himself no opportunity
had been given by the Court to the Government to argue on the tenability of the claim. What obviously
weighed with the judge in ordering the refund was the “the dharma of the situation”. He assumed that
since the excess duty was paid by the manufacturer belonged to him. While in fact it did not belong to him.
It only unjustly enriches him.
This observation of the Supreme Court i.e. obiter dicta was noticed by many High Courts. Taking the view
that since this expression of opinion was of the highest court of the land and should receive respect, they
treated this as ratio and started giving refund orders to a number of manufacturers. In course of time the
refund amounted to hundreds of crores of rupees. Later on, the legislature had to rectify the situation by
bringing amendments to the stature.

III. STATUTE LAW OR LEGISLATION

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 It is a law that is created by legislation – Parliament or State Assembly. Legislation is that source of law, which
consists in the declaration, or promulgation (transmission) of legal rules by an authority duly empowered by the
Constitution in that behalf.
 It is some times called jus scriptum (written law). Some prefer to call it as `enacted law`.
 In modern times, `legislation` is the most important source of law in all the countries.
Types of Legislation
1) Supreme Legislation
 A legislation is said to be supreme when it proceed from the supreme or sovereign power in the State –
Parliament or the State Legislature- and is incapable of being repealed, annulled or controlled by any other
legislative authority.
 However - “any law which takes away or abridges the Fundamental Rights conferred by Part III and any law
made in contravention of this clause shall, to the extent of the contravention, be void” [Article 13(2) of
Constitution of India].
2) Subordinate Legislation
 Legislation is said to be subordinate when it proceed from any authority other than the supreme or sovereign
authority in the Sate. It is made under the powers delegated to it by the supreme authority.
 There are 5 forms of subordinate legislation:
(i) Executive – The rule making power under of the Statues is conferred on the executive (i.e. the branch of
the government that executes the laws or runs the administration).
(ii) Judicial - The judiciary has powers to frame rules for the regulation of their procedures and
administration.
(iii) Municipal – Municipal bodies are delegated powers by the Act, which brings them into existence to frame
rules, and by-laws for the area under their jurisdiction for carrying on various activities entrusted to them.
(iv) Autonomous – The autonomous bodies, like Universities, are given power by the State to make rules
and by-laws for their administration.
(v) Colonial – The laws of the countries which are not independent or which are the control of some other
State, are subject to the supreme legislation of the State under who control they are.
IV. PERSONAL LAW
 Sources of Hindu law – (a) the `Shruti` (what is heard). This includes the four Vedas (Rig Veda, Yajur
Veda, Sama Veda and Atharva Veda); (b) the `Smriti` (what is remembered ). The main three smritis are:
the codes of Manu, Yajnanavalkya and Narada.
The Statutes codifying the Hindu law enacted post independence era include (a) The Hindu Marriage Act
1955 (b) The Hindu Succession Act 1956 (c) The Hindu Minority and Guardianship Act 1956 and (d) The
Hindu Adoptions and Maintenance Act 1956.
 Sources of Mohammedan Law – (a) The Koran (voice of God; paramount authority) (b) The Hadis (actions
and sayings of the Prophet) (c ) ijma (opinions of companions of Prophets) (d) Qaiiyas (reasoning by
analogy) (e) Digests and commentaries on Mohammedan Law (compiled by command of Aurangzeb, the
Mughal Emperor).
The Statutes enacted post independence include (a) the Wakf Act 1954 (b) The Muslim Women (Protection
of Rights on Divorce) Act 1986.
(B) SECONDARY SOURCES OF INDIAN LAW
(1) JUSTICE, EQUITY AND GOOD CONSCIENCE
 In the absence of any rule of specific law, usage or custom or personal law on a particular point arising before the
Courts, the Courts apply the doctrine of “justice, equity and good conscience” which means “in substance and in
circumstances the rule of English law” as applicable to Indian society and circumstances.

(2) ENGLISH LAW

a) Common Law (of England)
 The chief source of the English Law is Common law as supplemented by Equity and Statute Law.
 The expression` Common Law (of England) conveys those unwritten legal doctrines embodying English
customs and English traditions which have been developed over centuries by the English Courts.
b) Equity (synonymous with `justice`)
 The term `equity` has its origin in the Latin word `Aequitas` means - `fair` or `justice according to natural law`
or `right` or simply `natural justice`. (Example – Doctrine of Natural Justice, Equitable set-off).
c) Statute Law
 It refers to Acts of Parliament.

1.9 LEGISLATIVE MECHANISM IN INDIA

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 The Constitution of is basically Federal in structure with striking Unitary features. The Indian Constitution has
created a new norm of federalism and that is the `Cooperative Federalism`.
Two levels of government
(1) The Central Government - It is also called the Union of India, which comprises of -
(a) the territories of the States;
(b) the Union Territories (specified in the First Schedule): and
(c) such other territories as may be acquired.
(2) The State Governments - Every State has its own separate Government. It owes its existence to the
Constitution and its powers are defined by the Constitution itself.
 The First Schedule to the Constitution contains the List of the States (Part I) and the Union Territories (Part II).
EXTENT OF LAWS MADE BY LEGISLATIVE BODIES
 Article 245 of the Constitution of India empowers the Parliament and the Legislature of a State to make laws for
the country and the State respectively.
 Article 245, inter alia, stipulates as under: -
Article 245 Extent of laws made by Parliament and by the Legislatures of States
 The Parliament may make laws for the whole or any part of the territory of India, and
 The Legislature of a State may make laws for the whole or any part of the State.
 The law made by Parliament may have extra-territorial operation.
 The Constitution of India has put certain limitations on the legislative powers of the Parliament as well the
State Assembly.
SUBJECT MATTER OF LAWS MADE BY LEGISLATIVE BODIES
 Article 246 of the Constitution, inter alia, provides for the subject matter of laws to be made by Parliament and by
the Legislatures of States. The subject matters have been specified in the Seventh Schedule to the Constitution.
 Parliament - Exclusive power relating to any of the matters enumerated in List I. ("Union List"- contains
97 Entries).
 The State Legislature - Exclusive power relating any of the matters enumerated in List II. ('State List'-
contains 66 Entries).
 Parliament besides the State Legislature – Empowered to make laws relating to matters enumerated in
List III ("Concurrent List" – contains 47 Entries).
 Parliament has power to make laws with respect to any matter for any part of the territory of India not included in
a State notwithstanding that such matter is a matter enumerated in the State List.
List I – Union List. It has 97 entries.
It contains those subjects which are of national interest or importance or which need national control and
uniformity of policy throughout the country.
Example: - Defence, Air Force, Atomic Energy, Foreign Affairs, Income Tax, CBI, Banking, Insurance, Reserve
Bank of India, Incorporation, regulation and winding of up of corporations, Stock Exchange, Bills of exchange,
Patents, Railways, Judges of Supreme Court and High Courts etc.
List II – State List. It has 66 entries.
It contains such subjects, which are of local (State) interest and on which the local control is more expedient.
Example: - Public Order, Police, local Government, public health and sanitation, trade and commerce within the
State, fairs, betting and gambling etc.
List III – Concurrent List. It has 47 entries.
It contains such subject, which though are of local importance yet need uniformity on national level or at least
some parts of the country i.e. with respect to more than one State.
Example: - Criminal Law, Education, Marriage and divorce, Transfer of Property, Contracts, Social Security etc.
Residuary Legislative Powers
 Article 248 of the Constitution further empowers the Parliament with the residuary powers of legislation to make
any law with respect to any matter not enumerated in the Concurrent List or State List. Such power shall include
the power of making any law imposing a tax not mentioned in either of those Lists.
CIRCUMSTANCES WHEN PARLIAMENT MAY LEGISLATE ON MATTERS
RELATING TO STATE LIST
 The Parliament has been empowered to legislative on matters relating to the State List in the following three
circumstances: -
(A) In the National interest (Article 249)
Circumstances of enactment
 There shall be a declaration by the Council of State(s) by resolution supported by not less than two-thirds of
the members present and voting. The law made by Parliament shall be operational till the resolution remains in
force.

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Consideration for enactment
 It is resolved by the concerned Council of State (s) that it is necessary or expedient in national interest that
Parliament should make laws with respect to any matter enumerated in the State List specified in the resolution.
Period of operation of State Assembly resolution
 A resolution passed by the State Assembly shall remain in force for such period not exceeding one year. This
may be extended by a further period of one year by passing a fresh resolution by the concerned State Assembly.
(B) While proclamation of Emergency is in operation (Article 250)
 During such period, the Parliament shall have power to make laws for the whole or any part of the territory of
India.
 The Constitution contemplates three types of emergency
 Security of India or part thereof is threatened by external aggression or armed rebellion (Article 352)
 Failure of Constitution machinery in State(s). (Article 356)
 Financial stability or credit of India or any part thereof is threatened (Article 360).
Period of operation
 A law made by Parliament cease to have effect on the expiration of a period of six months after the Proclamation
has ceased to operate.
(C) Legislate for two or more States by consent and adoption of such legislation by any other State
(Article 252)
Circumstances of enactment
 If it appears to the Legislatures of two or more States to be desirable that law with regard to any of the matters of
the State list be made by the Parliament.
 Resolutions to that effect are passed by both the Houses of the Legislatures of concerned States.
 The law thus made by the Parliament may also apply to such other State(s), which afterwards adopt the said law
by resolution passed by each of the Houses of the Legislature of that State.
 The Act so passed by Parliament may be amended by the Parliament and not by the concerned State(s).
ORDINANCE MAKING POWER OF PRESIDENT
 Article 123 of the Constitution empowers the President to promulgate Ordinances during recess of the
Parliament.
Circumstances when President may promulgate Ordinance
 When the Parliament is in recess and the President is satisfied that circumstances exist which render it necessary
for him to take immediate action, he may promulgate such Ordinances as the circumstances appear to him to
require.
 An Ordinance shall have the same force and effect as an Act of Parliament.
Validity period of Ordinance
 Every such Ordinance
(a) shall be laid before both Houses of Parliament and shall cease to operate at the expiration of six weeks
from the reassembly of Parliament, or, if before the expiration of that period resolutions disapproving it are
passed by both Houses, upon the passing of the second of those resolutions;' and
(b) may be withdrawn at any time by the President.
1.10 INTERNATIONAL AGREEMENTS/RESOLUTIONS AS
LEGISLATIVE FACILITATOR
 The term 'Globalization of Law' refers to the degree to which the whole world lives under a single set of legal
rules. United Nations has been the front-runner in harmonization of such rules that simultaneously affect different
countries. As an accepted international practice, the member countries of the United Nations pass resolution on
matters affecting the interest of such countries. And in deference to such a decision, taken at the highest forum
of the international body, each of the member country enacts legislations in its country on the similar line (as
adopted in the UN General Assembly).
 India being a constituent member of United Nations, has also passed similar legislations – Consumer Protection
Act 1986, Environmental Laws, Trade Marks Act 1999, Patent Act 1970, Information Technology Act 2000 and
Arbitration and Conciliation Act 1996. The influence of UN with specific regard to these enactments shall be
studied later in this study text.

LECTURES BY PROF. S N GHOSH