Legal aspects are an indispensable part of a successful business environment in any country.

They reflect the policy framework and the mind set of the Governmental structure of that
country. They ensure that every company is functioning as per the statutory framework of the
country. Every enterprise must take into account this legal set up while framing the basic aims
and objectives of its company. This is because, it is necessary for efficient and healthy
functioning of the organisation and helps it to know about the rights, responsibilities as well as
the challenges that it may have to face.

In India, the most important law which regulates all aspects relating to a company is the
Companies Act,1956. It contains provisions relating to formation of a company, powers and
responsibilities of the directors and managers, raising of capital, holding company meetings,
maintenance and audit of company accounts, powers of inspection and investigation of company
affairs, reconstruction and amalgamation of a company and even winding up of a company.

The Indian Contract Act,1872, is another legislation which regulates all the transactions of a
company. It lays down the general principles relating to the formation and enforceability of
contracts; rules governing the provisions of an agreement and offer; the various types of
contracts including those of indemnity and guarantee, bailment and pledge and agency. It also
contains provisions pertaining to breach of a contract.

The other major legislations are:- the Industries (Development and Regulation) Act 1951; Trade
Unions Act; the Competition Act, 2002; the Arbitration and Conciliation Act, 1996; the Foreign
Exchange Management Act (FEMA),1999; laws relating to intellectual property rights; as well
as laws relating to labour welfare.

A Company is defined as a voluntary association of persons formed for the purpose of doing
business, having a distinct name and limited liability. Companies, whether public or private, are
an indispensable part of an economy. They are the modes through which a country grows and
expands world wide. Their performance is an important parameter of a countries economic
position.

In India, the Companies Act, 1956, is the most important piece of legislation that empowers the
Central Government to regulate the formation, financing, functioning and winding up of
companies. The Act contains the mechanism regarding organisational, financial, managerial and
all the relevant aspects of a company. It provides for the powers and responsibilities of the
directors and managers, raising of capital, holding of company meetings, maintenance and audit
of company accounts, powers of inspection, etc. The Act applies to whole of India and to all
types of companies, whether registered under this Act or an earlier Act. But it does not apply to
universities, co-operative societies, unincorporated trading, scientific and other societies.

The Act empowers the Central Government to inspect the books of accounts of a company, to
direct special audit, to order investigation into the affairs of a company and to launch prosecution
for violation of the Act. These inspections are designed to find out whether the companies
conduct their affairs in accordance with the provisions of the Act, whether any unfair practices
prejudicial to the public interest are being resorted to by any company or a group of companies
and to examine whether there is any mismanagement which may adversely affect any interest of
the shareholders, creditors, employees and others. If an inspection discloses a prima facie case of
fraud or cheating, action is initiated under provisions of the Companies Act or the same is
referred to the Central Bureau of Investigation.

Intellectual property(IP) is the creation of human intellect. It refers to the ideas, knowledge,
invention, innovation, creativity, research etc, all being the product of human mind and is similar
to any property, whether movable or immovable, wherein the proprietor or the owner may
exclusively use his property at will and has the right to prevent others from using it, without his
permission. The rights relating to intellectual property are known as 'Intellectual Property
Rights'.

Intellectual Property Rights, by providing exclusive rights to the inventor or creator, encourages
more and more people to invest time, efforts and money in such innovations and creations.
Intellectual property rights are customarily divided into two main areas:-

 Copyright and rights related to copyright:- the rights of authors of literary and artistic
works (such as books and other writings, musical compositions, paintings, sculpture,
computer programs and films) are protected by copyright. Also, protection is granted to
related or neighbouring rights like the rights of performers (e.g. actors, singers and
musicians), producers of phonograms (sound recordings) and broadcasting organizations.
 Industrial property, which is divided into two main areas:-

• One area can be characterized as the protection of distinctive signs, in particular

trademarks (which distinguish the goods or services of one undertaking from
those of other undertakings) and geographical indications (which identify a good
as originating in a place where a given characteristic of the good is essentially
attributable to its geographical origin).

• Other types of industrial property are protected primarily to stimulate innovation,

design and the creation of technology. This category includes inventions
(protected by patents), industrial designs and trade secrets.

The issue of Intellectual Property Rights was brought on an international platform of negotiation
by World Trade Organization (WTO) through its Agreement on Trade Related Aspects of
Intellectual Property Rights (TRIPS). This agreement narrowed down the differences existing in
the extent of protection and enforcement of the Intellectual Property rights (IPRs) around the
world by bringing them under a common minimum internationally agreed trade standards. The
member countries are required to abide by these standards within stipulated time-frame. India,
being a signatory of TRIPS has evolved an elaborate administrative and legislative framework
for protection of its intellectual property.

A negotiable instrument is a specialized type of contract for the payment of money that is
unconditional and capable of transfer by negotiation. As payment of money is promised later, the
instrument itself can be used by the holder in due course frequently as money. Common
examples include cheques, banknotes (paper money), and commercial paper. In the United
States, the Article 3 of the Uniform Commercial Code covers the use of negotiable instruments
except banknotes (money).

A negotiable instrument is a contract, albeit not obvious in formation of the required offer, and
consideration. Unlike ordinary contract documents, the right to the performance of a negotiable
instrument is linked to the possession of the document itself (with certain exceptions such as loss
or theft). The consideration for a negotiable instrument is the value given up to acquire it and the
consequent loss of value in the prior holder. The instrument itself is understood as a right for
payment and an obligation for payment evidenced by the instrument itself with possession the
touchstone for the right of payment. The rights of a holder in due course of a negotiable
instrument are better than those provided by ordinary contracts as follows:

• The rights to payment are not subject to set-off, and do not rely on the validity of the
underlying contract giving rise to the debt (for example if a cheque was drawn for
payment for goods delivered but defective, the drawer is still liable on the cheque)

• No notice needs to be given to any party liable on the instrument for transfer of the rights
under the instrument by negotiation. However payment by the party liable to the person
previously entitled to enforce the instrument "counts" as payment on the note until
adequate notice has been received by the liable party that a different party is to receive
payments from then on. 3-602(b)

• Transfer free of equities—the holder in due course can hold better title than the party he
obtains it from

Negotiation enables the transferee to become the party to the contract, and to enforce the contract
in his own name. Negotiation can be effected by endorsement and delivery (order instruments),
or by delivery alone (bearer instruments). In addition, it includes the rule of a derivative title
which does not allow a property owner to transfer rights in a piece of property greater than his
own.

An Act to define and Law relating to Promissory Notes, Bills of Exchange and cheques.

WHEREAS it is expedient to define and amend the law relating to promissory notes, bills of
exchange and cheques

Act is to regulate commercial transactions and was drafted to suit requirements of business
conditions then prevailing. The instrument is mainly an instrument of credit readily convertible
into money and easily passable from one hand to another.

STATUTORY DEFINITION OF NEGOTIABLE INSTRUMENT - A “negotiable instrument”

means a promissory note, bill of exchange or cheque payable either to order or to bearer.
Explanation (i) : A promissory note, bill of exchange or cheque is payable to order which is
expressed to be so payable or which is expressed to be payable to a particular person, and does
not contain words prohibiting transfer or indicating an intention that it shall not be transferable.
Explanation (ii) : A promissory note, bill of exchange or cheque is payable to bearer which is
expressed to be so payable or on which the only or last endorsement is an endorsement in blank.
Explanation (iii) : Where a promissory note, bill of exchange or cheque, either originally or by
endorsement, is expressed to be payable to the order of a specified person, and not to him or his
order, it is nevertheless payable to him or his order at his option. [section 13(1)]. - - A negotiable
instrument may be made payable to two or more payees jointly, or it may be made payable in the
alternative to one of two, or one or some of several payees. [section 13(2)].