Every business decision happens inside a legal framework and an ethical one. Law sets the minimum standard enforced by the state; ethics asks what is right beyond the minimum. A manager needs working knowledge of both, to spot risks early and to know when to call a lawyer. This article revisits the main Indian laws a manager meets and the ethics behind good business.
1. Law of contract (Indian Contract Act, 1872)
A contract is an agreement enforceable by law. Essentials:
| Element | Meaning |
|---|---|
| Offer and acceptance | A clear proposal and unconditional acceptance (consensus ad idem) |
| Lawful consideration | Something of value in return; “no consideration, no contract” (with a few exceptions) |
| Capacity | Parties must be adults of sound mind and not disqualified |
| Free consent | Not caused by coercion, undue influence, fraud, misrepresentation or mistake |
| Lawful object | Not illegal, immoral or against public policy |
| Certainty, possibility of performance, and not expressly void | Terms must be clear and capable of being performed |
Contracts can be valid, void (no legal effect), voidable (valid until the injured party rejects it) or unenforceable. Breach gives remedies: damages, specific performance, injunction and quantum meruit (reasonable payment for work done). Other key ideas: agency (acts of an agent bind the principal), indemnity and guarantee, bailment and pledge, and standard-form contracts (click-to-accept terms).
In the real world: the famous English case Carlill v Carbolic Smoke Ball shows that a public advertisement promising a reward can be an offer that anyone can accept by performing the condition. Today’s click-wrap agreements for apps follow the same logic of offer and acceptance.
2. Sale of Goods Act, 1930
A contract of sale transfers property in goods for a price. Conditions are essential terms (breach lets the buyer reject the goods); warranties are collateral terms (breach gives only damages). Implied terms include title, sale by description, fitness for purpose and merchantable quality. Key principles: caveat emptor (buyer beware), property passes when parties intend; the unpaid seller’s rights include lien, stoppage in transit and resale.
3. Company law (Companies Act, 2013)
A company is a separate legal entity from its owners (Salomon’s case), with perpetual succession and limited liability for shareholders.
| Topic | Key points |
|---|---|
| Types | Private, public, one-person company, section 8 (non-profit); LLP under a separate Act |
| Incorporation | Memorandum of Association (objects) and Articles of Association (internal rules); registration with the Registrar of Companies (ROC) |
| Directors and board | Fiduciary duties; independent directors and women directors in specified companies; committees (audit, nomination, CSR) |
| Meetings and resolutions | Annual general meeting; ordinary and special resolutions |
| Share capital and finance | Equity and preference shares, debentures, rights and bonus issues, buy-back |
| Corporate governance | Disclosure, audit, internal control; for listed companies, SEBI’s listing rules |
| Winding up and insolvency | Under the Insolvency and Bankruptcy Code, 2016 |
Lifting the corporate veil is allowed when the company is used for fraud. Corporate social responsibility (CSR) under the Act requires qualifying large companies to spend a share (2% of average net profit) on CSR activities.
In the real world: the Satyam scandal (2009) involved the founder admitting that the company’s accounts had been inflated for years. It led to tougher rules on independent directors, auditor accountability and whistle-blower protection in Indian governance.
4. Negotiable instruments
Under the Negotiable Instruments Act, 1881, the three instruments are promissory notes, bills of exchange and cheques, which are freely transferable and give a holder in due course a good title. Section 138 makes dishonour of a cheque for insufficient funds a criminal offence if the payer fails to pay after a notice. Features: crossing of cheques, endorsement and presentment.
5. Consumer protection (Consumer Protection Act, 2019)
Consumer rights: safety, information, choice, to be heard, redress and consumer education. The Act provides:
- Three-tier consumer commissions (district, state, national) for complaints about defective goods, deficient services and unfair trade practices.
- A Central Consumer Protection Authority (CCPA) to act against misleading ads and unfair practices.
- Product liability for manufacturers, sellers and service providers.
- Rules covering e-commerce platforms, including transparency and grievance officers.
In the real world: misleading advertising claims, hidden charges and “dark patterns” in apps are examples where the consumer authority can step in; firms now keep fair and clear disclosures as a matter of business risk.
6. Technology and data law
- Information Technology Act, 2000: recognises electronic records and digital signatures, and defines cyber offences (hacking, identity theft, publishing obscene material) with intermediary obligations.
- Digital Personal Data Protection Act, 2023: sets rules on how organisations collect and process personal data: consent, purpose limits, security safeguards, rights for individuals and penalties for breaches.
- E-contracts and e-signatures are valid when the legal conditions are met.
Managers must treat customer and employee data as a legal responsibility, not just an asset.
7. Intellectual property (IPR)
| Right | Protects | Duration (broad) |
|---|---|---|
| Patent | New, inventive, industrially applicable inventions | Up to 20 years |
| Copyright | Original literary, artistic, musical works, software | Author’s life plus 60 years (for many works) |
| Trademark | Brand names, logos, shapes | Renewable every 10 years |
| Design | Visual appearance of an article | Up to 15 years |
| Geographical indication (GI) | Products from a place (Darjeeling tea, Kanchipuram silk) | Renewable |
| Trade secrets | Confidential business information | As long as it is secret |
In the real world: the Basmati and turmeric disputes showed how traditional knowledge can be wrongly patented abroad, which pushed India to document traditional knowledge. Software companies rely on copyright, licences and confidentiality clauses.
8. Competition, trade and other laws
- Competition Act, 2002: bans anti-competitive agreements (cartels, bid-rigging), abuse of dominance, and reviews large mergers; enforced by the Competition Commission of India (CCI).
- FEMA, 1999: governs foreign exchange and cross-border investment.
- GST: one indirect tax on supply of goods and services, with input tax credit and compliance filings.
- Arbitration and Conciliation Act, 1996: quick, private dispute resolution as an alternative to courts.
- Labour and employment laws (see Industrial Relations and HRM).
9. Business ethics
Ethics concerns right and wrong in business conduct. Major approaches:
| Theory | Question | Example |
|---|---|---|
| Utilitarian | Which choice gives the greatest good to the greatest number? | Weighing a plant closure against broader job loss |
| Deontological (duty or rights) | What are my duties and others’ rights, regardless of outcome? | Never deceive customers, even if it pays |
| Justice and fairness | Is the process and outcome fair? | Equal pay for equal work |
| Virtue ethics | What would a person of good character do? | Honesty and integrity as habits |
Stakeholder theory says a firm owes duties to employees, customers, suppliers, community and the environment, not just shareholders. Ethical issues include conflicts of interest, insider trading, bribery and corruption, misleading advertising, privacy, discrimination and harassment, product safety, and environmental harm. Whistle-blowing protects those who report wrongdoing. Tools: a code of conduct, ethics training, hotlines, and leaders who model the behaviour. A practical test: legal? fair? would I be comfortable if it appeared on the front page?
In the real world: Volkswagen’s emissions-test cheating (2015) caused enormous fines and reputational damage, showing that an ethical failure can destroy value faster than almost any market event. Enron and Satyam are classic governance failures.
10. Corporate governance and CSR
Corporate governance is the system by which companies are directed and controlled: an effective board, independent directors, transparent reporting, audit and risk committees, protection for minority shareholders, and fair treatment of all stakeholders. CSR and ESG (environmental, social and governance) extend responsibility to society and the planet; companies now report on emissions, diversity, safety and community impact, and investors increasingly weigh these. Sustainability and ethical supply chains (no child or forced labour) are part of the same agenda.
One-minute recap
| Topic | Key idea | Where you meet it |
|---|---|---|
| Contract | Offer, acceptance, consideration, free consent | Vendor and customer agreements |
| Sale of goods | Conditions and warranties; implied terms | Purchases and supply |
| Company law | Separate entity; board duties; CSR | Incorporation, governance |
| Negotiable instruments | Cheques; Section 138 | Payments |
| Consumer protection | Rights, commissions, CCPA, e-commerce rules | Advertising, services |
| IT and data law | IT Act, DPDP Act | Data handling |
| IPR | Patent, copyright, trademark, GI | Brand and software protection |
| Competition and trade | CCI, FEMA, GST, arbitration | Mergers, exports, disputes |
| Ethics and governance | Utilitarian, duty, justice, virtue; stakeholders | Codes of conduct, whistle-blowing |
Next in MBA Revisited: Business Strategy.
Written by Claude, Anthropic’s AI assistant, as part of MBA Revisited, a quick refresher of the PGDM subjects one at a time.