BUSINESS LAW AND RULES OF INTERPRETATION INTERPRETATION Definition and Scope of Business Law The terms rms ‘busines ness, ‘merc ercanti ntile’ and ‘commerc ercial’ are synonymous. Business Law may be defined as that branch of law whic which h lays lays down down a set set of rule rules s for for the the regu regula lati tion on of busi busine ness ss transa transacti ctions ons.. The same same meanin meaning g is convey conveyed ed by the defini definitio tion n given by Glos and Banker. According to them, “Business law is that that porti portion on of the the lega legall sy syst stem em which which guar guarant antees ees an orde orderl rly y cond conduct uct of busi busines ness s affai affairs rs and the the sett settle leme ment nts s of legi legiti tima mate te disputes in a just manner.” The scope of business law has enormously widened due to the increasing complexities of the modern business world. It usually cove covers rs topi topics cs of cont contra ract cts, s, bail bailme ment nt,, agen agency cy,, sale sale of good goods, s, part partner nersh ship ips, s, comp compani anies es,, nego negoti tiab able le inst instrum rument ents, s, insu insuran rance ce,, inso insolv lvenc ency, y, arbi arbitr trat atio ions ns,, cons consum umer er inte interes rest, t, rest restri rict ctiv ive e trad trade e practices, practices, business crimes, pollution pollution control control etc. These and other topics are covered by legislations enacted by Central and State Governments.
Origin and growth of Business Law Before the enactment of the various Acts constituting Business Laws, all business transactions were regulated by the personal laws of the parties to the suit. For instance, the rights of Hindus and Muslims were governed by their respective laws and usages. Where Where both both part partie ies s were were Hi Hindu ndus, s, they they were were regul regulat ated ed by the the Hindu ndu Law and where here both the part arties were Mus usllims, the Mohammadan law was applied. In cases where one party was a Hind Hi ndu, u, and and the the othe otherr was was a Musl Muslim im,, the the pers person onal al law law of the the defendant was applied. In cases of persons other than Hindus and Muslims, and also where laws and usages of Hindus or Muslims were were sile silent nt on any poi point, nt, the court ourts s gene genera rall lly y appl applie ied d the principles of English law. Gradually, need for the enactment of a uniform law regulating the contracts was realized and this gave birth to the Indian Contract
act, 1872. Since then a number of statutes have been enacted, viz. The Negotiable Instruments Act, 1881; The Sale of Goods Act, 1930; The Indian Partnership act, 1932; The Insurance Act, 1938; The Companies Act, 1956; The Consumer Protection Act, 1986; The Foreign Exchange Management Act,1999; The Information Technology act, 2000, The Competition Act,2002, etc. Sources of Business law After having known a thing as to what it is, the other curiosity that arises is how it came to be? The same is true about business law. After discussing what business law is, it is desirable to discuss how law came to be or, in other words, what are the sources of business law.
The main sources of business law in India are: 1. 2. 3. 4. 5.
Statutory Law English Mercantile law. Case Law. Customs and Usages. Natural Law.
A brief discussion of various sources follows: 1. Statutory Law: Legislation or statutory is the most important source of law. Legislation is the making of law. But when we use the term ‘legislation’ as a source of law, we mean law making by a statutory authority. Both Parliament and State assemblies have enacted a number of legislations that cover various aspects of business. In England, a distinction is made between Statute law or Written law and the common law. Only the former is called legislation. In India, there is no common law. Here legislation or enacted law is different from customary or personal law.
2. English Mercantile Law: The Mercantile law constitutes the foundation on which the superstructure of the Indian Mercantile law has been built. Our Sale of Goods Act, for instance,
has been taken from the English Sale of Goods Act. Even now, despite the enactment of various statutes relating to matters falling within the purview of the mercantile law, our courts generally take recourse to the English Law where some principles are not expressly dealt within an Act, or where there is ambiguity.
3. Case Law: Case law, popularly called “precedent” by lawyers is a judgment of a Superior court including a point of principle and which necessitates its adoption and adherence in a subsequent case involving the same point. Case law is useful in as much as it helps Courts to render uniformity with regard to the interpretation of statutes. The past judicial decisions of courts are important source of law. Sometimes there is no statutory provision which can answer a legal question raised in a law suit. In such cases, the Court will look into the previous court decision on similar matters to find the relevant law. Even when a statute is capable of answering legal question, the court may refer the precedents to see how the statutory provisions were applied in similar circumstances. The precedents set by High courts have a binding force on lower courts. And the precedents set by the courts of same status like High Courts of different Sates have persuasive value for each other. In India, the Supreme Court is the highest court and its decisions have binding force on all the courts subordinate to it, i.e., on High Courts, District Courts, and other Subordinate courts. In spite of the prevalence of statutory laws, we still find vacuum on any given matter. Such gaps are filled by case laws. The Contract Act, for example, is not clear whether an agreement with a minor is voidable at his option or altogether void. It was the judgment by the Judicial Committee of the Privy Council in Mohoribibi Vs Dharmodas Ghose (1903) that an agreement with a minor was declared absolutely void. This decision has become
precedent for subsequently pronouncing all agreement with minors as void.
4. Customs and Usages: Customs and Usage of a trade play an important role in business dealings of that trade. As a matter of fact they have a binding force on the parties. To have a binding force, the custom or usage must be certain, reasonable and well known. To the extent custom or usage of a trade is not inconsistent with a statute; it holds as good as written law. But if it is not consistent with the provisions of a statute, it depends on the language of the statute whether it can override its provisions or not. If a statute prescribes that custom or usage inconsistent with its provisions shall have no effect, it will not constitute law in such a case. However, at times custom or usage even inconsistent with the provisions of statute may have a binding effect. Where statute gives a way to custom or usage inconsistent with its provisions shall have no effect, it will not constitute law in such a case. However, at times custom or usage even inconsistent with the provisions of statute may have a binding effect. Where statute gives way to custom or usage, like, Section 1 of the Indian Contract Act that, “Nothing herein contained shall affect any usage or custom of trade….” It has a binding force. For example. If usage of trade permits an agent to trade in his own account in the business of agency without the knowledge and consent of the principal, it may be valid although it is inconsistent with the provisions of the Contract Act.
5. Natural Law: The principles of natural law or natural justice are another source of law. The principle of natural justice that no man can be punished twice for the same crime is a guiding principle for any principle. The famous case of National Textile Unions Vs Ram Krishna (1983) can be quoted in this context. The dispute raised before
the Supreme Court involved the point whether or not the workers of a company have locus standi to be heard in proceedings relating to the winding up of the company. The Court found no provision to the effect in the Companies Act, 1956. The Court actually created the right for the workers by depending upon the principle of natural law and natural justice.
INTERPRETATION OF LAW Meaning of Interpretation While discussing legislation as a source of law it has been pointed out that it is the most important source of law in modern times. The law which comes into being through legislation is called enacted or statute law. It is laid down in the form of authoritative formulae on paper. It is for the courts to apply these formulae to specific cases. The court has to ascertain the meaning of the letters and expressions of the enactment for its application. This process of ascertaining the meaning of the letters and expressions by the court is called ‘interpretation’. According to Cross, “Interpretation is the process by which the courts determine the meaning of a statutory provision for the purpose of applying it to the situation before them. It is not a mechanical process but is a dynamic and creative process. The object of interpreting a statute is to ascertain the intention of the Legislature enacting it.
Principles of Interpretation: Interpretation is an important function of the courts. It is through this function that judiciary evolves the law and brings changes in it. The decisions of the courts in various countries illustrate that it was through interpretation that the law kept pace with the time. As such, a discussion of the principles of interpretation is necessary. There are certain principles of interpretation which have been applied by courts from time to time. These are as under:
1. 2. 3. 4. 5. 6. 7. 8.
The Literal Interpretation. The Mischief Rule. The Golden Rule. Harmonious Construction. The Statute should be read as a whole. Construction ut res magis valeat quam pereat. Identical expressions to have same meaning. Construction expressio unius est exclusio alterius.
1. Literal Interpretation: It is also known by another name called Grammatical interpretation. The principle of this kind of interpretation is that judge should not go beyond the letters of the law (literal legis). The whole task before the court is to gather the intention of the legislature and this intention should be gathered only from the words they have used. When the words of the statute are clear, they must be given effect to. If a statutory provision is open to more than one interpretation the court has to choose the interpretation which represents the true intention of the Legislature, in other words, the ‘legal meaning’ or ‘true meaning’ of the statutory provision. The English courts are very reluctant in going beyond the statute. In India the same principle is followed. But the Supreme Court has departed from it in some cases and has thus created some inconsistency. For example, in Gopalan vs. state of Madras, the Supreme Court looked into debates and proceedings of the Constituent Assembly. But the Supreme Court observed in a later case that the true meaning of a provision of law has to be determined on the basis of what is provided by its clear language with due regard to the scheme of law. Scope of the legislation or the intention of the legislature cannot be enlarged when the language of the provision is plain and unambiguous. In other words, statutory enactments must ordinarily be constructed according to the plain meaning and no words shall be added, altered, or modified, unless it is plainly necessary to do so to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or totally irreconcilable with the rest of
the statute. (Bhavnagar University vs. Palitana Sugar Mill Private Limited AIR 2003 SC 511) There are certain shortcomings of literal interpretation: First, a word cannot be properly understood without putting in the context in which it was used. Second, the ‘words are but poor substitutes of our thought’, therefore, a strict adherence to this principle may cause injustice, and sometimes, it may give results which are quite contrary to the general intention of the statute and common sense.
2. Mischief Rule: This is another rule to guide judges when they find difficulty in literal interpretation. It looks into the policy of the statute. It was enunciated in Heydon’s case in 1854. Heydon’s case: Four things are to be discussed and considered; first, what was the common law before the making of the Act; Second, What was mischief and defect for which the common law did not provide; third, what remedy Parliament resolved and appointed to cure the disease of the common law; fourth, the true reason of the remedy. In this way the intention of a statute should be gathered. The purpose of interpretation is to give effect to this intention. In Heydon’s case it was further stated that the office of all judges is always to make such construction as shall suppress the mischief and advance the remedy. While interpreting certain provisions of the Prevention of Food Adulteration Act, 1954, the Supreme Court pointed out that the object and the purpose of the Act are to eliminate the danger to human life from the sale of unwholesome articles of food. It is enacted to curb the widespread evil of food adulteration and is legislative measure for social defense. It is intended to suppress a social and economic mischief, an evil which attempts to poison, for monetary gains the very sources of sustenance of life and the well being of the community. The construction appropriate to social defense legislation is, therefore, one which would suppress the mischief and advance the remedy. The offense under the Act is really acts prohibited by the police powers of the State in the interest of public health and well being.
The prohibition is backed by the sanction of a penalty. The offenses are strict statutory offences and intention or mental state is irrelevant. (Dineshchandra Jamnadas Ghandhi Vs. State of Gujarat AIR 1989 SC 1101). Though the rule sounds very reasonable, it has not received much favor in English Courts. The English courts lean more towards literal interpretation.
3. Golden Rule: The golden rule is a modification of the principle of grammatical interpretation. It says that ordinarily the court must find out the intention of the legislature from the words used in the statute by giving them their natural meaning but if this leads to absurdity, repugnance, inconvenience, hardship, injustice or evasion, the court must modify the meaning to such an extent and no further as would prevent such a consequence. On the face of it, this rule solves all problems and is therefore known as the Golden Rule. This rule, therefore, suggests that consequences or effects of an interpretation deserve a lot more importance because these are clues to the true meaning of legislation. The court when faced with more than one possible interpretation of an enactment is entitled to take into consideration the result of each interpretation in a bid to arrive at the true intention of the legislature. This rule has been well summarized by Parke B: ‘It is a very useful rule in the construction of a statue to adhere to ordinary meaning of the words used, and to the grammatical construction, unless that is at variance with the intention of the legislature, to be collected from the statute itself, or leads to any manifest absurdity or repugnance, in which case the language may be varied or modified so as to avoid such inconvenience, but no further. In modern times, this rule has been given wider application and the courts resort to it in difficulties of other kinds also. In T irath Singh vs. Bachitter Singh, ( A IR 1955 SC 850), the appellant argued that it was obligation under section 99 (1) (a) of
the Representation of the People Act, 1951, for the Tribunal to record names of all persons who had been guilty of corrupt practices including parties and non –parties to the petition and that under the proviso notice should be given to all persons named under Section 99 (1) (a) (ii). He being a party to the petition was, therefore, entitled to a fresh notice. The Supreme Court said that such an interpretation will lead to an absurdity and held that the proviso along with clause (b) thereto and the settings of the section pointed out that notice is contemplated only against non- parties to the petition.
4. Harmonious Construction: when two or more provisions of the same statute are repugnant, the court will try to construe the provisions in such a manner, if possible, as to give effect to both by harmonizing them with each other. The court may do so by regarding two or more apparently conflicting provisions as dealing with separate situations or by holding that one provision merely provides for an exception of the general rule contained in the other. The rationale of the principle of harmonious construction probably is that the legislature must not have intended to contradict itself. This principle has been applied in a very large number of cases dealing with interpretation of the Constitution. It can be assumed that when the legislature gives something by one hand it does not take away the same by the other. While interpreting Articles 29 and 30 of the Constitution, the Supreme Court observed that when constitutional provisions are interpreted, it has to be borne in mind that the interpretation should be such as to further incorporation. They cannot be read in isolation and have to be read harmoniously to provide meaning and purpose. They cannot be interpreted in a manner that renders another provision redundant. If necessary, a purposive and harmonious interpretation should be given. (T.M.A Pai Foundation vs. State of Karnataka AIR 2003 SC355).
5. The Statue should be read as a whole: The respondent’s election was challenged by the appellant under Section 123 (7) of the Representation of the People Act, 1951 on the ground of use of corrupt practices by him because village headmen or
lambardars were appointed by him as his polling and counting agents. The law at that time was that revenue officers including village accountants were not entitled to assist in the election process even though other village officers could. The Supreme Court held that while interpreting one enactment of a statute, all parts of the statute had to be kept in mind. So construed, it is clear that the legislature had distinguished between two kinds of officers, viz, the revenue officers which included village accountants also, and other officers. Since village headmen or Lambardars were neither revenue officers nor village accountants, they fell in the category of other village officers who were not barred from assisting in the election in such a capacity. It is the basic principle of construction of statute that the same should be read as a whole, then chapter by chapter, section by section and word by word. Recourse to construction or interpretation of statute is necessary when there is ambiguity, obscurity or inconsistency therein and not otherwise. An effort must be made to give effect to all parts of statute and unless absolutely necessary no part thereof shall be rendered surplus or redundant.
6. Construction ut res magis valeat quam pereat : Where alternative constructions are possible the court must give effect to that which will be responsible for the smooth working of the system for which the statute has been enacted rather than the one which would put hindrances in its way. The narrower of the two interpretations which would fail to achieve the objective of the law must give way to a bolder construction paving way for an effective outcome. As far as possible all the words used in a statute must be given meaning as the legislature is not expected to use unnecessary words. 7. Identical expressions to have same meaning: It is reasonable to assume when the legislature has used a particular expression in a statute many times, the expression must bear the same meaning everywhere. But the courts should be very careful while applying this principle because the same expressions expressed in a different context than the earlier one may have
been intended by the legislature to have a different meaning. To find out, therefore, whether the same word should have the same meaning or not is a very difficult task for the court. The courts while interpreting the same expression differently generally give the reason that their context is different. It is settled law that in matter relating to educational institutions if two interpretations are possible, the courts would be reluctant to accept that which would upset and reverse the decision of the educational authorities and would accept the interpretation made by such institutions. Thus, when examination regulations for the purpose of declaration of results were notified by the university and the candidates knew about the procedure to be adopted by the university fully well, they cannot turn around to say that the university regulations are contrary to regulations framed by the Medical Council of India.
8. Construction ejusdem generis: The expression ejusdem generis means of the same kind . Normally, general words should be given their natural meaning like all other words unless the context requires otherwise. But when a general word follows specific words of a distinct category, the general word may be given a restricted meaning of the same category. The basis of the principle of ejusdem generis is that if the legislature intended general words to be used in unrestricted sense, it would not have bothered to use particular words at all. The Supreme Court in Uttar Pradesh State Electricity Board vs. Harishanker has laid down the following five essential elements of this rule: 1. 2. 3. 4. 5.
The statute contains an enumeration of specific words. The subjects of enumeration constitute a class or category. The class or category is not exhausted by the enumeration. The general terms follow the enumeration. There is no indication of a different legislative intent.
The rule like many other rules of statutory interpretation is a useful servant but a bad master.
