Chapter: 4 Legal Environment

C HAPTER O UTLINE
4.1 MEANING OF POLITICAL AND LEGAL ENVIRONMENT
4.2 BRANCHES / CLASSIFICATION / CATEGORIES OF LAW
4.3 SCOPE OF LEGAL ENVIRONMENT
4.4 FEMA (FOREIGN EXCHANGE MANAGEMENT ACT)
4.4 THE ESSENTIAL COMMODITIES ACT, 1955
4.5 THE TRADE & MERCHANDISE MARK ACT, 1958
4.6 THREE POLITICAL INSTITUTIONS

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4.1 MEANING OF POLITICAL AND LEGAL ENVIRONMENT:

The term ‘law’ may refers to the entire legal system of the society, In most countries, apart
from those laws that control investment and related matters, there are a number of laws that
regulate the conduct of the business. These laws cover such matters standards of product,
packaging, promotion, ethics, ecological factors, etc… for the benefit of society.
In many countries, with a view to protecting consumer interest, regulations have become
stronger. Regulations to protect the purity of the environment and preserve the ecological
balance have assumed great importance in many counties.
The term ‘LAW’ points towards those rules and regulations which the government announces
and enforces. The emergences of law in a society is a gradual process which keeps pace with
the growing needs of the society and changing civilization perceptions of the times.
In a formal sense, law may be described as a system of rules which evolve and develop in a
society for people to be followed under the enforcement by the state. If laws are violated, the
stat power will come in to play to force the violators to either adhere to law or face adverse
consequences. The members of a society are expected to know the law of the land.
Some governments specify certain standards for the products (including packaging) to b
marketed in the country: some even prohibit the marketing of certain products. In most
nations, promotional activities are subject to various types of controls. Several European
countries retrain the use f children in commercial advertisements. In a number of countries,
including India, the advertisement of alcoholic liquor is prohibited. Advertisements,
including packaging, of cigarettes must carry the statutory warning that “cigarettes smoking s
injurious to health”. Similarly, baby foods must not be promoted as a substitute for breast
feeding. In countries like Germany, product comparison advertisement and the use of
superlatives like best or excellent in advertisements is not allowed.
There area host of statutory controls on business in India. Although the controls have been
substantially brought down as a result of the liberalizations, a number of controls still prevail.
Many countries today have laws to regulate competition in the public interest. Elimination of
unfair competition and dilution of monopoly power are the important objectives of these
regulations.
Certain changes in government policies such as the Industrial policy, fiscal policy, tariff
policy, etc… may have profound impact on business. Some policy developments create
opportunities as well as threats. For Example: the Industrial policy liberalizations in India
have opened up new opportunities and threats. Hey have provide a to opportunities to a large
number of enterprises to diversify and to make their product mix better. But they have also

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given rise to serious threat to many existing products by way of increased competition; many
seller’s markets have given way to buyer’s markets.

4.2 BRANCHES / CLASSIFICATION / CATEGORIES OF LAW:

The term ‘law’ may refer to the entire legal system of the society or it may refer to the
individual units or enactments operative in the system. Each individual law regulates
particular aspects of society’s life. There fore, the individual law can be grouped under
several branches or categories of law, each branch indicating broad aspects of society’s life.
Accordingly, following branches can be visualized.
1. Constitutional Law:
This branches includes laws which build and run the political system governing the
society, regulate the relationship between the different organs of the state, and determine
the mutual rights and duties between the rules and ruled. In India, the constitution of
India is the major source of constitutional law.
2. Civil Law
This branch includes numerous laws which regulate the private relationship between
members of a society. The individual members of a society may find themselves in
bilateral or multilateral relationship or may consciously create such relationship for
numerous purposes like marriage, employments; business membership in a family, etc…
These relationships can give rise to cause for grievances of one against the other. Such
laws which protect the right of individuals against each other are part of civil law.
3. Mercantile Law/ Business Law:
Mercantile or business relationships between individuals are governed by specialized
laws, which two seek to protect individual rights of one against the other. In that sense,
mercantile law is part of civil law. But, having become a specialized area f knowledge,
the mercantile, or in its modern form the business law is studied as a separate branch of
law.
4. Criminal Law:
This branch of law, include law which deal with crimes, their ascertainments and their
punishment and the procedures required for the same. Indian penal code and criminal
procedure cod are the major sources of criminal law in India.

4.3 SCOPE OF LEGAL ENVIRONMENT:

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In most countries, the scope of legal environment, is to give proper conditions for doing
business by giving facilities like, government performing as a regulatory role, promotional
role entrepreneurial role and planning role.
Apart from those laws that control investment and related matters, there are a number of laws
that regulate the conduct of business. These laws cover such matters as standards of product,
promotion, ethics, ecological factors, etc…
In many countries, with view to protecting consumer interest, relations have become
stronger. Regulations to protect the purity of the environment and preserve the ecological
balance have assumed great important in many countries.
Some government specify certain standards for the product, including packaging to be
marked in the country: some even prohibit the marketing of certain products. In most nations,
promotional activities are subject to various type of control. Several examples are as follows:
a. European countries restrain the use of children in commercial advertisement.
b. In India, the advertisement of alcoholic liquors is prohibited.
c. In countries like Germany, product comparisons advertisement and the use of
superlatives like best or excellent in advertisement is not allowed.
Many countries today have laws to regulate competition in the public interest. Elimination of
unfair competition and dilution of monopoly power are the important objectives of these
regulations.

4.4 FEMA (FOREIGN EXCHANGE MANAGEMENT ACT):

INTRODUCTION OF FEMA:
FEMA – (Foreign Exchange Management Act) come into force in 2000 to replace FERA –
(Foreign Exchange Regulatory Act1947/73.) with the objective to simplify foreign trade and
foreign exchange. Now all foreign exchange transactions are regulated by Foreign Exchange
Management Act. The Reserve Bank of India has also made regulation/issued notifications
under the various provisions of the Act.

THE FEMA IS APPLICABLE:

 To the whole of India.

 Any Branch, office and agency, which is situated outside India, but is owned or
controlled by a person resident in India.

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 Any contravention of provisions of FEMA, by all those, who are covered under above
two aspects committed outside India.

OBJECTIVE OF THE FEMA

1. To consolidate and amend the low relating to foreign exchange with the objective of
facilitating external trade and payments.
2. To promote orderly development and maintenance of foreign exchange market in
India.
3. To reduce FERA which had become obsolete regarding it’s utility on account of:

 Substational Increase in foreign Exchange Resources.

 Growth in foreign trade.

 Rationalization of Tariffs

 Current account convertibility

 Liberalization of India Investment abroad.

 Increase external commercial borrowing by Indian corporate

 Participation of foreign institutional Investor in stock market.

SCOPE OF FEMA
The act applies to the whole of India and to the transactions mention below:
a). Current Account transaction
b). Capital account transaction
c). Export of goods and services
d). Realization and repatriation of foreign exchange
e). Exemptions from realization and repatriation (Sec. 9)

PROVISION FOR FEMA:

1. Dealing in foreign exchange, etc. (Sec.3)
Rules or Regulations made there under, or with the general or special permission of the
Reserve Bank, no person shall—
a). Deal in or transfer any foreign exchange or foreign security to any person not being
an authorized person;

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b). Make any payment to or for the credit of any person resident outside India in any
manner;
c). Receive otherwise through an authorized person, any payment by order or on behalf
of any person resident outside India in any manner;
d). Enter into any financial transaction in India as consideration for or in association
with acquisition or creation or transfer of a right to acquire, any asset outside
India by any person.
2. Holding of foreign exchange, etc. (Sec.4)
Permission from RBI by resident in India shall acquire, hold, own, possess or transfer any
foreign exchange, foreign security or any immovable property situated outside India.
3. Current account transactions. (Sec.5)
Any person may sell or draw foreign exchange to or from an authorized person if such
sale or drawl is a current account transaction:
Provided that the Central Government may, in public interest and in consultation with the
Reserve Bank, impose such reasonable restrictions for current account transactions as
may be prescribed.
4. Capital account transactions. (Sec.6)
1. Any person may sell or draw foreign exchange to or from an authorized person for a
capital account transaction.
2. The Reserve Bank may, in consultation with the Central Government, specify—
a). Any class or classes of capital account transactions which are permissible;
b). The limit up to which foreign exchange shall be admissible for such
transactions.
3. Without prejudice to the generality of the provisions of sub-section (2), the Reserve
Bank may, by regulations, prohibit, restrict or regulate the following—
a). Transfer or issue of any foreign security by a person resident in India;
b). Transfer or issue of any security by a person resident outside India;
c). Transfer or issue of any security or foreign security by any branch, office or
agency in India of a person resident outside India;
d). Any borrowing or lending in foreign exchange in whatever form or by whatever
name called;

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e). Any borrowing or lending in rupees in whatever form or by whatever name

called between a person resident in India and a person resident outside India;
f). Deposits between persons resident in India and persons resident outside India;
g). Export, import or holding of currency or currency notes;
h). Transfer of immovable property outside India, other than a lease not exceeding
five years, by a person resident in India;
i). acquisition or transfer of immovable property in India, other than a lease not
exceeding five years, by a person resident outside India;
j). giving of a guarantee or surety in respect of any debt, obligation or other
liability incurred—
(i) By a person resident in India and owed to a person resident outside India;
(ii) By a person resident outside India.
4. A person resident in India may hold, own, transfer or invest in foreign currency,
foreign security or any immovable property situated outside India if such currency,
security or property was acquired, held or owned by such person when he was
resident outside India or inherited from a person who was resident outside India.
5. A person resident outside India may hold, own, transfer or invest in Indian currency,
security or any immovable property situated in India if such currency, security or
property was acquired, held or owned by such person when he was resident in India
or inherited from a person who was resident in India.
6. Without prejudice to the provisions of this section, the Reserve Bank may, by
regulation, prohibit, restrict, or regulate establishment in India of a branch, office or
other place of business by a person resident outside India, for carrying on any activity
relating to such branch, office or other place of business.
5. Export of goods and services. (Sec.7)
1. Every exporter of goods shall—
a). Furnish to the Reserve Bank or to such other authority a declaration in such
form and in such manner as may be specified, containing true and correct
material particulars, including the amount representing the full export value or,
if the full export value of the goods is not ascertainable at the time of export, the
value which the exporter, having regard to the prevailing market conditions,
expects to receive on the sale of the goods in a market outside India;

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b). Furnish to the Reserve Bank such other information as may be required by the
Reserve Bank for the purpose of ensuring the realization of the export proceeds
by such exporter.
2. The Reserve Bank may, for the purpose of ensuring that the full export value of the
goods or such reduced value of the goods as the Reserve Bank determines, having
regard to the prevailing market conditions, is received without any delay, direct any
exporter to comply with such requirements as it deems fit.
3. Every exporter of services shall furnish to the Reserve Bank or to such other
authorities a declaration in such form and in such manner as may be specified,
containing the true and correct material particulars in relation to payment for such
services.
6. Realization and repatriation of foreign exchange. (Sec.8)
Save as otherwise provided in this Act, where any amount of foreign exchange is due or
has accrued to any person resident in India, such person shall take all reasonable steps to
realize and repatriate to India such foreign exchange within such period and in such
manner as may be specified by the Reserve Bank.
7. Exemption from realization and repatriation in certain cases. (Sec.9)
The provisions of sections 4 and 8 shall not apply to the following, namely:—
a). Possession of foreign currency or foreign coins by any person up to such limit as
the Reserve Bank may specify;
b). Foreign currency account held or operated by such person or class of persons
and the limit up to which the Reserve Bank may specify;
c). Foreign exchange acquired or received before the 8th day of July, 1947 or any
income arising or accruing thereon which is held outside India by any person in
pursuance of a general or special permission granted by the Reserve Bank;
d). Foreign exchange held by a person resident in India up to such limit as the
Reserve Bank may specify, if such foreign exchange was acquired by way of gift
or inheritance from a person referred to in clause (c), including any income
arising there from;
e). Foreign exchange acquired from employment, business, trade, vocation,
services, honorarium, gifts, inheritance or any other legitimate means up to such
limit as the Reserve Bank may specify; and
f). Such other receipts in foreign exchange as the Reserve Bank may specify.

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4.5 THE ESSENTIAL COMMODITIES ACT, 1955:

The Essential Commodities Act, 1955 has been enacted to provide, in the interest of the
general public, for the control of production, supply and distribution of and trade and
commerce in certain commodities. The Act has come into effect from 1-4-1955 and extends
to the whole of India.

OBJECTIVE OF ACT:
Following are the objectives of the Act:
1. To control production, supply and distribution of essential commodities.
2. To check the inflationary trend in prices.
3. To ensure equitable distribution of essential commodities.

ESSENTIAL COMMODITIES:
It means any of the following classes of commodities.
1. Cattle fodder, including oil cakes and other concentrates.
2. Coal including coke and other derivatives.
3. Component parts and accessories of automobiles.
4. Cotton and woolen textiles.
5. Drugs
6. Foodstuffs, including edible oilseeds and oils.
7. Iron and steel, including manufactures products of iron and steel.
8. Paper including newsprint, paperboard and straw board.
9. Petroleum and petroleum products.
10. Raw cotton, whether ginned or unginned, and cotton seed.
11. Raw jute.
12. Any other class of commodity which the central government may, by notified order,
declare to be an essential commodity for the purposes for this Act.
13. Food-crops
14. Sugar

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PROVISION OF THE ACT:

1. Under section 3 of the act government is empowered to regulate or prohibit. The
production, supply, distribution or trade and commerce of any essential commodity for
any of the following purpose:
a. Maintaining or increasing its supply.
b. Equitable distribution and availability at fair price of the concerned
commodity.
c. Squaring any commodity for the purpose of defense of India, or the efficient
conduct of military operations.
2. Under section 3 central government can delegate the power of control to:
a. An officer or authority subordinate to the central government.
b. A state government or officer or authority subordinate to state government.
The powers of government are to be exercise in the interest of general public and not of
in the interest of dealers.
3. Under section 3(2) in enumerates various categories or orders which can be made.
4. Section 3(3) provides for the fixes of price to be paid to a person selling an essential
commodity to the government or any other person or authority specified in order.
5. Section 3(3a) provides to control the rise in price or to prevent hording of any
foodstuffs in any locality.
6. Section 3(4) provides that if government feels it necessary for maintaining or
increasing the production and supply of essential commodity, it can appoint an authorized
controller with respect to any under tanking engaged in production and supply of
essential commodity.
7. Section 6 of the act provides that an order made under section three will be effective
even if it is inconsistent with the provision of any other act than this act.
8. The act authorizes the government to enter search or examine any premises means of
transport and size:
a. Any article, its package or covering in case of contravention of the order.
b. Any means of transport use of carry such articles.
c. Any books of account and documents which may be related to proceedings of
the act.

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If it is found that the violation of order is done, the collector or director or town may
order confiscation of such seized articles, means of transport or books or accounts.
9. Section 7 of the act provides for punishment of fine and impressments up to 1 year in
case of violation of order under section 3. In case of a company such punishment would
be to the person like director, manager, secretary or other officer attributable to
negligence resulting in violation of order.

OBJECTIVE OF PRICE AND DISTRIBUTION CONTROLS

Control over price and distribution has been regarded as one of the important means of
achieving the socio-economic goals in many planned, especially developing economies.
The important factors that call for price and distribution controls in countries like India are
short supply of goods and services; an unreasonable of prices in the free market and the very
low level of income of a large number of people.
The objectives of price and distribution controls, in general, are to supplement the efforts of
other instruments of planning. The specific objective of control over price and distribution
may be listed as follows.
1. Equity or distributive justice: Growth with social justice has been accepted as a
major objective of development. This implies that the fruits of development should be
distributed equitably. But it has been generally accepted that inflation distorts income
distribution against the poor. Many a time, the scarcity of “wage goods” – the
essential consumer items – leads to black marketing, making the life of the poor more
miserable. One of the prime objectives of price and distribution controls, therefore, is
to protect the vulnerable sections against inflation and shortage, and ensure a
reasonable level of consumption for them.
2. Maintain quality of goods and services: Price and distribution aim at ensuring the
quality of goods and services. For instance, the Industries (Development and
Regulation) Act, 195, the Essential Commodities Act, 1955, etc. empower the
Government of India to control the quality of various goods and services.
3. Prevention of monopolistic, restrictive and unfair trade practices: Prevention of
certain trade practices that are detrimental to the common interest is another major
objective of price and distribution controls. In India, the MRTP Act, 1969, seeks to

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prevent the monopolistic, restrictive, and unfair trade practices that are prejudicial to
the public interest.
4. Augmentation of supply: Increasing the supply of goods and services is of
paramount importance to reduce the hardships of the people by making goods
available at reasonable prices. Laws like the industries Act and the Essential
commodities Act contain provisions to prevent unjustifiable reduction in production
by industrial undertakings.
5. Enlargement and smoothening of the supply system: To remove the
imperfections in the supply system in order to ensure the availability of essential
goods at reasonable prices to the vulnerable sections in all areas, it is enlarge and
strengthen the distribution channels to cover all areas. It is one of the aims of our
public distribution system to provide the benefits of its services even to the remote
areas and thereby assure social justice.
6. Supply of inputs to priority sectors: Ensuring supply of essential inputs to the
priority sectors at reasonable price is an important objective of the price and
distribution controls. For instance, in India, certain industries are accorded priority in
the allocation of certain raw material and intermediate goods which are in short
supply. Small scale industries, export industries, agriculture and other riority sector
have been given credit at concessional terms.
7. Resource allocation: Control over prices and distribution enables the planning
authorities to achieve the desired pattern of resource allocation more easily. Apart
from distributing the productive resources as mentioned above, this can be made use
of in other ways also to achieve the objective of resource allocation. To encourage
investment in a particular field, it is essential to ensure a remunerative price for the
output. In such cases deliberate variations in relative prices may be effected to
redistribute the area under different crops to obtain a desirable output mix.
8. Prevention of Hoarding and Black marketing: Hoarding and Black marketing have
almost become by-products of shortage of economy. An effective system of control
should prevent the creation of artificial scarcity by the unscrupulous businessman for
profiteering. Laws like the prevention of black marketing and maintenance of
supplies of essential commodities and this Act, are designed to serve this purpose.

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9. Control of Inflation and Deflation: As it is abundantly clear from the objectives

mentioned above, control of inflation is a principle objective of price and distribution
controls. In certain cases, however, prevention of fall in the prices is also the task of
these controls. As there is a close interrelationship between supplies and prices, price
and distribution policies should mutually support each other to achieve the desire
objective.

4.5 THE TRADE & MERCHANDISE MARK ACT, 1958:

It is the law governing trade marks in India. It enables registration of trade mark so that
the proprietor of the trade marks gets legal rights to the exclusive use of trade marks. The
Indian law relating to trade marks has been amended and consolidated and Trade &
Merchandise Marks Act, 1958 has been replaced by The Trade Marks Act, 1999.

OBJECTIVES:
1. The registration and better protection of trade marks for goods and services
2. The prevention of the use of fraudulent marks

SCOPE OF THE ACT:

The act lays down the procedure for registration of trade marks, rights conferred by
registration and the punishment for infringement of trade marks.

PROVISIONS OF THE ACT:

1. Definition of Trade Mark:
A trade mark is a brand or part of a brand that is given legal protection because it is capable
of exclusive appropriation. A trade mark protects the seller’s exclusive rights to use the
brand name and/or brand mark.
According to the Trade Marks Act, 1999, trade mark means a mark capable of being
represented graphically and which is capable of distinguishing the goods or services of one
person from those of others and may include shape of goods, their packaging of colours
and:
i. A registered trade mark or a mark used in relation to goods for the purpose of
indicating or so as to indicate a connection in the course of trade between the goods
and some person having the right as proprietor to use the mark; and
ii. In relation to the other provisions of this Act, a mark used or proposed to be used
in relation to goods for the purpose of indicating or so as to indicate a connection in

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the course of trade between the goods and some person having the right, either as
proprietor or as registered user, to use the mark whether with or without any
indication of the identity of that person, and includes a certification trade mark
registered.
A certification trade mark is a mark adopted in relation to any goods to distinguish in
course of trade, the goods certified by any person with respect to origin, materials, mode of
manufacture, quality, accuracy or other characteristic; from the goods not so certified. It is
registrable under the provision of act in respect of those goods and in the name of that
person as proprietor.
Thus, a trade marks:
d. Establishing connection between the goods and proprietor.
e. Can be use by other with prior registration as users.
f. Is use in due course of business?
g. May contain the identity of proprietor
h. Can be certified by other person
i. Distinguishes the goods from other similar goods without trade marks.

2. Registration of Trade Mark:

The Controller-General of Patents, Designs and Trade marks, appointed by the Central
Government, is the Registrar of Trade Marks for the purpose of the Trade Marks act.
Further, the central government may appoint other officers with such designations to
discharge the functions authorised by the Act under the superintendence of Registrar.
Trade Mark registering has been established by central government and it has branches
office having defined the territories to limit their functions.
For the purpose of this Act, there shall be a trade Marks Registry with its head office at
such place as the central government may specify and its copies are kept at all branches.
All the details concerning the registered trade marks are entered in the Registry of Trade
marks. The details are: the names; addresses and description of the proprietors,
notifications of assignment and transmissions, the names, addresses and descriptions of
registered users; conditions, limitations and such other matter relating to registered trade
marks as may be prescribed.
It is divided into two pars:
Part A: Contains the trade mark which existed at the time of commencement of act.

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Part B: contains all other trade marks registered after that.

A trade mark can be registered for any or all the goods comprise in a prescript class of
goods. It is eligible for registration if it is distinctive or capable of distinguish the goods of
the applicant from those of other manufactures of traders.

3. Prohibitions and Restriction regarding registration of Trade Mark:

A trade mark prohibited if:
a. It is likely to deceive or cause confusions.
b. Its use in contractor to any law for the time being in force.
c. It contains scandals or obscene matter.
d. It is likely to heart the religious susceptibility of any class or section of the citizen of
India.
e. It is otherwise disentail to protection in a court.
f. It is identical or deceptively similar to existing register trade marks.
g. It s discretion is same as those of register trade marks.
h. It is a trade mark of funny substance or preparation and a word is use which is
commonly use and accepted name of any single elements or comical compact.
When a trade mark suggests a connection with living person or a person died with in 20
years before the date of application for registration of trademarks, a connecting writing is
required from the person or legal representative or from the person or legal representative
or died person.

4. Disclaimer class or registration of Trade Mark:

When any part of trade mark is not the subject of a separate application for registration or
such part is not separately registered or when a trade mark contains a non-distinctive
character i.e. common character of trade; the registration can be conditional that proprietor
shall disclaim the exclusive right on that part of trade mark.

5. Procedure for registration of Trade Mark:

Application for registration in prescribe from is to be made to the registrar of trade marks.
Application may be refused and reason for refusal are recorded and communicated in
writing and materials uses for refusal are also communicated.

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Application may be accepted absolutely or conditionally and the register causes to

advertise it in a prescribe manner. So, that any person having any opposed regarding trade
mark can approach the registrar with prescribe from of opposed.
Copy of oppose is send to the proprietor who sends the counter statements of regions to
justify his trade mark.
The registrar sends the copy of counter statement to the opposable and it required here both
the parties.
Then he decides to registrar the trade mark absolutely or conditionally or he reduces
registration based on avoidances from both sides.
After registration certificate of registration is issued to the proprietor of trade marks.

6. Duration of registration is 7 years but it can be renewed from time to time in

accordance with the provisions of the act.

7. Right’s obtain by registration of Trade Mark:

The proprietor has right to use his trade mark exclusively. Only registered proprietor gets
relief in respect of infringement of trade mark.
The proprietor of unregistered has no right or prevent others or to recover dangers in case of
it’s infringement.
Proprietor or register uses can not interfere with any bonafied use by person of his own name
or the name of the business place or the name of the predecessor in the business or the
bonafied description of the characteristics or quality of his goods.
Taking advantages of this provision several firms use the names of well known business
houses in India.

8. Infringement of trade mark is prohibited when a trade mark is identical or deceptively

similar and use in course of trade.

9. Power of assignment and transmission of Trade Mark:

The registered proprietor of trade mark can assign or transmit the use of trade mark with or
without goodwill of business. He can give effectual receipts for any such consideration.
Un-register trade mark is not assignable or transmissible accept along-with the good
business concerned.

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10. Register user of Trade Mark:

A trade mark can also be registered for a user on gating joint application from the register
proprietor and the proposed user. The proprietor allows the user to use the trade mark on
certain agreement between them.

11. The act also provides for penalty for falsely applying trade mark, special provision for
textile goods, legal procedures, etc.

4.6 THREE INSTITUTIONS

The influence of political environment & a business is enormous. The political system
prevailing in a country decides, promotes, fosters, encourages, shelters, directs, & controls
the business activity of the country. A political system which is stable, honest, efficient &
dynamic which ensures political participation of the people & assure personal security to the
citizens, is a primary factor for economic development.
The political system under democratic dissention, like ours, comprises three vital institutions.
viz, legislature, executive or government & judiciary.

I. Legislature
Of the three, the legislature is the most powerful political institution vested with such
power as policy making, law-making, budget approving, executive control and acting as a
mirror of public opinion.
The influence of the legislature on business is considerable. It decides such vital aspects as
the type of business activities the country should have, who should own them, what should
be their size of operation, what should happen to their earnings and other related factors.

II. Executive or Government

Also called the “state”’ the term government refers to, the center of political authority
having the power to govern those it service.” More or less a similar meaning is given by
E.V scheneider when he described government as ‘ that institution by which man
everywhere seek to order society, that is , to control the structure & functioning of society’.
 Business Responsibilities to Government
Business firms have a number of responsibilities to the government. Business firms
must obey the laws of central, state, and local governments. It should looks to
government for support, sustenance, encouragement and guidance. Business must also

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play a vital role in helping the government to develop its functioning capabilities. a few
important responsibilities of business towards the government are explain below:
a. Tex payment:- taxes paid by business enterprises constitute a major source of revenue
to the government.
b. Voluntary programmes: - business firms co-operate with government agencies on
voluntary basis in connection with various programmes such as withholding stated
amounts from wages and salaries of employees for the purchase of national saving
certificates, or giving special assistance to local l governmental units in connection
with drought relief, education, pre planting, sanitary works or re creational activities.
c. Providing information: political leaders, either because of in experiences or over
enthusiasm, make certain decision which may not be in the overall interest of
business. Business leaders possess the necessary knowledge and experience to place
their points of view before the political leaders.
d. Government service: business often services of its leaders to the government its is
not unusual for business executives to lead or accompany delegation to the foreign
countries for exploring trade and industry prospects.
e. Government contracts: many business firms bid for government contracts and, if
successful, carry out the resulting projects with the required specifications and
standards.
f. Political activities: political participation is a much debated subject today.
One way is to make monetary contribution to political parties, particularly at the time of
elections. Corporate contributions to the political parties have now been legalese in our
country, merits and demerits notwithstanding. The other way of participation is for business
leaders to contest elections as independent or on party labels.
 Government Responsibilities to Business.
Government responsibilities to business are much greater than the obligations of business
to government. Government has the power, will and resources to decides shape guide and
control business activities.
Establishment and enforcement of laws: government establishes and enforces law and
regulations under which the business functions. Laws and regulations covering all aspects
of business are enacted by the government.
a. Maintenance of order: government has the responsibility of maintaining order and
protecting persons and property. It would be impossible to carry on business in the
absence of a peaceful atmosphere.
b. Money and credit: The government provides a system of money and credit by means
of which transaction can be affected.

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c. Orderly growth: Orderly growth implies balance regional development, distributive

justice, full employment and protecting the economy against ‘booms and busts’.
d. Infrastructure: Business needs for its effective functioning such infrastructural
facilities as transportation, power, finance, civil amenities. It is the responsibilities of
the government to provide these facilities.
e. Information: A Government agency publishes and provides a large volume of
information which is used extensively by business firms. Included are information
services of the departments of commerce and industry, agriculture, labour, health,
education, banking, atomic energy and host of others.
f. Assistance to small industries: small –size business establishment have special role
to play in economy.
g. Transfer to technology: government-owned research establishments transfer their
discoveries to the private industry, transfer their discovery to the private industry in
order to put them to commercial production.
h. Government Competition: government often competes with private business firms
for the purpose of regulating competition, improving quality or to supplement private
activities with government programmes. In some cases, the government regulates the
prices which may be charged for buyers.
i. Inspections and Licenses: Government agencies conduct inspection activities and
drugs for e.g. Assuring quality products to consumers. Government issues license to
competent business establishments to carry different activities.
j. Tariffs and Quotas: Tariffs and quotas are used by the government to protect business
form foreign competition.
III. Judiciary
The third political institution is the Judiciary. Judiciary determines the manner in which
the work of the Executive has been fulfilled. It sees to it that the exercise of executive
authority conforms to the general rules laid down by the legisture; it may declare that the
particular order issued is, in fact, ultra virus. It also settles the relationship between
private citizens, on the one hand, and between citizens and the government upon the
other, where these gives rise to problem which does not admit of solution by the
government. The powers of judiciary are of the dual type:
1. The authority of courts to settle legal disputes and
2. Judicial review the authority of the courts to rule on the constitutionality of
legislation.
It is the power of the judiciary to settle legal disputes that affects business considerer
ably. Disputes between employers and employees; employer and employees, employees
and employee, employee and public and employer and the government are often referred
courts for settlement and their verdicts are sought.

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Particularly in the are of industrial relations, the role of judiciary has been more
pronounced and unfortunately regressive. During the last decade and a half, in the name
of ‘Directive Principals’’. ‘Social justice’ and ‘activist law making’. The Supreme Court,
instead of having a balanced and reserved consideration of opposing interests has entirely
vitiated the industrial relations fabric by making wholesale dogmatic assertions in
undermining despises.

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