Knowledge Center

Whenever you set up any business, it is important for you to have an overview of the legal environment relevant to your business. This is more so if you wish to set up business in other jurisdictions. In such a situation, it is normal to seek assistance of a lawyer conversant with the applicable laws.

When you walk into any law firm or a lawyer’s office, you may see number of books / tomes neatly arranged on the shelves. You may wonder if the lawyers study these volumes and remember their contents.

The answer is “NO”! Because most of them are reference manuals / case digests which will be opened only when there is a need.

It is said that a good lawyer is not required to remember every law (of the land). He is only required to know where to find the law! An excellent lawyer, in addition to the general knowledge of law, will probably digest and assimilate few laws of his interest (and therefore we call him a specialist) with several years or even decades of reading, practicing and preaching.

Therefore, acquiring legal expertise and strong acumen comes by lot of toil and passage of time. However, this does not mean that one cannot even have a reasonable understanding of law impacting his or her affairs. We have come across various queries particularly from NRIs / foreign nationals seeking to do business in India. It is important for them to atleast have a 50 thousand feet bird's view of Indian laws before they take any active steps to invest in India.

In this section, we have made an attempt to decipher the complexities of laws existing in India and give a holistic view of the sources of law in India. Our "Publication" section deals with specific topics in detail.

So, here we go...

As you may be aware, India is a quasi federal set up governed by the Constitution of India which is the mother of all laws. As per Schedule VII of the Constitution, both Central government and also State governments enjoy the powers to make law. While certain matters (called the “Union List”) such as Tax on incomes (other than agricultural income), Tax on manufactured goods (other than liquor and narcotics), etc., are reserved for Central government to make laws, certain matters (called the “State List”) such as Tax on land and building etc. are reserved for respective State governments to make laws. There are certain other matters (called the “Concurrent List”) such as Trusts, Charitable Institutions etc. where both the Center and State can make laws.

Though India follows common law principles (as against civil law) where courts play a significant role in evolution of law, the laws are first made by the Parliament at the center or the Legislature in the respective states. Once the law is made, it is the responsibility of the Executive wing to implement the law and judiciary to interpret and uphold the law made by the Parliament (legislature in case of states. From now on we will say only Parliament).

The Parliament makes the law in the form of an “Act”. You can call these Acts as children, the Constitution being the mother.

The Parliament does not meet very often to make laws. Furthermore, Parliament being an elected body, takes lot of time to bring about consensus amongst the members to make any law. Therefore, the Parliament normally passes a broad framework of law in the form of the Act and enables the Executive wing to make sub-ordinate laws in the form of “Rules”. You can call these Rules as grand children, Acts being children and the Constitution being the mother.

Many times, the Parliament while passing the Act sets up certain independent statutory bodies such as Securities and Exchange Board of India, Reserve Bank of India, etc. The Act confers powers on these statutory bodies also to make laws which are generally made in the form of “Regulations”, “Guidelines”, “Orders”, “Directions”, etc. You can probably call these as great grand children, Rules being grand children, Acts being children and the Constitution being the mother.

Thus, we have now got the legal tree (like a family tree!).

It is said that English is a very artistic (but unscientific) language and therefore plain words and sentences can be interpreted differently. Here comes the role of Judiciary to interpret the law. Unlike Rules, Regulations, etc. made by the executive wing or statutory bodies which are always subordinate to the Act, the law evolved through judicial interpretations are not sub-ordinate to the Acts. In fact, Judiciary sometimes nullifies the Act itself interpreting it as violative of the Constitution. Therefore, the law evolved by the courts does not belong to the legal tree that we discussed above.

Now you know that if any legal issue is gnawing you for sometime, first determine who makes the law in that domain – whether the Center or the State. Once you determine this, then build up the legal tree as above. You may find solution in the legal tree.

For example, if you wish to form a “Company” in Bangalore, which law is applicable? Continue reading and you will find answer in the subsequent pages.