Mansi Rajpal, Symbiosis Law School, Noida.
NECESSITY OF CONTRACT LAW TO CHANGING BUSINESS ENVIRONMENT
This research paper in detail describes what are contracts and how are they formed followed by a description of business environment and its types. The term “globalisation” and its impact on the businesses has also been discussed. Further, the issues faced by businesses in the present times due to the advancement of technology and other reasons has also been listed. Certain case laws have been mentioned to explain the topics with real life examples to provide a better understanding. And the research paper has been concluded by summarizing all the findings and view-points of the writer.
The Indian contract act was enacted in the year 1872 and it facilitates making, performance and enforcement of legal agreements. his act deals mostly with the guidelines and principles related to contracts. Both companies and consumers use contracts when they buy or sell goods, when they license products or activities, when they form employment agreements, insurance agreements and more. Contracts make these transactions happen smoothly and without any misunderstandings. They allow the contracting parties to conduct their affairs with confidence. Contracts help in ensuring that both the parties to a transaction are clear on its terms. So, ultimately law of contracts forms the very essence of business.
Change is an inevitable part of business environment and is always expected. With the technological advancement and modernisation that has taken place over the past few years, the style of operating businesses has also evolved.
Every business big or small enters into agreements and makes deals with other businesses, customers and people inside and outside the business. This arises the need for some laws governing these agreements and makes contract law very important for carrying out businesses smoothly and without conflicts.
WHAT IS A CONTACT AND ITS IMPORTANCE
The first step in making in a contract is to make an offer mentioning all the terms and conditions. If the party to whom the offer has been made accepts on the same terms and conditions then the acceptance is complete. Neither party entering into the contract should be minors and both must be sober (not under the influence of drugs or alcohol when signing the contract), and neither can be mentally deficient. To make a contract another essential is to give some consideration. For instance, a seller provides a property to the buyer in return of some money as consideration.
The elements that are required to be a valid contract include the following:
- Offer and acceptance.
- Lawful consideration.
- Full capacity to enter a contract.
- An agreement that is not void.
- A written contract.
- Legal relationship.
Contracts are an important, daily and common part of business and economic activity. The law of contracts involved in the business transactions refers to what services or products are sold and purchased as well as their prices. The terms and conditions are also involved in contract law that pertains to transactions between businesses and clients.
Lawyers who draft and negotiate contracts help their clients conduct business on good terms. They also help their clients in understanding the meaning of proposed contract language so that their clients can make the best possible choices. When there are contractual disputes, it is lawyers who help their clients in resolving those disputes favourably. At each stage, contract lawyers help businesses and individuals perform transactions in a sound and beneficial way.
Dealing with contractual disputes can involve lawyers for writing demand letters, contacting the other party in order to work towards a resolution or litigating the matter in court. Some contract disputes rely on arbitration and mediation. Lawyers who practice contract law might do some or all of these tasks on behalf of their clients.
Contracts also help in dealing with unforeseen events, natural disasters, frustration and breaches made by either of the parties.
DEVELOPMENT OF BUSINESS ENVIRONMENT
Business environment includes all the controllable and uncontrollable forces inside and outside the business that affects the functioning of the businesses. it includes factors like political, economic, legal, technological, social, etc. for sustenance. It is complex and dynamic in nature. With change in the business environment, some fundamental effects are short term in nature while some are felt over a period of time.
As mentioned earlier, there is no doubt in saying that the business sector has grown incredibly in the past several years and due their productivity improvement the speedy and accurate production in large volumes has also been facilitated. The present global and competitive business environment constantly demands for innovation and creativity and the existing knowledge base is getting obsolete. Businesses are continuously thriving for advancement in process improvement. More and more companies are coming out with customized products and finding ways to differentiate from competition.
Fifty years ago, the word ‘globalization’ did not mean much, whereas today it is certainly buzzing everywhere. Globalization and opening up of markets has not only increased competition but also has allowed companies to operate in markets which were previously considered forbidden. Globalization has also encouraged free movement of capital, goods and service across countries.
The technological boom has led to Increasing use of mobile platforms for doing business, cloud computing, technology to handle a large volume of data, etc. These latest technologies and platforms are offering numerous opportunities for companies to drive strategic business advantage and stay ahead of the competition. Companies need to work on new plans as to maintain flexibility and deliver customer satisfying products and services. These advancements also help in providing 24×7 customer services, work from home environment and speedy completion of tasks leading to increased efficiency.
More and more businesses are coming on the online platforms of retail to grow their business and to reach maximum number of people. 15 years ago hardly anybody knew about amazon or flipkart or the concept of online shopping. The most popular ott platform- Netflix was also not known to the people. But, how with time these companies have become so huge and have changed the face of shopping and entertainment shows how dynamic the business environment is.
The growth of business and handling of large organizations has made business process outsourcing the top most choice of businesses. The businesses focus on their key areas and hire outside organisations to carry out the tasks which are not key to the organisation but are essential for the functioning of it. Outsourcing helps businesses to reduce their overhead expenses, improve productivity, shorten innovation cycles, encourage new market penetration and also improving customer experience.
There are various types of contracts entered into by businesses some of which are Express contracts- they Provide specific terms for the contract, Joint contracts- Multiple parties are involved in the contract, Option contracts- These contracts give the option of entering into a different contract at a later date, Fixed-price contracts- The parties agree on a set price for a project.
Since, the Covid 19 pandemic has hit, the entire world has become more reliant on technology. Inclusion of information technology as integral part of business environment has ensured that companies are able to process, store and retrieve the huge amount of data at ever dwindling costs. And due to the lack of physical presence everywhere, digital signatures have become the preference of all business organisations which has become a relevant and disputed issue in contract law.
In the case of Shree Balaji Transport Corporation V. Food Corporation of India, Panchkula and Others, the petitioner had signed annexures by way of digital signatures. But the counsel for the respondents contended that the expression ‘duly signed” specified in clause 8(c)(i) in the tender referred only to physical signatures and not to digital signatures. On these grounds the bid of the petitioner was rejected. However, the court held that there was no error and stated that it is reasonable to presume that the signature was a digital signature as defined in the IT Act. In, the circumstances the impunged order rejecting petitioner’s was quashed and set aside and the bid shall be opened and the bid shall be opened and proceeded accordingly.
Although oral contracts are still acceptable by courts, it is always better to form contracts in writing in order to avoid future complications and conflicts. In a lot of cases oral contracts between businesses lead to disagreement in future. Therefore, it is better to form Contracts that are increasingly detailed, and every effort shall be made to make all possibilities and eventualities clear beforehand.
Contract law playing such a major role in business, it is vital for businessmen to have some basic knowledge about contracts and how they affect a business. The laws relating to information technology are still in the process of development as every new case brings new complexities and different issues.
The contracts formed must be for a legal purpose and with the mutual consent of both the competent parties. A contract made with malicious intentions, fraud, misrepresentation or unwillingly is not a valid contract.
The case of Iridium India Telecom Limited vs Motorola Inc. A Corporation can be referred here. in this case the plaintiff was induced by the defendant No. 1 to invest huge sums of money in the Iridium system even though the defendants knew that the system was never capable of working. According to the plaintiff, the defendant No. 1, who was the originator of the Iridium system is responsible and liable for damages since the fraudulent and wilful representation is liable to be attributed to the defendant No. 1. The suit was based on what is described as actionable mis-statement and non-disclosure by the defendants prior to the agreements.
Another issue with the companies coming out with their new and unique products is that they often face problems of copyright infringement by other businesses, copying of ideas, hacking systems to steal sensitive information and making similar products etc. for instance if a person uses someone’s song as background music in his/her music video then he could be made liable for copyright infringement or if a person downloads movies or songs from an unauthorized source then it will amount to copyright infringement.
Breaches of the contracts by business organizations are not very uncommon in today’s time. When breaches occur, the parties have two options, either to seek mediation from a contract lawyer or sue the party in breach of contract and take them to court. Most often, the remedy for breach of contract is compensatory damages. The party in violation of the contract must pay a specific amount decided upon by the attorney or judge. However, in cases of greater breaches of contract, the party in the wrong might also have to pay punitive damages, or additional money to compensate for the pain and suffering of the wronged party.
Just as the development is taking place at the very same pace the breaches and violations of contracts also increases, but the law also keeps developing to be able to deal with the cases. The business environment is dynamic in nature and unpredictable. The effects of globalisation on the businesses throughout the world has been tremendous and the dealings between the businesses of different countries have also increased. All this has made contracts essential for businesses to be able to function smoothly and maintain harmonious business relationships. It is mandatory for an offer to be clear, complete, definite and final. Creating a business contract removes any doubt or attempt at speculation. The contract law lays down provisions for handling the formation of contracts, their execution, defences and the remedial actions available in the cases of their breech. there are some other contracts also which are governed by separate Acts. They are — Partnership Act, Sale of Goods Act, Negotiable Instruments Act, Insurance Act etc. these acts can be referred as an extension of the contract law formed to detail with separate areas properly. Hence, it can be concluded that in the ever-evolving global business environment, the contract law is a necessity.