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CONCEPTS NOTES
CHAPTER 1
INDIAN REGULATORY FRAMEWORK
INTRODUCTION
In this introduction, the importance of studying law for Chartered Accountants is emphasized,
highlighting its relevance in handling legal matters and providing basic legal advice to
management and clients. The connection between law and taxation is also stressed,
emphasizing the need for a foundational understanding of the legal and regulatory framework.
The historical perspective traces the evolution of laws, citing examples such as the Code of
Hammurabi and the Twelve Tables in Rome. The chapter aims to introduce students to various
laws and elucidate the process of lawmaking and implementation.
WHAT IS LAW
Law, in simple terms, is a set of rules and responsibilities established by the government. Its
purpose is to ensure the well-being of society and deliver justice. In India, our legal system
reflects the diverse aspects of our society—social, political, economic, and cultural.
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SOURCES OF LAW
The main sources of law in India are:
Constitution: The foundation and source for all laws.
Statutes or Laws by Parliament and State Assemblies: Laws created by elected representatives
in the Parliament or State Assemblies.
Precedents or Judicial Decisions: Rulings made by various courts.
Customs and Usages: Established practices in some cases.
UNDERSTANDING INDIA'S LEGAL SYSTEM
India is a parliamentary democracy, meaning we elect representatives to make laws. The
Constitution is crucial, and Parliament is the ultimate law-making body. Laws passed by
Parliament apply across India, while laws from state legislatures apply within specific states.
The Government of India Act, 1935, laid the groundwork for India's Constitution, defining the
government's structure from "unitary" to "federal." The Constitution, established in 1950,
guides our democratic system, protecting citizens' fundamental rights and outlining the powers
and duties of the government.
DIVISION OF LAW-MAKING POWER
The Constitution divides law-making power between the Central Government and State
Governments. It includes three lists: Central List, State List, and Joint List. Matters falling under
these lists determine whether a law is Central or State. For example, Income Tax is a Central
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subject, with one law for all of India. In contrast, both Central and State Governments can pass
laws on matters like the levy of stamp duty.
In essence, the legal system in India is a mix of various laws interconnected to form a hybrid
system, ensuring a balance between national and state interests.
THE PROCESS OF MAKING A LAW
The journey of transforming a proposed law into a binding statute in India involves several
crucial steps. Initiated as a Bill when introduced in Parliament, the legislative proposal
undergoes scrutiny, discussion, and approval in the Lok Sabha. Subsequently, it must secure
passage in the Rajya Sabha. To acquire legal validity, the Bill requires the formal assent of the
President of India. Once presidential approval is granted, the law is officially announced and
documented in the Official Gazette of India by the government. Its enforcement begins on the
specified effective date mentioned in the notification. This entire process culminates with the
Bill attaining the status of an Act of Parliament, making it a legally enforceable piece of
legislation applicable across the nation.
TYPES OF LAWS IN THE INDIAN LEGAL SYSTEM
In the Indian legal system, laws can be grouped different types:
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Criminal
Law
Principle
s of Civil
Types of laws Law
Natural
Justice
Commo
n Law
Criminal Law: Criminal law deals with rules that address breaking societal laws or
committing public wrongs and outlines punishments for those actions. In India, it is regulated
by the Indian Penal Code (1860) and the Code of Criminal Procedure (1973). Criminal law
defines crimes like murder, rape, theft, fraud, cheating, and assault. The Penal Code explains
the nature of these crimes, while the Criminal Procedure Code details the process for
implementing punishments.
Civil Law: Civil law handles disputes between individuals or organizations, focusing on
resolving conflicts rather than imposing punishments. Governed by the Code of Civil Procedure
(1908), civil courts address violations of rights through civil suits. Civil law includes categories
like Law of Contract, Family Law, Property Law, and Law of Tort. Examples of civil offenses
include breach of contract, non-delivery of goods, non-payment of dues, defamation, and
disputes between landlords and tenants.
Common Law: Common law relies on judicial precedents or case law. Decisions by the
Supreme Court become binding on all Indian courts under Article 141 of the Indian
Constitution. The doctrine of Stare Decisis, meaning "to stand by that which is decided,"
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supports common law. It requires courts to follow the principles established by previous
decisions when dealing with similar cases.
Principles of Natural Justice: Natural justice, often referred to as Jus Natural, encapsulates
crucial principles that extend beyond written laws, ensuring fairness in legal proceedings. The
first principle, "Nemo judex in causa sua," simply means that no one should be a judge in their
own case, preventing bias. The second, "audi alteram partem," emphasizes hearing the other
party or providing a fair hearing, ensuring all sides have a chance to present their case. Lastly,
decisions must be based on clear reasoning, known as a "reasoned decision." While a judgment
influenced by these principles can impact common law, it cannot change statutory law. In
essence, these principles act as fundamental guides, promoting fairness and integrity in the
legal system.
ENFORCING THE LAW
Once a law is passed in parliament, it needs to be ensured that people are following it, and this
responsibility falls on the executive branch of the government. Depending on whether the law
is a Central or State law, the Central or State Government becomes the enforcing authority.
Government functions are distributed among various ministries like the Ministry of Finance, the
Ministry of Corporate Affairs, the Ministry of Home Affairs, and the Ministry of Law and Justice.
Each ministry is led by a minister and operated by officers from administrative services.
The Government of India exercises its executive authority through various ministries or
departments. A ministry is comprised of civil servants and is politically accountable through a
minister. The major ministries, led by a Cabinet Minister and supported by junior ministers, play
a crucial role in enforcing laws.
For example, the Income Tax Act is implemented by the Ministry of Finance through the Central
Board for Direct Taxes, which is part of the Department of Revenue and is managed by officers
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from the Indian Revenue Service. Let's take a look at some major ministries and the laws they
enforce:
(1) The Ministry of Finance: This ministry focuses on India's economy and serves as the
country's Treasury. It deals with taxation, financial legislation, financial institutions, capital
markets, and the Union Budget. As a Chartered Accountant, you'll often be influenced by this
ministry's decisions. The Finance Ministry's crucial function is presenting the Union Budget, a
highly anticipated annual event that outlines tax rates and budget allocations for the upcoming
year. Many ministers have considered holding the Finance Minister portfolio due to its
significance.
Who presented the Maximum number of Union Budgets as Finance Minister
The person who presented the most Union Budgets as Finance Minister is Shri. Morarji Desai.
He served as the Finance Minister from 1962 to 1969 and presented a total of 10 Union
Budgets, which is the highest number. Following him, Shri. P Chidambaram presented 9
budgets, and Shri. Pranab Mukherjee presented 8. Shri. Yashwant Sinha and Dr. Manmohan
Singh presented 8 and 6 budgets, respectively. So, Morarji Desai holds the record for presenting
the maximum number of Union Budgets during his time as Finance Minister.
CONSTITUTION OF THE MINISTRY OF FINANCE:
The Ministry of Finance is like the top boss overseeing various important services. It manages
four key Central Civil Services, which are groups of government officials with specific roles.
These services include the Indian Revenue Service, responsible for tax-related matters; the
Indian Audit and Accounts Service, which deals with auditing and accounting; the Indian
Economic Service, focusing on economic analysis; and the Indian Civil Accounts Service, which
handles government accounts. Additionally, the Ministry of Finance is in charge of another
significant service called the Indian Cost and Management Accounts Service, which deals with
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cost and financial management. So, you can think of the Ministry of Finance as the head office,
and these services are like its specialized teams, each handling specific aspects of financial and
economic matters.
DEPARTMENTS UNDER THE MINISTRY OF FINANCE
Department
of Economic
Affairs
Department Department
of Public of
Enterprises Expenditure
Departments
of Ministry
Department of Finance
of Investment
and Public Department
Asset of Revenue
Management
Department
of Financial
Services
1) Ministry of corporate affairs (MAC): The Ministry of Corporate Affairs is a part of the Indian
government and is mainly in charge of handling laws related to companies. It oversees the
implementation of acts like the Companies Act 2013, the Companies Act 1956, the Limited
Liability Partnership Act 2008, and the Insolvency and Bankruptcy Code 2016. This ministry
plays a vital role in regulating Indian businesses in the industrial and services sector. It is mostly
managed by civil servants of the ICLS cadre, who are selected through the Civil Services
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Examination conducted by the Union Public Service Commission. The top position, Director
General of Corporate Affairs (DGCoA), is held at the Apex Scale for the ICLS.
2) Ministry of Home Affairs (Gṛha Mantralaya): The Ministry of Home Affairs is like the
guardian of India's safety within the government. Think of it as the overseer of internal security
and domestic policies. Led by the Union Minister of Home Affairs, it ensures that things are
peaceful and secure within the country. This ministry has different teams, like the Department
of Official Language, making sure everyone understands each other in the government. Then
there's the Department of Border Management, making sure our borders are safe and well-
managed. The Department of Internal Security focuses on keeping things safe inside the
country, and there's a special team, the Department of Jammu, Kashmir, and Ladakh Affairs,
which handles specific matters related to these regions, ensuring they are well taken care of.
DEPARTMENT
OF BORDER
MANAGEMENT
DEPARTMENT
DEPARTMENT OF
OF STATES INTERNAL
SECURITY
DEPARTMENT
S OF MINISTRY
OF HOME
AFFAIRS
DEPARTMENT DEPARTMENT
OF OF JAMMU,
KASHMIR AND
OFFICIAL LADAKH
LANGUAGE AFFAIRS
DEPARTMENT
OF HOME
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Central Hindi
Training Institute
Central Translation Directorate of
Bureau Census Operations
Department
of Official
Language
MINISTRY OF LAW AND JUSTICE:
The Ministry of Law and Justice is like the legal backbone of the Indian government. As a
Cabinet Ministry, it handles the country's legal affairs through different departments. The
Legislative Department is responsible for creating the laws that the government needs, while
the Department of Legal Affairs provides advice to various Ministries on legal matters.
Additionally, the Department of Justice ensures the smooth administration of justice in India.
So, you can think of this ministry as the one that makes sure the laws are in place, offers legal
guidance, and ensures justice is served properly in the country.
DEPARTMENTS OF MINISTRY OF
LAW AND JUSTICE
DEPARTMENT OF LEGISLATIVE DEPARTMENT
LEGAL AFFAIRS DEPARTMENT OF JUSTICE
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(ii) Securities and Exchange Board of India (SEBI): SEBI, which stands for the Securities and
Exchange Board of India, is like the supervisor for India's financial playground. It's the watchful
eye that keeps an check on the securities and commodity markets in the country. Imagine it as
the rule-setter and referee ensuring everyone in the financial game plays fairly. SEBI operates
under the Ministry of Finance in the Indian government, meaning it's part of the financial
management team. It started its journey on April 12, 1988, initially as an executive body. Later,
on January 30, 1992, it got even more powerful by gaining statutory powers, making it an
essential player in maintaining the fairness and integrity of India's financial markets.
(III) Reserve Bank of India (RBI): The Reserve Bank of India (RBI) is like the financial guardian of
India. It's the central bank and regulatory body that takes care of the Indian banking system.
Think of it as the keeper of the country's money. It operates under the Ministry of Finance in
the Government of India and has some important tasks. RBI controls, issues, and manages the
supply of the Indian rupee, the country's currency. It also handles the main payment systems
and works to boost India's economic development. RBI even has a special division called
Bharatiya Reserve Bank Note Mudran (BRBNM) that prints and mints Indian currency notes.
Plus, it created the National Payments Corporation of India to regulate payment systems and
the Deposit Insurance and Credit Guarantee Corporation to provide insurance for deposits and
guarantee credit facilities for all Indian banks.
(iv) Insolvency and Bankruptcy Board of India (IBBI): The Insolvency and Bankruptcy Board of
India (IBBI) is like the financial referee for tough times. It became a big player on October 1,
2016, with powers granted by the Insolvency and Bankruptcy Code passed on May 5, 2016.
What does it do? Well, it oversees tricky financial situations called insolvency proceedings.
These can involve individuals, companies, limited liability setups, partnerships, and partnership
firms. The cool thing is that this new code helps speed up the resolution process for stressed
assets in the country, making things smoother and quicker. IBBI aims to make the whole
process of dealing with financial troubles simpler. And when things get tough, it manages the
cases using two special courts, the NCLT (National Company Law Tribunal) and the Debt
Recovery Tribunal, to make sure everything is fair and square.
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STRUCTURE OF THE INDIAN JUDICIAL SYSTEM
In India, when people or the Government have conflicts, the job of resolving these disputes falls
on the judiciary. The judiciary has important functions like interpreting laws, settling disputes,
and ensuring fairness among citizens. Picture it like a ladder – at the top is the Supreme Court,
then the High Courts, and finally the District Courts. The Supreme Court's decisions are like the
ultimate rulebook, binding on all High Courts and having the final say on matters. High Court
decisions are strong in their own state but more like suggestions in other states. So, think of the
judiciary as the referee in the game of legal matters, making sure everyone plays by the rules
and things stay fair for everyone in the land.
(i) Supreme Court: The Supreme Court is like the boss of all courts in India. It started its gig on
January 26, 1950. The Chief Justice of India, like the head honcho, is the top dog according to
Article 126. The main squad of the Supreme Court has seven members, including the Chief
Justice. But because of the crazy workload and lots of cases, now there are 34 members,
including the Chief Justice. If someone has a legal issue and needs serious help, they can knock
on the Supreme Court's door by filing a special petition known as a writ petition under Article
32.
(ii) High Court: Imagine each state and union territory having its own go-to court called the
High Court. According to Article 214, every state must have one. The High Court is like the
ultimate judge for the area. It can handle appeals, original matters, and keep an eye on things.
But there's a limit set by Article 227 on how much the High Court can supervise. India has 25
High Courts, one for each state and union territory. Calcutta High Court, kicking it since July 2,
1862, holds the title of the oldest.
(iii) District Court: Under the High Courts, you've got the District Courts. These courts, led by
the District Judge, handle civil law stuff like contract issues and damage claims. There are also
Sessions Courts dealing with criminal matters. Each District Judge has a money limit of two
crores for civil cases. Jurisdiction, which means control power, is decided by the area where the
parties live or where the disputed property is.
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(iv) Metropolitan Courts: In big cities with over ten lakh people, Metropolitan Courts come into
play. The Chief Metropolitan Magistrate in these courts acts like the chief judge, and the
Metropolitan Magistrate has the powers of a first-class Magistrate. They're like the local heroes
in busy cities, making sure things are in order.
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