For a long time India was under the British rule. Therefore, the British Rulers applied English laws in India with minor modifications suiting the Indian conditions. Indian Commercial Law is no exception. It is based on the English Commercial Law. However, the English Commercial Law, unlike the Indian Commercial Law, is not codified.
The sources of Indian Mercantile Law are:
1. English Commercial Law: As pointed out above it is the most important source of the Indian Commercial Law. English Commercial Law in turn is based on:
(a) Common Law of England:
It is unmodified law consisting of customs, usages and traditions developed over a long period of time by the English Courts. The Common Law used to be applied to disputes of a similar nature. However, in course of time, rigidity of the Common Law led to the growth of Equity.
The Common Law of England could not be applied in all cases. For example, grant of damages in terms of money may not be an adequate remedy where specific performance is necessary. It is almost impossible to conceive of any law which could suit or meet all possible circumstances for all time to come. Hence to remedy the defects of the Common Law, Equity developed. It is nothing but the application of principles of natural justice and good conscience. In the beginning, Equity used to be administered by the Court of Chancery, while the King’s Court administered the Common Law. However, this distinction was abolished by the Acts of Judicature passed in 1873 and 1875. Common Law and Equity are, now administered by one and the same Court in a given case.
(c) Law Merchant:
It will be no exaggeration to say that English Commercial Law is nothing but Law Merchant itself. The law Merchant was based on customs and usages prevalent among merchants and traders. In the beginning, Law Merchant was administered by tribunals consisting, mainly, of the merchants. Gradually, it came to be recognised by the Common Law Courts also.
(d) Statute Law:
It is the law passed by the Parliament. These laws are superior to Common Law and Equity as Parliament is supreme. It is remarked about British Parliament that it is all powerful in as much as it can do everything except making a man a woman or a woman a man.
2. Indian Statute Law:
Unlike English Commercial Law, most of our Commercial Law is codified in the form of Acts passed by the Parliament and State Legislatures. The Indian Contract Act. 1872, the Sale of Goods Act, 1930, and the Partnership Act, 1932 are examples of the Statute Laws passed by our Parliament. These laws have brought about uniformity all over the country. Such laws enable the country to introduce any change in the laws so as to make them more effective and uniform in their application.
3. Precedents or Judicial Decisions:
This is based on the doctrine of equity that decision in an earlier case should be equally applicable to a similar case in future unless, of course, the circumstances have changed. Decisions of higher Courts are binding on lower Courts. For example, a decision of our Supreme Court is binding on all the High Courts and other courts under their jurisdiction. Similarly, decisions of a High Court are binding on all the Courts subordinate to it. For example, a decision of Mumbai High Court is binding on all the Courts in the State of
Maharashtra (Mumbai). However, decision of a High Court is not binding on other High Courts. Thus a decision of the Mumbai High Court is not binding on the Calcutta High Court.
4. Customs and Usage:
Although Commercial Law in India is codified, most of our business customs have been given due recognition by law. For example, in many cases, law has made specific provisions in this respect. The Indian Contract Act, 1872, at the very outset, lays down that, “Nothing therein contained shall affect any usage or custom of trade not inconsistent with the Act;’
A custom is legally binding only when it is certain, reasonable, definite, consistent and is uniformly recognised. Hundi is a very good example which satisfies the above requirements. Hence, it has been recognised by the Negotiable Instruments Act as equivalent to any other negotiable instrument like a Cheque, Bill of Exchange etc. Normally, a custom or usage should not be inconsistent with any ‘Statute’ Law.
Need of Business Law :
The need for law is felt when a dispute arises between two parties. To settle the disputes, it becomes important to have a set of rules which are applicable in different situations. Every citizen of India should have knowledge of the Law of the land. No one can be excused on the basis of ignorance of law. Therefore it becomes important to know the law of the country where one lives. In this way, every Indian should have knowledge of Commercial Law. In the absence of Mercantile Law, neither can we demand our rights nor can we fulfill our obligations.