Need for transformation in Business law

Let’s start to understand by asking a few questions and getting answers to them: –

Do Business models hold stringent law?
Can Business law go online for the ease to all?

In spite of the Country holding a stringent Business law, we still hear farmers and people below poverty line suicide when they are unable to repay their loans and on the other side of the coin exhibits Big business-magnets defaulting in a high scale millions but still enjoying their daily life hiding in foreign countries.

For smaller money transactions by civilians like getting a personal loan and credit card, we are aware that they are evaluated rigorously by their CIBIL score and ITR reports. We find many real instances where common people are rejected for getting loans due to their lower repayment capacity or due to their credit defaulting or delayed payment records.

But there are commercial transactions done by bigger business firms and sometimes they default their payments to their suppliers or delay longer than their agreed Purchase Order terms. This results in loss for the Supplier who had supplied to these Business firms, but the business firms doesn’t get penalized.

Of course the supplier can file litigation against the defaulter Business firm, but is that so easy in today’s world. Law and finance still considered as a Greek and Latin for majority of the citizens. Awareness of the basic law for any common people is still low and they either depended on the Lawyers or to avoid that, they choose arbitration or mediation.

Let me quote here two real incidents to understand the weakness in business law

Case Study 1: In a B2C model, one of the reputed large customers (from Construction Industry) frequently purchases the product they need from the authorized dealer (termed as Supplier) of one reputed brand. Being a corporate customer, they follow all the business procedures and buys their required materials through valid purchase orders. But they always lapse the payment to the Supplier beyond the agreed payment terms. Once the supplier’s receivable go beyond his business capacity, he intends to hold further supplies to the Customer. But the customer has choice of continuing to buy their required materials from other authorized dealers even though the delay in payment is from the Customer. Hence the customer makes this as a practice by turning the Supplier’s money and always lapses the payment to many supplier in a rotation

Case Study 2: In a B2B model, the principle company supplies their products to their dealers with a credit period of 30days. Based on the history of the dealer’s business and their repayment strength, at times the principle company extends their Credit period and supply additionally with the security cheque they hold with them. But one fine day, the dealer absconded and was non-traceable. After few years, just like a fresh flower blooms, they start a new business in a new firm name, and they continue to enjoy without getting disciplined by any business law.

Definitions to know:

What is a purchase order: When a seller (supplier or vendor) accepts a purchase order, a legally binding contract is formed between the two parties. Also, in the event the buyer refuses payment, the seller is protected because the purchase order is a binding contract between both parties

What is CIBIL, ITR and PAN?

TransUnion CIBIL Limited is a credit information company operating in India since the year 2000. It maintains credit files on 600 million individuals and 32 million businesses. TransUnion is one of four credit bureaus operating in India and is part of TransUnion, an American multinational group

ITR–Income Tax Return The organizational history of the Income-tax Department starts in the year 1922 and underwent many reformation over the years and today is one of the mandate for any money transactions in terms of source of income for individuals as well for Business.

PAN –Permanent Account Number as per Section 139A of Income Tax Rules, 1961 PAN is issued by the Indian Income Tax Department under the supervision of the Central Board for Direct Taxes (CBDT), to any “person” who applies for it or to whom the department allots the number without an application issued to all judicial entities

Do CIBIL and ITR applies for Business?

Even though CIBIL applies to business firm, but the loop hole lies on the trade business where the supplier may give the supplies against purchase order of the buyer company on credit, but at their own risk. We still don’t have a firm law to penalize the defaulting customer from purchasing further when his outstanding payments are unpaid to the supplier. There is always an escape route for the firms to continue purchasing from other suppliers in spite of their lapse in payments to their previous supplier

How to tackle business defaulters with firm purchase orders?

Disputes arising between the Purchaser and the Supplier must be quickly settled through negotiation
If the Parties cannot resolve a dispute within twenty one (21) business days of when the dispute is first raised by the Parties, the Parties agree that the dispute must then be referred to mediation

What are the challenges we foresee in filing Lawsuit on Business firm defaulters

If you are suing someone from a different state, a court in your state may not have power or “jurisdiction” over that person. In that case, you might have to sue the defendant in his or her location, which will probably be more expensive and inconvenient for you.
Unless otherwise specified, the Purchase Order will be governed and construed in accordance with the laws in place in the State or Territory in which the Purchase Order is issued. The Purchaser and the Supplier submit to the non-exclusive jurisdiction of the courts of the said State or Territory.

Conclusion:

How can ethics and law for Business transactions be cultivated?

First and the foremost is to develop business ethics amongst each other as a discipline

As the awareness about Indian Law is still faraway for the public civilians, in order to ease the reach to them will be going online
Basic Indian law can be a part of our fundamental education system which would foster morals
PAN based blocking of defaulting purchasers or firms to transact further until they control their payables to their suppliers within payment term schedules