Each question consists of legal propositions/ principles (hereinafter referred to as 'principle') and facts. These principles have to be applied to the given facts to arrive at the most reasonable conclusion. Such principles may or may not be true in the real sense, yet you have to conclusively assume them to be true for the purposes of this section. In other words, in answering the following questions, you must not rely on any principles except the principles that are given herein below for every question. Further, you must not assume any facts other than those stated in the question. The objective of this section is to test your interest towards study of law, research aptitude and problem solving ability even if the 'most reasonable conclusion' arrived at may be unacceptable for any other reason. It is not the object of this section to test your knowledge of law.

PRINCIPLE: Damage without the violation of a legal right is not actionable in a court of law. If the interference with the rights of another person is not unlawful or unauthorized, but a necessary consequence of the exercise of defendant's own lawful rights, no action should lie.

FACTS: There was an established school ('ES') in a particular locality. Subsequently, a new school ('NS') was set up in the same locality, which charged lower fees, on account of which people started patronising the new school. Because of the competition, 'ES' had to reduce its fees. 'ES' filed a case against 'NS' saying that 'NS' had caused it ('ES') financial loss and, thus, claimed compensation.

Which of the following derivations is CORRECT?

The correct answer is: "Since no legal right of 'ES' had been violated, therefore, as such, no compensation could be granted."

Let us break down the principle, the facts, and apply the law step by step to understand why this is the most reasonable conclusion.

Step 1: Understanding the Principle

The principle establishes two important legal rules:

1. Damage without violation of a legal right is not actionable — meaning, just because someone suffers a loss or harm does not automatically give them the right to sue. The loss must arise from a violation of a legally recognised right.

2. Lawful exercise of one's own rights does not create liability — if the defendant's act, even if it causes damage to the plaintiff, is a legitimate exercise of the defendant's own lawful rights, then no legal action should lie against the defendant.

Step 2: Identifying the Key Facts

- 'ES' (Established School) was already operating in a locality.
- 'NS' (New School) set up its operations in the same locality and charged lower fees.
- Due to competition, people preferred 'NS', causing 'ES' financial loss.
- 'ES' was forced to reduce its own fees as a result.
- 'ES' filed a case against 'NS' seeking compensation for this financial damage.

Step 3: Applying the Principle to the Facts

The crucial question here is: Did 'NS' violate any legal right of 'ES'?

- 'NS' simply opened a school — which is entirely lawful.
- 'NS' charged lower fees — which is a legitimate business decision and a lawful exercise of its own rights.
- There is no fraud, deception, or unlawful act committed by 'NS'.
- The financial loss suffered by 'ES' is a result of fair market competition, not any unlawful interference with a legal right.

No person or institution has a legal right to be free from lawful competition. 'ES' holds no legal right that prevents others from opening schools or charging lower fees in the same area. Since 'NS' acted entirely within its own lawful rights, the damage caused to 'ES' — though real — does not give rise to a legal claim.

Step 4: Evaluating the Other Options

- "Since damage is caused to 'ES', therefore, it should be awarded compensation" — This is incorrect. The principle explicitly states that damage alone is not enough; there must also be a violation of a legal right.

- "'ES' should be awarded compensation, as opening of school in competition is not good" — This is incorrect. Opening a school in competition is perfectly lawful, and the principle does not recognise moral or business disapproval as a basis for compensation.

- "No compensation could be granted, as reduction in fees is good for the public" — While it is true that no compensation can be granted, the reason given here (public benefit) is legally irrelevant under the stated principle. The correct legal basis for denying compensation is the absence of a legal right violation, not the public benefit angle.

Conclusion

The first option is the most legally precise and correct derivation from the given principle. Since 'NS' committed no unlawful act and violated no legal right of 'ES', the suit must fail. This is a classic application of the maxim damnum sine injuria — damage without legal injury — which holds that a court of law will not grant relief merely because someone has suffered a loss, unless that loss is accompanied by the breach of a legally protected right.