Implications For Promoters Following The Passage Of The Specific Relief Act Of 1963

Utkarsh Singh Kachhawaha & Anurup Deb, UPES

Introduction: Promoters and their role

According to Indian laws, “company” means a company incorporated and registered in accordance with law.1 In other words, it is only after a company has been duly “registered” that it is recognized as a company in India law. Therefore, prior to the formal incorporation of the company, the “association of persons”2 is not considered to be a separate legal entity.

Prior to the incorporation of the company, there is a need to promote the functioning of the company. Promoters will be obligated to make adequate arrangements in order to ensure the smooth beginnings of the company. Such tasks may include: renting of office space, procuring raw materials, hiring workers, etc. Thus, agreements on behalf of a prospective company or “association of persons” (preceding the formal incorporation of the company) is known as a “pre- incorporation contract”.

This paper seeks to explore the relevance and enforceability of pre-incorporation contracts of a company under Indian law. Contractual law is governed by the Indian Contract Act, 1872 along with the Specific Relief Act, 1963. Company law is governed by the Companies Act, 2013 – which is an updated legislation based upon the Companies Act, 1956.