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What Is The Status Of Pre-Incorporation Contracts In India With Respect To Validity

What Is The Status Of Pre-Incorporation Contracts In India With Respect To Validity And Enforceability? How Does It Compare With The English Law Position?




Abhijit Debnath, O.P. Jindal Global University

ABSTRACT

The paper examines the validity and enforceability of pre-incorporation contracts in India. The paper begins by discussing the concept of pre- incorporation contracts and how they differ from ordinary contracts. It highlights the absence of a clear definition of a promoter in various statutes and laws.

The paper then explores the position of English law regarding pre- incorporation contracts, emphasizing that a newly incorporated company cannot assume liability for such contracts. It discusses relevant case laws, including Kelner vs. Baxter, Phonogram vs. Lane, and Newborne vs. Sensolid, which establish that promoters are personally liable for breaches of pre-incorporation contracts in England.

Next, it delves into the stance of Indian law on pre-incorporation contracts. It examines cases like Seth Sobhag Mal Lodha v. Edward Mills Co. Ltd and CIT v. City Mills Distributors (P) Ltd, which initially held that pre- incorporation contracts were not enforceable unless the company was registered. However, subsequent cases considered the provisions of the Specific Relief Act, 1963, which allow for specific performance and relief against parties involved in pre-incorporation contracts.

The paper highlights the different ways in which Indian law recognizes the assumption of liability by a newly incorporated company, including novation of contract, express ratification, and acceptance of benefits. It also discusses the broadening scope of novation based on principles of equity, as seen in Weavers Mills Ltd. v. Balkies Ammal.

Furthermore, the Indian position is compared with English law, emphasizing that Indian law provides more avenues for a company to assume liability for pre-incorporation contracts. It mentions the role of the Specific Relief Act and unilateral ratification in Indian law, contrasting them with the English system's reliance on innovation.

In my opinion, Indian law is more advanced in dealing with pre- incorporation contracts compared to English law. However, the paper acknowledges the need for a specific statutory provision to clarify the legal framework further.

In conclusion, pre-incorporation contracts are valid and enforceable in India. I suggest that the Indian legislature should introduce a statutory provision in the Companies Act to alleviate the burden on the courts and provide a more comprehensive legal framework for pre-incorporation contracts.

Komentar


Indian Journal of Law and Legal Research

Abbreviation: IJLLR

ISSN: 2582-8878

Website: www.ijllr.com

Accessibility: Open Access

License: Creative Commons 4.0

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​All research articles published in The Indian Journal of Law and Legal Research are fully open access. i.e. immediately freely available to read, download and share. Articles are published under the terms of a Creative Commons license which permits use, distribution and reproduction in any medium, provided the original work is properly cited.

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The opinions expressed in this publication are those of the authors. They do not purport to reflect the opinions or views of the IJLLR or its members. The designations employed in this publication and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the IJLLR.

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