A COMPARITIVE ANALYSIS OF VARIOUS INDIAN AND ENGLISH LAWS ON

PRE INCORPORATION CONTRACT

TABLE OF CONTENTS

CONTENT

Index of Authorities..................................................................................................................3

Chapter I

● Introduction……………………………………………………………………………5
● Statement of problem………………………………………………………………….5
● Scope…………………………………………………………………………………..6
● Significance……………………………………………………………………………6
● Objectives of the Project..............................................................................................6
● Research Questions......................................................................................................7
● Research Methodology.................................................................................................8
● Hypothesis....................................................................................................................8

Chapter II

● Meaning of Pre incorporation contract………………………………………………8

Chapter III

● Pre Incorporation contract Under Common Law…………………………………..…9

● English Law- The European Communities Act……………………...………………11
● Validity of Pre incorporation Contract as per Indian Statutes……………………….13

Chapter IV

● Position of Pre Incorporation contract and Promoters after the enactment of Specific
Relief Act, 1963……………………………………………………………………17

Chapter V

● Conclusion and Suggestion......................................................................................19

● Bibliography.............................................................................................................19

1
 INDEX OF AUTHORITIES

TABLE OF CASES

NAME OF THE CASE CITATION PAGE NO.

Badgerhill properties ltd. v. Cottrell (1991) BCLC 805. 12

Cotronic (U.K.) Ltd. v. Dezonic, (1991) BCLC 721. 11

Kelner v. baxter (1867) LR-2 CP 174. 9,15

New borne v. Sensolid (1953) 1 All E R 708. 9,10,15

Oshkash B’Gosh Inc. v. Dan Marbel (1989) BCLC 507. 12

Phonogram Limited v. Lane (1981) 3 All. E R 182. 10,16

Re Northumberland Avenue Hotel Co. (1886) 33 Ch. D 16. 9

schmaltz v.Avery (1851) 16 QB 655. 9

Seth Sobhagmal Lodha v. Edward Mills Co. Ltd, (1972) 42 Comp. Cas 1 13,16
(Raj).

Tax Officers v. Bijli Cottton Mills (1953) 23 Com Cases 15

114.

Touche v. Metropolitian Railway Wearhousing Co. (1871) 6 Ch. App. 671. 9

Twycross v Grant (1877) 2 CPD 469 13

Vali Pattabhirama rao v. shri ramanuja (1986) 60 Comp. Cas. 17

568 A.P

A COMPARITIVE ANALYSIS OF VARIOUS INDIAN AND ENGLISH LAWS ON

PRE INCORPORATION CONTRACT

2
CHAPTER-I

INTRODUCTION

It is important to become incorporated under companies act 1956 for an association of

persons so as to get the advantages of a ‘corporate personality'. the company comes in to
presence after the incorporation of association of persons, and business operations as a
company can only be started after that. The basic purpose for it is that before it is that before
incorporation of a company, there isn’t any legal existence, and in case the ‘association of
persons' before incorporation in the name of company enters into an agreement then such an
agreement would be void ab initio. It will be very inconvenient that ‘an association of
persons' will not be able to perform any official business operation using the name of
company before the issue of certificate of commencement of business and its incorporation
or; they may need to make course of action for office, work environment, specialist, and so
on. So as to get rid of these inconveniences, the advertiser can go into the arrangements in the
advantage of prospective company or ‘association of persons'; such agreements are called pre
incorporation contract. For the breach of contract, the promoter is solely liable under the strict
principles of contract law. The explanation behind it is that the company do not enter in to the
contract instead the promoter enters the contract. The company is kept away from the pre-
incorporation contract by the rule of privity of contract. The company is held liable for pre-
incorporation contract by the recent advancement in contract law and corporate law.

STATEMENT OF PROBLEM:

A company can only come into existence when certificate of Incorporation is issued
according to companies Act, 2013.Until incorporation the company cannot be held liable or
bound for the contracts entered in its name or in behalf of company. These contracts cannot
be ratified by the company. So the validity of the pre incorporation contracts is questioned.
Therefore the problem or issue arises here is that whether the validity of Pre incorporation
contracts is similar in common law, English law, and Indian Law or not?

SCOPE, OBJECTIVE AND SIGNIFICANCE

3
SCOPE: The researcher project is limited to study and to critically analyse the Indian and
English laws on pre incorporation contracts, meaning and definition of Pre incorporation
contract, the relationship between the promoter and Pre incorporation contract, and also about
the recent amendment in Pre incorporation contracts.

SIGNIFICANCE: The project will help the readers to know about the various English law
and Indian laws on pre-incorporation contract, validity of pre-incorporation contract under
common law, personal liability of promoter in Pre-incorporation contract, also the reader
would be able to differentiate the amendments brought up by companies Act, 2013 and
various case laws.

OBJECTIVE OF THE PROJECT:

The researcher intends to do this project to find in Pre-incorporation contract the role of
promoter.

The objectives of the research are to understand the following points:

● To know about the validity of Pre incorporation contracts under various statutes of
Indian and English legislature after the incorporation of company.
● To know about the role of promoter in Pre incorporation contracts and in formation of
company.

RESEARCH QUESTIONS:

● Whether in the case of pre-incorporation contract there is any difference among

English Law and Indian Law?

● What liability does the promoter have if any for Pre-incorporation contract? In case of
his liability, what will be the circumstances under which he can be held liable?

RESEARCH METHODOLOGY

The research methodology followed for this research project is of doctrinal in nature. The
pertinent materials needed for the project has been obtained from both primary as well as
secondary sources. The doctrinal research is a research which depends on the earlier made

4
principles or the propositions. It focuses more on the sources such as book in the library, and
websites. The researcher has collected the relevant material for the purpose of the said
research project from books on companies Act, 1956, Companies Act,2013 and also from
other legislations. The researcher has used bluebook citation for the project.

HYPOTHESIS

In order to complete a research work, few significant hypotheses have to be framed. The
crucial assumptions and points are usually offered by the mode of Hypothesis. The majority
of hypothesis are developed on the basis of study of available literature and evaluation of
primary as well as secondary data and work done earlier including related studies is that the
company is not obliged to follow the Pre-incorporation contract even though the promoter
entered the contract on behalf of prospective company.

CHAPTER-II

MEANING OF PRE-INCORPORATION CONTRACT

It is one of the most necessary and significant process that the incorporation procedure takes
place prior to the company get started and can be called to have come into presence i.e. a
separate body corporate. Unless the process of incorporation of complete, the company
cannot be called as a independent and separate legal entity. Only after the incorporation the
company gets its legal features i.e. transferability of shares, separate legal entity, capacity to
sue and sued. Sometimes it becomes necessary for the persons who incorporate the company
in order to enter into contractual terms along with the third party for the incorporation of the
company. They purportedly on behalf of the company which is not formed yet, enter into
contract. Most of the time such contracts are entered in order to purchase the property or to
hire the services of an expert or a manager. The persons incorporating the company will have
to offer some attractive benefits as an inducement to public to purchase shares and therefore
it becomes necessary that these contracts should be made prior to the formation of the
company. Such contracts are known as pre-incorporation contracts.

5
The contracts which has been made on behalf of a company which is not incorporated is
known as pre-incorporation contracts. These contracts are also called as preliminary
agreements or preliminary contracts. The expenses incurred in order to enter in these
contracts are known as preliminary expenses and are recorded in the first few years of
account books.

The obligation of the promoter is to make sure that company is in legal existence and that the
company is running successfully. In order to fulfil these obligations he himself may enter into
contract on prospective company’s behalf. Such type of contract is known as pre-
incorporation contract.

Nature of Pre-incorporation contract is somewhat unique to normal agreement. Nature of

such contract is two-sided; be it has the highlights of three-sided contract. In this sort of
agreement, the promoter outfits the agreement with intrigued individual; and it would be
two-sided contract between them. Yet, the noteworthy aspect of this agreement is that,
this agreement helps the viewpoint organization, who isn't involved with the agreement.
One may scrutinize that 'why is company not responsible, regardless of whether it a
recipient to contact' or one may likewise scrutinize that 'doesn't promoter work under
Principal-Agent relationship'.

CHAPTER-III

PRE-INCORPORATION CONTRACT UNDER COMMON LAW

The common law position with regard to the pre incorporation contracts is same as now. the
company has no capacity to contract in common law before its incorporation. In pre
incorporation contract the promoter is left only with the two options, first one is to enter into
a contract as a company’s agent or secondly, in order to enter the contract in the company’s
name. A contract cannot be entered into since it is not in existence under common law. also
nobody can bind the company for contracts saying that it act as an agent of the company as an
agent can’t do an act which a principal can’t do, moreover nor company or an agent can ratify
the pre-incorporation contract.1

1
Kelner v. baxter, (1867) LR-2 CP 174.

6
However, there isn’t anything to stop the company to enter into new contract in order to put
the effects of the terms of pre-incorporation contract. 2 The company entering into a contract
is known as novation. While following novation one thing must be kept in mind that mere
behaving or acting after the incorporation does not constitute novation. 3 It should be clearly
established that amongst a company and the third party a new contract is entered.

An analysis of some English cases will give a clear understanding of the situation of pre-
incorporation contract under common law. In the case of schmaltz v.Avery 4the court held that
where the person works and presents himself as an agent he should however disclose as being
the principal and that he is bringing the action on his own. In Kelner v. Baxter 5the plaintiff
agreed to sell wine to a yet to be incorporated company, but he decided to sell the wine under
the terms of the contract to the future director of the company. The court is of the view that
the director has on behalf of the company contracted with the plaintiff which is not in
existence, so if the wine has been received then they have to pay for it.

In New borne v. Sensolid6, there was a lot of confusion regarding the pre incorporation
contract under common law understanding. The plaintiff claimed that they didn’t deviated
from the earlier dictums, however some confusion is created by them by making a distinction
among the condition where promoter is acting on behalf of an unincorporated company and
where the promoter is just proving the fact that the company is entering into the contract not
promoter. In this case a person, newborn wanted to start a business and was on the urge of
registering his company. Before the company came into existence he purchased and started
consuming stationary in the name of company. The contract was between a person and the
company Sensolid. The contract was signed in the name of Newborne company ltd. and
below it there was a plaintiff’s signature.

Afterwards, the Sensolid avoided the delivery to break the contract when the market value of
the goods went down. The judges said that, in this case the plaintiff didn’t intend to enter into
a contract as an agent or as a principal. Also they were of the view that since it was the
plaintiff who was entering into the contract on behalf of the company therefore it was the
company who entered into the contract. The court held that in the following case the

2
Touche v. Metropolitian Railway Wearhousing Co. (1871) 6 Ch. App. 671.
3
Re Northumberland Avenue Hotel Co. (1886) 33 Ch. D 16.
4
(1851) 16 QB 655.
5
Supra note 1.
6
(1953) 1 All E R 708.

7
company entered itself entered into the contract and the signature of newborne was just to
authenticate or a proof to document. Newborne was selling the goods of a company and his
own goods. Since it was the contract of a company and company never came into existence
and the contract was a nullity.

The differentiation made by the court in this case was totally mistaken. For Instance, suppose
where a person act as an agent of a company 7. In such a condition since the principal is not in
presence consequently the principal having no authority to and hence the contract becomes
void. However the company not in existence till now enters into a contract if promoter
authenticates it8. These both contracts are null and void as company is not in existence till
now. But if the promoter acts as a principle from the starting and continue to the party to the
contract that he may enforce such contract.

The question arise is that what really is common law position whether a position laid down in
Phonogram case or in Newborne v. Sensolid case. The answer is that the common law
position did not depend upon the contract made on behalf of an unincorporated company, it
depends upon the real intent, as mentioned under the contract.

ENGLISH LAW- THE EUROPEAN COMMMUNITIES ACT

The English position with respect to pre incorporation contract is not same as common law. It
has undergone a vast change when United Kingdom became the member of European Union
Community. The court implemented article 7of the first company law directive which later
inducted into section 36C of Companies Act, 19859.

Increasing the safety of transaction is the main motive behind this provision between the third
party and promoter by dodging the consequences with the company the contract by making
such contract null and void.10 Giving the third party an enforceable right to enforce the
contract, not against a company but against the promoter. This protection subsists unless the
third party relinquish its protection. 11 However the court of law made it clear that the consent

7
Agent’s acts ‘for and on behalf of company’
8
As decided in Newborne’s case.
9
Section 36 of companies Act,1985
10
Paul.c.Davies, D.D. Prentice, Gower’s Principles of Modern Company Law, Edn-9, Sweet and Maxwell,
London, .
11
Supra note 10.

8
should not merely be deduced from the fact that the promoter signed in place of the company
and therefore he is an agent of the company, an express agreement is needed. 12 The court will
be looking at whole contract and not only the signature.

If this situation is taken into consideration then the difference between the section 36 of
companies Act, 1985 and common law will be narrowed down. In common law, if party
contracts with an unincorporated company, it will be a void and only on the basis of equity
the third party will be protected.13Under a particular statute, unless a third party agrees to
renounce his protection or safety contracts which were made with the company will impose a
liability over the promoter. In simple words, a presumption is created by the statue in favour
of the promoter being contractually liable, whereas common law deals with the third’s party
contractual right as a matter of party’s intentions against a promoter without any presumption
in whichever way. However, in cases which fall outside the scope of the statute the common
law position is still considered vital.14

In spite of statutory interference with the introduction of section 36 (c) in the companies Act,
1956 there exist some substantial problems. One of the main problems is that, the
legislature’s main apprehension was the third-party protection, but this section doesn’t make
it clear if the promoter obtains a right under the legislation to impose a contractual obligation
as well as contract.15

The other problem is that section 36(c) is only applicable when the promoter came into the
contract in place of the company, which is not yet incorporated. To attract this section, it is
necessary to satisfy both the essentials. The section therefore has not been interpreted to
protect the third party in all situations and conditions but it is protected in the situation where
the company is not in presence and the contract is in place of the company.16

However, one of the drawback of the new statute is that it hasn’t done anything to abridge the
process for the companies to “assume” the responsibilities of pre-incorporation contracts. The
European union left it to the members of EU to decide in this matter. But, English legislature
has did nothing in this subject in England. The situation now in England is that if a contract is

12
(1981) 3 All. E R 182.
13
Paul.c.Davies, D.D. Prentice, Gower’s Principles of Modern Company Law, Edn-9, Sweet and Maxwell,
London.
14
Cotronic (U.K.) Ltd. v. Dezonic, (1991) BCLC 721.
15
Badgerhill properties ltd. v. Cottrell (1991) BCLC 805.
16
Oshkash B’Gosh Inc. v. Dan Marbel, (1989) BCLC 507.

9
entered in place of an unincorporated company than such contract can’t be ratified or adopted
after incorporation. It is necessary to enter into a new contract by putting the similar terms
embodied in pre incorporation contract.17

In year 1962, The Jenken’s Committee Report suggested that the agent who contracted in
place of an unincorporated company should be held liable personally for this pre
incorporation contract. Moreover, if such unformed company once incorporated the company
will be able to adopt such contract, with no objection. So, at this point the capacity of
promoter as an agent will not be there, and hence he will be free from personal liability. Such
a suggestion is made to insert a clause 6 of Companies Bill, 1973, but the fill fell and the bill
failed and this clause was not inserted.

However one of the common law positions regarding the sanction of pre-incorporation
contracts by an unincorporated company after incorporation is possible in Singapore under
Singapore Companies Act, 1967 under section 35(1) after amen

VALIDITY OF PRE-INCORPORATION CONTRACT AS PER INDIAN STATUTES

The term promoter has not been defined or explained in the companies Act, 1956. The term
promoter is not a legal word it is a term of business world. In case of Twycross v Grant 18the
court came up that one who takes the responsibility to form a company with the help of a
given project and let it go to take necessary steps in order to fulfil the purpose. In general the
word promoter means to a person who creates a company and get it started. It is an individual
who is answerable for the arrangement of a company, to plan reminder and article of
relationship of an organization and so forth. Appointment of directors, experts, making the
prospectus and placing the capital.19.

The company needs to be first registered under companies Act, 2013 in order to achieve the
corporate personality benefits. After the incorporation the company comes into existence and
then only it can commence its business and daily operations. The main reason behind that is
the associations of persons who entered into a contract on behalf of a person who has still not
come into existence and has no legal obligation, than such contract is void ab initio.

Taking everything into account, anyone can say that promoter hint any individual, partner,
17
Halsbury, Laws of England, Vol.9 Edn-4, (1973) 798 para 1366.
18
(1877) 2 CPD 469
19
A. Ramaya, guide to companies Act, wadhwa and company, agra, Edn-14, 574 (2012)

10
affiliation, partnership or a company, which finds a way to make organization and form an
company and set it going.

The promoters may need to enter into contracts in order to incorporate a company. These
contracts entered by the promoters before incorporation are known as pre incorporation
contract. One of the landmark case in this matter is Seth Sobhagmal Lodha v. Edward Mills
Co. Ltd, the court did not gave its judgment based on companies Act, but rather on the basis
of common law and it was held that the promoter entered the contract in place of company is
invalid.20

If English precedents are followed then these pre incorporation contract cannot bind the
company. It creates a personal liability over the company as it is a personal contract rather
than a contract of agency. If the promoter enters into the contract as an agent or in place of
the company, then according to sec 230 21of Indian Contract Act, 1872 the agent can’t be
sued unless there is a specific contract. The company under common law has no right to
ratify the contract.22

This would lead to a conflict as under common law if the entered in place of the company,
then such contract is void as the principal doesn’t exist so therefore the concept of agency is
not created.23So in order to avoid this conflict, until the promoter expressly provides that he is
the agent of the company , personally he will be responsible for the contract. Then only the
third party will be protected, provided that a new contract isn’t entered by the company with
such third party.

The promoter stands in a fiduciary position, he accomplishes some of the fiducial

responsibilities, however he can’t be called as a trustee since as per the definition there is no
beneficiary given under the section 3 of Indian Trust Act, 188224. Also he can’t be called
agent as there isn’t any principal. Hence the promoter occupies a special place of Quasi
Trustee.25

20
(1972) 42 Comp. Cas 1 (Raj).
21
Section 230 of Indian Contract Act, 1872
22
Paul. C. Davis, D.D. Prentice, Gower’s Principles of Modern Company Law, Edn-9, Sweet and Maxwell,
London,.
23
New borne v. solid (1953) 1 All E R 708.
24
Section 3 Indian Trusts Act, 1882- Beneficiary the person for who’s the benefit the confidence is accepted.
25
Vishwas Sridhar Sohoni, Sohoni’s The Specific Relief Act, 1963, Premier Publishing Co, Allahabad.

11
One important question arise at this point of time is that whether the statement or statement
made by the promoter establishes transfer of Property and whether company has any right to
claim the any interest out of such property. The declaration or the statement by the promoter
i.e. the property is controlled by him on behalf of the company does not comprise either sale,
mortgage, lease nor gift, it is mere a conveyance of the property as the property is being
vested and according to section 9 of Transfer of property Act, 1882 it can be made
orally.26However the transfer is invalid under Section 527 of Transfer of property Act, 1882 as
the company before its incorporation does not exist and hence this section is not attracted.28

The promoter purchases the property from a third party, from that date itself he acquires the
title as the property transferred was in his name but for the advantage of the company which
it yet to be incorporated. The promoter gets the vested interest over the property only for the
profit or advantage of the company, however his declaration is adequate to the company to
privilege the full title after the company gets into existence29

The benefit made by the purchaser or the promoter must be transferred once the company
come into existence, without any registration deed, because the position of the promoter of a
company is a quasi trustee position and he can be compelled to transfer or convey the
property30 and can give the consideration in lieu of the role played by him as a promoter and
worked for the benefit of the company before its birth, if necessary.31

In a case, the promoter on behalf of an unincorporated company accept an offer to sell wine,
afterwards the company failed to pay the amount and he filed a suit against promoters. The
court held that the principal agent relationship cannot be in existence before its incorporation
as principal do not exist at the time of incorporation. Also the company cannot take the
personal liability through the ratification or adoption. So, therefore the promoters were
individually held responsible for the pre-incorporation contract as they gave consent to the
third party.32

26
Ibid.
27
S.5 of Transfer of Property Act,1882 requires both transfer and transferee to be living persons.
28
Supra note 10.
29
Supra note 13
30
AIR 1969 Mad 462, see also Income Tax Officers v. Bijli Cottton Mills, (1953) 23 Com Cases 114.
31
CIT v. Bijli Cotton Mills, (1953) 23 Com cases 114.
32
Kelner v. Bexter, (1866) LR 2 CP 174 

12
In Newbome v. Sensolid ltd33. , the court took interpreted Kelner v. Baxter in other way and
established a principle. In the above case an unincorporated company entered into a contract
but the other party failed to perform his duty. The court of Appeal held that since the contract
was entered by an company not in existence till now, therefore the contract would also be not
in existence. So, an action cannot be brought in by the company against the enforcement of
Pre incorporation contract.

However this case created a conflicting situation that if the contract was signed by a promoter
or an agent of an unincorporated company than the promoter or agent will be personally
liable. But if an individual comes into a contract, representing himself as a director of an
unincorporated company than the contract will be void and unenforceable. However this
situation was solved in the case Phonogram Limited v. Lane34, he found that if a contract is
entered in place of an unincorporated company than the contract is not void in entirety and
the promoter, director etc. will be personally liable for this contract.

In Indian cases such principles were followed and are applicable. In case of Seth Shobhag
mal Lodha v, Edward Mills co. ltd., the common law approach was followed by the high
court and did not followed the sections and provisions of pre incorporation contract.

CHAPTER-IV

POSITION OF PRE-INCORPORATION CONTRACT AND PROMOTERS AFTER

THE ENACTMENT OF SPECIFIC RELIEF ACT, 1963

Prior to the enactment of Specific Relief Act of 1963 the promoters of a company in India
found very tough to bring out the incorporation work as before the Act, the pre-incorporation
contracts were void and suppliers, seller hesitated to enter into the contract for supply of
service or goods because of the reason of incorporation. There is also the risk over the
promoters as they have to take the personal responsibility as well as personal liability.35

The various sections and clause of Specific Relief Act,1963 came as a relief to the promoters.
Section 15 states that:

33
 [1954] 1 QB 45
34
(1981) 3 All. E R 182.
35
A.K. Majumdar and G.K. Kapoor, Taxmann’s Student Guide to company law, Taxmann New Delhi.

13
“Where the promoter before incorporation of a company, came into a contract for the reason
of the company, and the terms of the incorporation of the company warranted such contract”

Provided that the contract has been accepted by the company and it has conveyed such
acceptance to the other party to the contract.

The sentence “warranted by the terms of incorporation” implies scope of the company’s aim
as mentioned under the objective clause of memorandum of Association. In the case of Vali
Pattabhirama rao v. shri ramanuja36 rice factory and Ginning, it was held that a leasehold
interest has been acquired by a person who promoted a company in it converted his
partnership firm into a company, the court held that the lesser was bound to the company
under the lease. However in other case it was held by the court that the contract which is
being entered by the promoters to buy the shares, when the company comes into existence is
not a contract under Specific Relief Act,1963 section (h).37

So to conclude, the company in order to claim the specific performance against a promoter,
before its incorporation is :

1. The promoter signed a contract for the incorporation and company’s benefit
2. The terms of incorporation must warrant the pre-incorporation contracts.
3. The company when incorporated i.e. the company must have accepted the contract
before coming into existence by incorporation.
4. The company must have communicated and accepted the interest to the third party or
the party to such contract either impliedly or expressly.
5. An unincorporated company cannot start a business with the pre-incorporation
contracts. So, the words “warranted by the terms of the incorporation” are incomplete
by the term “commencement of business”. Because the promoter who is acting on
behalf the company cannot any work which a company itself can’t do.

It is not only the company or corporate who can accept and implement a pre-incorporation
contract against a third party nonetheless a correct contract can be enforced against a
company in case where the before incorporation of the company the promoters entered into a
contract on behalf of company and therefore such contract is backed by the terms and
conditions of the contract.

36
(1986) 60 Comp. Cas. 568 A.P
37
P.M.Bakshi, S.C. Bannerjee’s Law of specific relief, the Law Book Company, Allahabad, Edn.9, (1992).

14
Under the section 19 (e) of Specific Relief Act the liability incurred over the company, was
originated in England in 19th century by the judgments and decisions of court of equity.

So, under the specific contract Act, 1963 the pre incorporation contract can be held valid with
respect to certain conditions.

CHAPTER-V

CONCLUSION

Since, the position on Indian and English law on Pre incorporation contract are analysed and
their errors are recognized it is important as well as necessary to see what could be possible
reform. In England, since the intervention of the European community’s Act, 1972 and after
that the enactment of companies Act, 1985 the liability of the promoter as well the validity of
the pre incorporation contract is clearly established by the way of statutes. In England, the
contract cannot be ratified and therefore pre-incorporation contract the company is not held
liable. The only way is by the way of novation. However if a company acts on a wrong
assumption that it is bound by the contract made before incorporation then it is not novation.

SUGGESTION

In India however the position is not cleared regarding the liability of promoter and also about
the validity of pre incorporation contract. Both India as well as England need reforms. In

15
England they need to follow Jenkins committee report and allow the sanction of the pre-
incorporation contract. Some of the Acts and legislations which defines the validity and
position of pre-incorporation contract are contradictory and hence the position of pre
incorporation contract till now based on judicial Interpretations. India should move away
from common law position and adopt a particular legislation which properly defines the
position as well as validity of pre incorporation contract. India should move according to
section 36 C of Companies Act, 1985. Also the position of promoter as a quasi trustee should
be established, so that the company can enjoy the benefit taken by the promoter. But it does
not mean that the promoter should be harmed they must be compensated in the view of
adequate consideration.

However, a positive attempt has been made by companies Act, 2013, in which Section 2(69)
defines the meaning of promoter. But till now the validity of pre incorporation contract is not
specifically established and therefore a new amendment is needed in order to solve this
situation and come to a common conclusion.

BIBLIOGRAPHY:

PRIMARY RESOURCE:

STATUTES:

⮚ The Companies Act, 2013.

⮚ Transfer of Property Act, 1882.
⮚ The Companies (Incorporation) Rules, 2014.
⮚ Specific Relief Act,1963.
⮚ Companies Act, 1956.

CASES REFERRED:

Badgerhill properties ltd. v. Cottrell, (1991) BCLC 805.

Cotronic (U.K.) Ltd. v. Dezonic, (1991) BCLC 721.

16
Kelner v. baxter, (1867) LR-2 CP 174.

New borne v. Sensolid, (1953) 1 All E R 708.

Oshkash B’Gosh Inc. v. Dan Marbel, (1989) BCLC 507.

Phonogram Limited v. Lane, (1981) 3 All. E R 182.

Re Northumberland Avenue Hotel Co., (1886) 33 Ch. D 16.

schmaltz v.Avery, (1851) 16 QB 655.

Seth Sobhagmal Lodha v. Edward Mills Co. Ltd, (1972) 42 Comp. Cas 1 (Raj).

Tax Officers v. Bijli Cottton Mills, (1953) 23 Com Cases 114.

Touche v. Metropolitian Railway Wearhousing Co., (1871) 6 Ch. App. 671.

Twycross v Grant, (1877) 2 CPD 469

Vali Pattabhirama rao v. shri ramanuja, (1986) 60 Comp. Cas. 568 A.P

SECONDARY RESOURCES:

ARTICLES REFERRED:

NATIONAL ARTICLES

1. H.R. Saviprasad, Pre Incorporation Contracts: A Comparative Analysis of Indian and

English Laws, The Indian Law institute, pp.117-131.
2. Sumit kumar suman , Position of Promoter In India: Critical Analysis, Knowledge
centre (ISSN: 2349-9796).

INTERNATIONAL ARTICLES:

1. C.A.W., Liability of Promoters for Promotion Profits, 77U.PA.L.REV.661(1929)

2. Alexander Hamilton Frey, Modern Development In The Law of Pre-Incorporation
Subscription, University of Pennsylvania Law Review,pp.1006-1020

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3. Flores, Eddie R., The Case for Eliminating Promoter Liability on Pre incorporation
Agreements, Arizona Law Review, 1990, page-405

4. BOOKS REFERRED:
1. V S Datey, Company Law Ready Reckoner, ( 3rd edn. Taxmann Publication Pvt Ltd
2015).
2. Dr. G K Kapoor & Sanjay Dhamija, Company Law and Practice, ( 20th edn, Taxmann
Publication Pvt Ltd 2015).
3. Avtar Singh, Company Law, ( 16th edn, Eastern Book Company 2015).
4. Dr. G K Kapoor & Sanjay Dhamija, Company Law, ( 18th edn, Taxmann Publication
Pvt Ltd 2015).
5. Karan gupta, Introduction to company law, (lexis nexis, 2013).

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