● Contracts

● A company being an artificial person can contract only through its agents. There are
3 situations in the case of every company in which contracts are made -
- Contracts made on behalf of the company before its incorporation(certificate
of incorporation - preliminary or pre-incorporation contracts - not liable on
company but on the promoters if the situation demands(indian law/ under
english law the promoters are absolutely liable) - contracts entered into for the
purpose of incorporation
- Contracts made after incorporation but filing of the prescribed declaration by a
director with the Registrar under section 11 (which is a mandatory
requirement before the company can commence business) - provisional
contracts - applicable to public companies having share capital
- Contracts made after the company becomes entitled to commence business -
regular contracts.

● Preliminary or Pre-incorporation Contracts:

● Preliminary contracts are those contracts made by the promoters on behalf of the
company before its incorporation
● primitive contracts will not bind the company since the company was not in existence
at the time of contract and therefore the company had no capacity to contract to that
time
● Even if the contract was entered on behalf of the company for the purpose of the
company and for the benefit of the company, such contracts will not bind the
company
● Even after incorporation of the company the preliminary contract cannot be ratified by
the company
● Thus, the promoters alone shall be personally liable for the preliminary contracts
entered on behalf of the company
● The only alternative available to the company is that it shall enter into a new contract
after incorporation to give effect to the old contract
● In Kelner V. Baxter (1866) L.R. 2 C.P. 174 - three persons A, B and C enter into a
contract as agents on behalf of a company before its incorporation for the purchase
of certain goods from Kelner and signed it as “A, B and C Directors”. The company
later obtained the certificate of incorporation. It was held that A, B and C were
personally liable on the agreement and no subsequent ratification by the company
would relieve them from that liability.
● Under Indian Law, however, under section 15 and 19 of Specific Relief Act 1963, a
preliminary contract shall bind the company subject to the following conditions -
- Such preliminary contracts were warranted by the terms of incorporation of
the company and was specified in the memorandum/articles
- Such contract should be ratified after the incorporation of the company
- Such ratification should be communicated to the other party to the contract

● In Inlec Investment (P) Ltd. V. Dynamic Hydraulics Ltd. (1989) 3 Comp LJ 221,
225 (CLB)- a company cannot acquire shares prior to its incorporation. Where a
company was named as the transferee in the share transfer forms prior to its
incorporation, it was held that such transfers could not be registered.
● Provisional Contracts:
● A private company can commence business immediately after incorporation, but a
public company can commence its business only after obtaining certificate of
commencement of business
● In case of public company, contracts made after incorporation but before grant of
certificate of commencement (submission of declaration), of business are called
provisional contracts
● Provisional contracts will not bind the company until the company is entitled to
commence business. However, on issue of such certificate to commence business
such contracts will automatically bind the company without any ratification, right from
the date of the contract
● In Re. Electrical Manufacturing Co. (1906) 2 Ch. 390, a public company is wound
up before it is entitled to commence business persons who have rendered services
or supplies or materials to the company can have no claim against it.
● Regular Contracts:
● It refers to post incorporation contract in case of private company and contracts
entered after getting the certificate of commencement of business in case of a public
company
● All the contracts entered on behalf of the company by the director/officer will bind the
company. However, in order to bind the company, the contracts must be -
- Entered in the name of the company
- The proposed contract should not be beyond the scope of MOA of the
company. If so, they are ultra vires contracts and cannot be ratified by the
company in which case the directors/officers shall be personally responsible