Compay law and specific relief act

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abhishek kashyap (Querist)
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08 July 2013 what is effect of Sec-15 and Sec 19 of Specific Relief Act in case of provisional and pre-incorporation contracts made by promoters and company before getting certificate of commencement of business?
What relief is provided to both parties of contract?

Ajay Mishra

Ajay Mishra (Expert)
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08 July 2013 Hi

Contracts made before or after incorporation but before obtaining the certificate to commence business
Before obtaining the certificate of incorporation a public company cannot enter into binding contracts with outside parties. The promoters may however, carry out preliminary formalities like, making applications to institutions and banks for financial assistance or start discussions with collaborators, contractors, etc.
After obtaining certificate of incorporation but before obtaining certificate for commencement of business, the company may, however, enter into provisional contracts subject to the condition that they will be binding only after the company has obtained the commencement certificate.
The liabilities incurred by company before it is entitled to commence business, are not binding and shareholders cannot be asked to contribute towards them in event of winding up without commencing business. [Merchants Ltd., Lahore, In re (1932) 2 Comp Cas 407 (Lahore); Ambica Textiles Ltd., In re (1950) 20 Comp Cas 160 (Cal)].

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Ajay Mishra

Ajay Mishra (Expert)
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08 July 2013
Penalty/consequences on commencing business before obtaining certificate to commence business:

If any public company commences business or exercises borrowing powers without obtaining the commencement certificate, every person who is responsible for the contravention shall, inter alia, be punishable with fine of Rs. 5,000 for every day during which the contravention continues, pursuant to sub-sections (2A) and (6) of section 149 of the Companies Act, 1956.
Further section 433(c) provides that a company may be wound up by the High Court [Powers vested with the Tribunal vide the Companies (Second Amendment) Act, 2002] if it does not commence business activities within a year from its incorporation or suspends its business activities for a whole year.

Ajay Mishra

Ajay Mishra (Expert)
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