Page 149 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes even if all the persons who negotiated the contract are aware that the company has not yet been
incorporated.
The contract takes effect as a personal contract with the persons who purport to contract on the
company’s behalf [Kelner v. Baxter (1866) LR 2 CP 174]. Promoters shall be liable to pay damages
for failure to perform the promises made in the company’s name. This shall be so even where
the contract expressly provides that only the company’s paid up capital shall be answerable for
performance [Scot v. Lord Ebury (1867) LR 2 CP 255].
Provisional contracts. Those contracts which are entered into by a public company after

obtaining the certificate of incorporation but before getting the certificate to commence business

are known as provisional contracts [s.149(4)]. Such contracts are not binding on the company
until the company is entitled to commence business and on that date they shall become binding,
without any need for ratifi cation.

If the company is unable to obtain the certificate to commence business, the provisional contracts
will never become binding on it and no one can sue in respect of them.
As it shall be explained later, a company can do only such acts as by its memorandum it is
expressly or impliedly authorised to do. Any transaction which is not so authorised is ultra vires
(beyond the powers) and is null and void ab initio. Neither the company, nor the other party to
the contract can enforce it.

Form of Contracts made by Companies

Section 46 provides that a company can, in general, contract in the same form as an individual.
Thus, a contract which, if made between private persons, is required to be in writing, may be
made on behalf of the company also in writing. It should be signed by a person acting under the
express or implied authority of the company. Such contracts may also be varied or discharged
in the same manner. Also, a contract which would be valid if made between private persons
although made orally or by parol on behalf of the company by any person acting under express
or implied authority. Such contracts could also be varied or discharged in the same manner.
Some contracts are required to be under seal and, therefore, s.147 requires every company
incorporated under the Act to have a common seal upon which its name should be engraved in
legible characters.

Under s.50, a company may obtain power through its articles to have an official seal, for use
outside India. This is in addition to a common seal.

8.2 Winding up of Companies

Winding up of a company is the process whereby its life is ended and its property administered
for the benefit of its creditors and members. An administrator, called a ‘liquidator’, is appointed

and he takes control of the company, collects its assets, pays its debts and fi nally distributes
any surplus among the members in accordance with their rights. In simple words winding up
means applying the assets of a company in the discharge of its liabilities and returning any
surplus to those entitled to it, subject to the cost of doing so. The statutory process by which
this is achieved is called ‘liquidation’. Winding up of a company differs from insolvency of an
individual inasmuch as a company cannot be made insolvent under the insolvency law. Besides,
even a solvent company may be wound up.

Modes of Winding up

A company may be wound up in any of the following two ways: A. Compulsory winding up
under an order of the Court. B. Voluntary winding up. C. A voluntary winding up under the
supervision of the Court.

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