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Prelimnry Contract..!?

Whizkid (student) (640 Points)

30 December 2009

Guys,...In preliminary contract, ther'z this particular condition(Undr Specific Relief Act), which says the contract shall "BIND" to the company if ;

- " Such preliminary contracts were warranted bu the terms of incorporation of the company & was specified in memorandum/articles"

Wht does the above quoted lines mean,...I really din get it....If any1 can explain it with some eg, guess it can be useful...Thnks :)

Do reply asap..

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3 Replies

Pranav Pradeepkumar Shah (Senior Article Assistant) (24 Points)
Replied 30 December 2009

Divya,

Generally priliminary contracts binds promotor/s.But if there is a condition specified in memorandum or aricle of association of the company, such contracts entered by promotors, may bind the company for the acts of promotor before the incorporation of company.

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(Guest)

Good that u r asking this question. I am also attending same law class as tld to u earlier..

In general, Prel.contr(PC)- the contract which a promoter takes b4 incorp. is not binding on the proposed Co. Also such contract being adopted( not giving effect in memorandum/articles) by the co. aftr incorp wil nt creeate any contract between the co. and third party. so only promoter will alone be responsible for such contracts.

But as per specific relief Act--" above lines mentioned by u"--- then such contract will be binding upon the Co. suppose Divya Ltd( promoter) having share capital base of 120000 equity shares decides to form a new Co. named Divya & Jayaraman Ltd. The promoter Divya Ltd agrees to pay its 20000 equity shareholders as they dnt want to become Sharehldrs in new Co.(D&J ltd.). This is a preliminary contract entered by Divya Ltd. to pay those 20000 E. shldr. Soooooo if This subject is mentioned in the memorandum of new co. that it is coming onto existence by taking over the 1lakh Eshldr of DIvya ltd. and paying 20000 Eshldr of Divya ltd.. Then such acceptance of agreeing to pay 20000 eshldr is very much essential to form a new company and has been given full authority(warranted) by its memorandum. Thn such contract of Divya ltd will become binding upon the new co. (Divya & jayaraman ltd.).

Hope u understood.

Faiz