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Article Published in the Express Magazine Dated
July 15, 2001
General Attorney : Rajiv K. Luthra
I had entered into a contract with a friend who
was setting up his own company. At the time of the
signing of the contract, my friend had signed "on
behalf of the company" and had told me that the
company would be shortly incorporated. Although
the company has now been incorporated, I am
worried whether my contract would be treated as
valid, for the company did not exist when the
contract was entered into. Please advise.
G.S. Nagi, Chandigarh
A contract such as this is called a
'pre-incorporation' contract and the same is not
uncommon in India. Before being incorporated, a
company has limited legal capacity. Unlike Common
Law, where a company cannot enter into a contract
before its incorporation, as it does not yet exist
as a legal person, and cannot be bound by the
contracts made by its agents before its
incorporation; in India there is a marked
deviation from this principle. Although some
courts have held that a contract between the
promoter of a company before its incorporation are
not binding on the company after its incorporation
unless a fresh agreement is entered into by the
company on the same terms, the Specific Relief
Act, 1963, provides that specific performance may
be enforced against a company where its promoters
have, before its incorporation, entered into a
contract for the purposes of the company.
Such a contract is warranted by the terms of
incorporation of the company, for example, by
inclusion in the Articles of Association of the
company. It is, however, necessary that the
company in such a case must have accepted the
contract after its incorporation and communicated
such acceptance to the other party to the
contract. If the same is done, you may be able to
enforce specific performance of the contract. It
is recommended that you get your contract
validated through a Board meeting and keep a copy
of the same.
Last October, I had sent some of my furniture
by train (from Delhi) to my parents' house in
Kanpur. On arrival, it was discovered that the
doors of one of the wooden cupboards were broken.
We got them repaired, but the authentic renovation
of the piece was very difficult and costly, as it
was an old piece. We feel the railway authorities
should pay for such damage.Despite making several
calls to their office, the authorities haven't
bothered to pay any compensation. What does the
law provide for in such a case?
M. Sharma, Delhi
Under the Railway Act, 1989 ("the Act“) the
railway administration is responsible for the
damage in transit of any consignment, arising from
any cause except amongst other things for acts or
omission or negligence on part of the consignor or
consignee. You could file an application for
compensation against the railway administration
before the Railway Claims Tribunal. But Section
106 of the Act states that a person shall not be
entitled to claim compensation against a railway
administration for damage of goods carried by
railway, unless a notice for it is served by him
or on his behalf to the railway administration, to
which the goods are entrusted for carriage or to
the 'railway' administration of the railway
station 'on whose railway the destination station
lies or damage occurs'.
This notice has to be given within a period of six
months from the date of entrustment of the goods.
Any information made in writing from, or any
complaint made in writing to any of the described
railway administrations within the said period of
six months regarding the damage of the goods with
particulars sufficient to identify the goods shall
be deemed as a notice of claim for compensation.
Although the Railway Act does not specify any
details in particular, which must be furnished in
the notice, it is clear that the same has to be
given in writing. Your making mere telephone calls
will not qualify as a sufficient notice. Thus,
under the circumstances, it appears that unless
you have filed any kind of written complaint, you
may not be able to file a claim for compensation
at this stage.
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