Registration and Incorporation

Procedure of registration [S. 33]

To obtain the registration of a company an application has to be file with the Registrar of Companies. The application must be accompanied b_ the following documents:l 1. Memorandum of Association. 2. Articles of Association, if necessary. 2 3. The agreement, if any, which the company proposes to enter into with any individual for his appointment as its managing or whole time director or manager. The documents for registration must be supported by a declaration stating that all the requirements of the Act relating to registration have been complied with. The declaration must be signed by an Advocate of the Supreme Court or of a High Court or an attorney or a pleader entitled to appear before a High Court or a Secretary, or a chartered accountant, in whole-time practice in India who is engaged in the formation of a company or a person named in the articles as a director, manager or secretary of the company. [So 33(2)] Section 12, which states the mode of forming an incorporated company, enables any seven persons (two for a private company) to associate for any lawful purpose and to get themselves incorporated into a company with or without limited liability. They can do so by subscribing their names to a memorandum of association and by complying with other requirements. When the requisite documents are presented, for registration, the Registrar has to see whether they answer the requirements of the Act. He may, however, accept the declaration as sufficient evidence of compliance. He then registers the company and other documents and places the name of the company in the Register of Companies. 3 A certificate of incorporation is then issued by the Registrar which certifies "under his hand that the company is incorporated and, in the case of a limited company, that the company
-----------------------------------------------------------------------------------------------------------------------------------------------------------------1. S. 33. The application has to be made to the Registrar of the State in which the registered office of the company is stated by the memorandum to be situate. 2. Articles are compulsory only for unlimited companies, companies limited by guarantee, and private companies [So 26]. The documents have to be in print and computer printing by laser .. is valid for this purpose, but not xerox. Selvarajan v ROC, [1986] 3 Camp LJ 275 Mad: (1987) 62 Camp Cas 220. 3. Refusal to register on a ground which is not legitimate can be set right by a court order, e.g. refusal on the ground of an enquiry into the motives on future plans of promoters. Exclusive Board of the Methodist Church v UOl, (1985) 57 Camp Cas 43 Born.

is Iimited".4

Certificate of incorporation [S. 34]

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The certificate of incorporation brings the company into existence as a egal person. Upon its issue the company is born. For the Act provides that . 'from the date of incorporation such of the subscribers of the memorandum and other persons, as may from time to time be the members of the company, shall be a body corporate, ... capable forthwith of exercising all the functions of an incorporated company".5 The company's life commences from the date mentioned in the certificate of incorporation and the date appearing on it is conclusive, even if wrong.6 Certificate as Conclusive Evidence Not only does the certificate create the company. It also is "the conclusive evidence that all the requirements of this Act have been complied with in respect of registration and matters precedent and incidental thereto and that the association is a company authorised to be registered and duly registered under this Act". 7 In other words, the validity of the certificate cannot be disputed on any grounds whatsoever. This is illustrated by the decision of the Judicial Committee of the Privy Council in Moosa Goolam Ariff v Ebrahim Goolam Ariff.8 The memorandum of association of a company was signed by two adult persons and by a guardian of the other five members, who were minors at the time, the guardian making a separate signature for each of the minors. The Registrar, however, registered the company and issued under his hand a certificate of incorporation. The plaintiff contended that this certificate of incorporation should be declared void. Lord MACNAGHTEN said: Their Lordships will assume that the conditions of registration prescribed by the Indian Companies Act were not duly complied with; that there were no seven subscribers to the ----------------------------------------------------------------------------------------------------------4. S. 34(1). Electrical Cable Development Assn v Arun Commercial Premises Coop Housing Society Ltd, (1998) 5 SCC 396: AIR 1998 SC 1998, the conversion of an unregistered association into a company was not successful because the articles of the company which was registered did not carry a clause that the members of the association would become members of the company, nor there was any resolution to that effect. The association and the company remained different entities. 5. S. 34(2). Link Hire Purchase & Leasing Co (P) Ltd v State of Kerala, (2001) 103 Comp Cas 94 I Ker, the company, a person for the purposes of the Kerala Money Lenders Act, bound to obtain licence like an individual. John Thomas v Dr K. Jagadessan, (2001) 106 Comp Cas 619 SC, in the case of defamation of company, its director is an "aggrieved person", entitled to maintain prosecution under Sections 499-500, IPC. 6. Ibid. 7. S. 35 .. 8. ILR (1913) 40 Cal I Pc.

memorandum and that the Registrar ought not to have granted the certificate. But the certificate is conclusive for all purposes.

In England the question whether the Registrar's certificate is conclusive was decided so far back as 1867 by Lord CAIRNS In Peel case 9 after signature and before registration a proposed memorandum of association had been altered without the authority of the subscribers so materially that the "alteration entirely neutralised and annihilated the original execution and signature of the document". The company, however, was registered and the Registrar gave his certificate of incorporation. It was objected that the memorandum of association had not been signed by seven or indeed by any subscribers and that the provisions of the Act had not been complied with. To that proposition Lord CAIRNS assented. But "the certificate of incorporation", he said, "is not merely a prima facie answer, but a conclusive answer to such objection .... When once the certificate of incorporation is given nothing is to be inquired into as to the regularity of the prior proceedings". The observations of Lord CHELMSFORD in Oakes v Turquand lO are to the same effect. "I think", said his Lordship, "the certificate prevents all recurrence to prior matters essential to registration ... and that it is conclusive ... that all previous requisites have been complied with.11 "Thus the position is firmly established that if a company is born, the only method to get it extinguished is not by assailing its incorporation, but by resorting to the provisions of enactments, which provide for the winding up of the companies". This summary view of the position is to be found in the judgement of CHANDRA REDDY CJ in T. V. Krishna v Andhra Prabha (P) Ltd. 12 "In this case the Express Newspapers (P) Ltd were the leading publishers of newspapers and weeklies. The Government adopted certain recommendations of the Wage Board for improvement in the terms of service and salaries of the working journalists. Thereupon the Express Newspapers sold its undertaking to a new company known as Andhra Prabha Private Ltd. It was alleged that the new company was formed for the illegal purpose of evading the new responsibility imposed by the Wage Board and, therefore, the registration of the company should be declared void." ----------------------------------------------------------------------------------------------------------9. (1867) 2Ch App674: 16LT780. 10. (1867) LR 2 HL 325. See also Jubilee Cotton Mills v Lewis, 1924 AC 958. 11. ILR (1913) 40 Cal I Pc. 12. AIR 1960 AP 123. Salim Akbarali Nanji v VOl, (2003) 113 Comp Cas 141 Born, a certificate of incof!J'lration was not allowed to be challenged. The company could have been extinguished only by winding up. A cooperative society which fulfilled the requirements of Part IX for registration as company was registered in this case.

The Court, however, did not assent to the proposition that the purpose for which the company was formed was in any way unlawful Ql opposed to public policy and, therefore, held that company was validly incorporated. But even if some of the objects were illegal, the legal persona of the company could not have been extinguished by cancelling the certificate. Even in such a case the certificate is conclusive and the remedy

would be to wind up the company. The illegal objects, however, do not become legal by the issue of the certificate.13 Section 12 clearly mentions that "persons associated for any lawful purpose may ... form an incorporated company". Judicial Review In some English cases the courts have explored the possibility of reviewing the Registrar's certificates and have come to the conclusion that they should be open to judicial review. Accordingly, a company which happened to be registered for an unlawful object, was ordered to be struck off. 14 The Kerala High Court has held that a writ cannot be issued to cancel toe registration of a company under the Companies ACt.15

Pre-incorporation contracts
Company cannot be sued on Pre-incorporation Contract Sometimes contracts are made on behalf of a company even before it is duly incorporated. But no contract can bind a company before it becomes capable of contracting by incorporation. "Two consenting parties are necessary to a contract, whereas the company, before incorporation, is a non-entity". 16 A company has no status prior to incorporation. It can have no income before incorporation for tax purposes.17 Shares cannot be acquired in the name of a company before its incorporation. A transfer form is liable to be rejected where the name of a proposed company is entered in
-----------------------------------------------------------------------------------------------------------------------------------------------------------------13. Universal Mutual Aid & Poor Houses Assn v A. D. Thappa Naidu, AIR 1933 Mad 16. Registrar can refuse to register a memorandum with unlawful objects and, if per chance, he happens to do so, his certificate is not conclusive as to lawfulness of objects. Performing Rights Society Ltd v London Theatre of Varieties, [1922] KB 539; R v ROC, [1931] 2 KB 197. 14. R. R. Drury, Nullity of Companies in English Law, (1985) 48 Mod LR 644 considering R v ROC, (unreported) QBD, Dec 17, 1980. This is so because a company cannot properly be registered for an unlawful purpose. See More, ex p, [1931] 2 KB 197,201; Brown, ex p, [1914] 2 KB 116.1. The registration may be cancelled by appropriate proceedings. Bowman v Secular Society Ltd, 1917 AC 406, 438-439: [1916-17] All ER Rep 1. The conclusive presumption may not be raised where, e.g., non-compliance with a material statutory provision leaves the registration an incomplete fact, Gaiman v National Assn of Mental Health, (1971) 1 Ch 317. The certificate would not be conclusive where a trade union is registered as a company, British Assn of Glass Bottle Mfg Ltd v Nettlefield, (1911) 27 TLR 27. 15. Maluk Mohamed v Capital Stock Exchange Kerala Ltd, (1991) 72 Comp Cas 333 Ker. 16. Erie CJ in Kelner v Baxter, (1866) LR 2 CP 174: 15 LT 213: [1861-73] All ER Rep Ext 2009. 17. CIT y City Mills Distributors (P) Ltd, (1996) 2 SCC 375.

the column of transferee.18 Thus, for example, in English & Colonial Produce Co, Re:19 A solicitor, on the instructions of certain gentlemen, prepared the necessary documents and obtained the registration of a company. He paid the registration fee and incurred the incidental expenses of registration.

But the company was held not bound to pay for those services and expenses. "The company could not be sued in law for those expenses, inasmuch as it was not in existence at the time when the expenses were incurred ... and ratification was impossible". "It is not desirable to saddle the corporation with burdens imposed upon it in advance by overly optimistic promoters.' '20 Company cannot sue on Pre-incorporation Contract Secondly, the company is also not entitled to sue on a pre-incorporation contract. "A company cannot by adoption or ratification obtain the benefit of a contract purporting to have been made on its behalf before the company came into existence". This was held in Natal Land & Colonisation Co v Pauline Colliery Syndicate. 21 N Co entered into an agreement with one C, who acted on behalf of a proposed syndicate. Under the agreement N Co was to give the syndicate a lease of coal mining rights. The syndicate was then registered and struck a seam of coal and claimed a lease which N Co refused. An action by the syndicate for specific performance of the agreement or in the alternative for damages was held not maintainable as the syndicate was not in existence when the contract was signed. Ratification of Pre-incorporation Contract Thus, so far as the company is concerned, it is neither bound by, nor can have the benefit of, a pre-incorporation contract. But this is subject to the provisions of the Specific Relief Act, 1963. Section 15 of the Act provides that where the promoters of a company have made a contract before its incorporation for the purposes of the company, and if the contract is warranted by the terms of incorporation, the company may adopt and enforce it. "Warranted by the terms of incorporation" means within the scope of the company's objects as stated in the memorandum. The contract should be for the purposes of the company. A person, who intended to promote a company, acquired a leasehold interest for it. He held it for
-----------------------------------------------------------------------------------------------------------------------------------------------------------------18. Inlec Investment (P) Ltd v Dynamatic Hydraulics Ltd, [1989] 3 Comp LJ 221, 225 CLB. 19. [1906] 2 Ch 435: 22 TLR 669. In Clinon's Claim, (1908) 2 Ch 515 CA, a promoter was not allowed to recover registration fee paid by him Rover International Ltd v Cannon Film Sales Ltd, (1987) 1 WLR 1597, somebody who does not exist cannot contract. 20. Joseph H. Gross, Pre-incorporation Contracts, (1971) 87 LQR 367, 368. 21. 89 LT 678: 1904 AC 120: [1900-03] All ER Rep Ext 1050.

sometime for a partnership firm, converted the firm into a company which adopted the lease. The lessor was held bound to the company under the lease.22 According to a decision of the Supreme Court, the company has to accept the transaction but it is not necessary that the transaction should be mentioned in the company's articles. The very fact that the company was seeking a declaration of its ownership of the property

which the directors had purchased for it before incorporation was sufficient to signify acceptance of the transaction.23 A contract to allot shares after the company is incorporated is not for the purposes of the company so that the company cannot enforce it against the other party.24 Section 19 of the same Act provides that the other party can also enforce the contract if the company has adopted it after incorporation and the contract is within the terms of incorporation. Personal Right and Liability of Contracting Agent Now, in reference to contracts which do not fall within the purview of the above provisions, the question arises whether they can be enforced by or against the agent who acted on behalf of the projected corporation? The answer will depend upon the construction of the contract. If the contract is made on behalf of a company not yet in existence, the agent might incur personal liability. For, where a contract is made on behalf of a principal known to both the parties to be non-existent the contract is deemed to have been entered into personally by the actual maker. Similarly, "where a person purports to contract as agent he may nevertheless disclose himself as being in truth a principal, and bring an action in his own name". 25 Thus the agents were held personally liable in Kelner v Baxter:26 The facts were that the plaintiff intended to sell wine to a company which was to be formed, but under the contract he agreed to sell to the proposed directors of the company. The proposed directors intended to buy the wine on behalf of the company, but, as it was not in existence when the contract was made, they personally took delivery. It was held that as they had contracted on behalf of a principal who did not exist, they having received the wine, must pay for it.27
-----------------------------------------------------------------------------------------------------------------------------------------------------------------22. Vali Pattabhirama Rao v Ramanuja Ginning & Rice Factory (P) Ltd, (1986) 60 Comp Cas 568 AP. A new contract can also be made by the company after incorporation in terms of the earlier contract, Howard v Patent Ivory Mfg Co, (1988) 38 Ch D 156. An implied contract may arise if the company after incorporation acts on the contract but not when it is under mistaken belief of being bound by the earlier contract, Northumberland Avenue Hotel Co, Re, (1986) 33 Ch D 16 CA. 23. Jai Narain Parasrampuria v Pushpa Devi Saraf, (2006) 133 Comp Cas 794 SC. 24. Imperial Tea Mfg Co v Munchershaw, (1889) 13 Born 415. 25. Lord Goddard CJ in Newborne v Sensolid Ltd, [1953] 1 All ER 708, 709: [1954] 1 QB 45. 26. (1866) LR 2 CP 174: 15 LT 213: [1861-73] All ER Rep Ext 2009. 27. Lord Goddard CJ at p 709 in Newborne v Sensolid Ltd, [1953] 1 All ER 708, 709. The company had gone into liquidation before paying the plaintiff's bill. By virtue of S. 9(2) of the European Communities Act, (S. 36 of the English Companies Act, 1989) an agent of an unformed company becomes personally liable. See Phonogram Ltd v Lane, [1981] 3 All ER 182, CA.

As against it, in an Australian case, a vendor of land was not allowed to sue for specific performance the directors of a proposed company who contracted to buy something under the name of the company which subsequently refused to adopt the purchase.28 Where the contract is purported to be made by the company itself, it cannot be enforced by or against the agent through whom the company contracted, because "the relationship

between a company and its directors is not the ordinary one of principal and agent. Where a company contracts, it is the company who contracts and its contract is merely authenticated by the signature of one or more of the directors". And so in Newborne v Sensolid (GB) Ltd:29 The plaintiff was a promoter and prospective director of a limited company, named Leopold Newborne (London) Ltd, which at the material time had not been registered. A contract for the supply of goods by the company to the defendants was signed thus: 'Leopold Newborne (London) Ltd'; and the plaintiff's name 'L. N.' was written underneath. In an action for breach of the contract brought by the plaintiff against the defendants it was held that the contract was made, not with the plaintiff whether as agent or as principal, but with a limited company which at the date of the making was nonexistent, and, therefore, it was a nullity, and the plaintiff could not adopt it or sue on it as his contract. To the same effect is the decision of the Bombay High Court in Ramkumar Potdar v Sholapur Spinning & Weaving Co Ltd.30 There was a clause in the memorandum of a proposed company under which a certain firm was to be appointed as managing agent of the company. After incorporation the company appointed them, but subsequently, the directors resolved to dismiss them. In an action to restrain the company from committing breach of the contract, it was held that a clause of this kind in the memorandum or articles does not constitute a contract between the company and an outsider. Even if it does constitute an implied contract, yet, "this was a preliminary contract such as the promoters make before incorporation of the company. It is not possible to bring a company into existence under the Act bound by a contract previously made" .31
-----------------------------------------------------------------------------------------------------------------------------------------------------------------28. Smallwood v Black. (1965) 39 ALJR 405 He. Facts borrowed from R. Baxt, Personal Liability of Agent of Unformed Company; Kelner v Baxter Revisited, (1967) 30 Mod LR 328, See also W. E. Davies. Personal Liability of Directors of Non-'Existent Companies, (1964) 6 Univ. of W. Australia LR 400. 29. [1953] 1 All ER 7'p8: [1954] 1 QB 45. 30. AIR 1934 Born 427: (1934) 36 Born LR 907. 31. [d. at p 429, see also B B [Rly Co v District Board, 24 Parganas. AIR 1946 Ca123.

Thus it seems that the desire of the courts is to protect the new company from the burden of promoters' promises, for they "are proverbially profuse in their promises, and if the corporation were to be bound by them it would e subject to many unknown, unjust and heavy obligations" .32 With this protection goes some sacrifice also, for a company could not sue a person ,ho before its incorporation had contracted to buy its shares. In some cases persons rendering services before incorporation had to go unremunerated. 33 Here the Courts will as far as possible saddle the promoter with personality. Thus, for example, in Touche v Metropolitan Rly Warehousing Co34 under a contract with a promoter services were rendered by a third party to a company before its incorporation. The third party not being able to sue, it as held that the promoter must sue the company as a constructive trustee or the benefit of the third party.

Statutory Reform Some of these complications have been 'solved by the European Communities Act, 1972. Section 9(2)35 provides that when a contract purports to be made by a company, or by a person as agent for a company, at a time when the company has not been formed, then, subject to any agreement to the contrary, the contract shall have effect as a contract entered into by the person purporting to act for the company or as agent for it and he shall be personally liable on the contract accordingly. These provisions have been incorporated into S. 36-C of the [UK] Companies Act, 1989. A person attempting to incorporate a pop group, obtained financial assistance from ,a recording company. He was held personally liable to refund the amount on his project failing to materialise.36

Commencement of business [S. 149]

A private company can commence business right from the date of its incorporation. 37 But, in the case of a public company, a further certificate ----------------------------------------------------------------------------------------------------------32. Parke v Modern Woodmen, 181 III 214, 234, (SC of Illinois, U.S.A.). 33. See, Hereford & South Wales Waggon & Engg Co, Re, (1876) 2 Ch D 621; Rotherham Alum & Chemical Co, Re, (1883) 25 Ch D 103; National Motor Mail-Coach Co, Re, (1908) 2 Ch 228: [1908-10] All ER Ext Rep 1373. 34. (1871) LR 6 Ch App 671. 35. This provision was incorporated in S. 36(4) of the 1985 Act [English] and re-enacted as S. 36(1) in the 1989 Act. In order to avoid such personal liability the modern practice is to keep a draft-contract ready to be executed by the company after incorporation. 36. Phonogram Ltd v Lane, (1981) 3 All ER 182, noted: John McMullen, Preliminary Contracts by Promoters, [1982] Camb LJ 47. See also Catronic (UK) Ltd v Desonite, (1991) BCLC 721 CA, here also the contracting agent was held liable but that his liability by itself would not give him the right to sue the other party. 37. S. 149(7). This will be so even if the private company is the subsidiary of a public company.The section would not apply to deemed public company also unless the operative category of deeming provisions would require the filing of a statement in lieu of prospectus. The Deptt. of Co Affairs (DCA) [File No 44/50 (L-IV/62] is of opinion that the commencement certificate (S. 149) and statutory meeting requirement (S. 165) would not apply to a private company converting itself into a public company. Certain internal formalities which would be needed are appointing a chairman, adopting a common seal, opening a bank account, and allotting shares either to raise capital or otherwise to the subscribers. These formalities would require a meeting of directors.

for the commencement of business has to be obtained. This becomes necessary where a company has issued a prospectus inviting the public to subscribe for its shares. It will be entitled to the certificate subject to the following conditions: [So 149(1)] (a) shares payable in cash must have been allotted up to the amount of the minimum subscription; (b) directors must have paid in cash the application and allotment money in respect of the shares contracted to be taken by them for cash;

(c) no money is liable to become refundable to the applicants by reason of failure to apply for or to obtain permission for shares or debentures to be dealt in on any recognised stock exchange. A declaration signed by any director of the company or its secretary that the above requirements have been complied with should be filed with the Registrar. A company which has not appointed a secretary, can get the signature of a secretary who is in whole time practice. A company which has not issued a prospectus has only to file a statement in lieu of prospectus and to certify that every director has paid his application and allotment money for shares contracted to be taken by him for cash. [So 149(2)] When this is done, the Registrar certifies that the company is entitled to commence business. The certificate is conclusive evidence that the company is so entitled.38 No public company can commence any business or exercise any borrowing power unless this certificate is obtained.39 Any contract made before the date at which the company is entitled to commence business shall be provisional only and shall not be binding on the company until the certificate is obtained.4O The Amendment Act of 1965 introduced certain new conditions for the commencement of business by a company. -It has added two new subsections to Section 149. As a result of the amendment of Section 13, the objects clause of a company incorporated after the amendment will have to be divided into two sub-clauses, namely:
-----------------------------------------------------------------------------------------------------------------------------------------------------------------38. S. 149(3). A writ cannot be issued to cancel the certificate of commencement, Muluk Mohamed v Capital Stock Exchange Kerala Ltd. (1991) 72 Comp Cas 333 Ker. 39. S. 149(4). Kodak Ltd v Srinivasan, (1936) 6 Comp Cas 440 Mad. The company becomes entitled to all kinds of business operations necessary for the attainment of its objects. Kishangarh Electric Supply Co Ltd v State of Rajasthan, AIR 1960 Raj 149. Research, explorations, search for markets, mobilisation of resources and other preliminary things can be undertaken even without the certificate. 40. S. 149(6) imposes a penalty for any contravention of these provisions.

1. Main objects.-This will state the main objects of the company and the objects incidental or ancillary to the attainment of the main objects. 2. Other objects.-This will include a statement of other objects not mentioned in the above clause.41 If a company wishes to start a business included in the "other objects" it shall have to obtain the authority of a special resolution of its shareholders. Similarly, when an existing company wants to commence any new business which though included in its objects is not germane to the business which it has been carrying on at the commencement of the Amendment Act, it shall have to obtain the authority of a special resolution. 42 Where, however, a special resolution has not been passed, but the votes cast in favour of the resolution exceed the votes cast against it, the Central Government may, on an application by the Board of directors, allow the company to commence such business.43

In both the above cases there' must be filed with the Registrar a declaration by the secretary or a director that the requirement as to the resolution has been complied with.44

41. S. 13(1)(d). The existing companies' memorandum can remain as they are S. 13(l)(e). 42. Explanation and sub-section (2-A). Where the business is not related with the existing business it is not germane. Thus a new and unrelated business would attract these requirements. 43. S. 149(2-B). 44. S. 149(2-A)(ii). A penalty is imposed for contravention of this provision.

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