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CS Professional · Corporate Restructuring, Valuation and Insolvency · Process of M&A Transactions

Before a merger, Arjun Textiles Ltd's director signed a contract with a related party for services without Board consent or shareholder approval, and the contract was not ratified. Within what period must ratification occur, failing which the contract becomes voidable?

Ratification must happen within three months from the date the contract was entered into. If the Board or shareholders do not ratify at a meeting within that period, the contract becomes voidable at their option, as section 188(3) provides.

  1. AWithin one month from the date of the contract
  2. BWithin three months from the date of the contractCorrect
  3. CWithin six months from the date of the contract
  4. DWithin the next financial year

Explanation

Section 188(3) provides that if the contract is not ratified by the Board or shareholders at a meeting within three months from the date it was entered into, it is voidable at the option of the Board or shareholders. One and six months are not the stated periods.

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