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CS Professional · Compliance Management, Audit and Due Diligence · Compliance Framework

Before registering under the Companies Act, 2013, Sundaram Engines Ltd had entered into a supply contract with Kaveri Metals and had borrowed Rs 40 lakh from a bank. After it is registered under the Act, Kaveri Metals asks whether the contract and the bank debt are affected. What is the legal position under section 369?

Registration under the Act does not affect the company's rights or liabilities in respect of any debt, obligation or contract entered into before registration. Both the supply contract and the Rs 40 lakh bank borrowing therefore continue unchanged and remain enforceable.

  1. ARegistration does not affect the company's rights or liabilities on the pre-registration contract or debtCorrect
  2. BThe debt lapses, but the contract continues
  3. CThe contract lapses, but the debt continues
  4. DBoth must be re-negotiated within the period the Registrar allows

Explanation

Section 369 provides that registration shall not affect the company's rights or liabilities in respect of any debt or obligation incurred, or any contract entered into, before registration. Both the debt and the contract therefore continue. Options suggesting lapse or renegotiation have no basis in the section.

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