Skip to content

CS Executive · Setting Up of Business, Industrial and Labour Laws · Conversion of Business Entities

Mehta Agro Private Limited converted into a company of another class. Before conversion it had entered into a supply contract with Sharma Traders and owed them ₹4,00,000. After the new certificate was issued, Sharma Traders wanted to recover the amount. What is the legal position?

The debt remains enforceable as if the conversion had never taken place. Section 18(3) says registration on conversion does not affect debts, liabilities, obligations or contracts incurred before conversion. Closing the former registration does not extinguish the claim, and no fresh consent from the creditor is needed.

  1. AThe debt lapses because the former registration was closed
  2. BThe debt can be enforced as if the registration had not been doneCorrect
  3. CThe debt can be enforced only after fresh consent of Sharma Traders is obtained
  4. DThe debt can be enforced only against the directors personally

Explanation

Section 18(3) states that registration under this section does not affect any debts, liabilities, obligations or contracts incurred before conversion, and they may be enforced as if the registration had not been done. The closure of the former registration therefore does not extinguish the debt.

Did you get it right without looking?

One question tells you little. A timed set on Conversion of Business Entities shows your real accuracy, how long you take and where you lose marks.

Practise Conversion of Business EntitiesFree diagnostic mock

More Conversion of Business Entities questions