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CMA Final · Corporate and Economic Laws · Company Formation and Conversion

Pune Spices Ltd. is converted into a company of another class under the Companies Act, 2013. Before conversion, it had entered into a supply contract with Nashik Traders. What is the effect of the conversion on that contract?

The contract continues and can be enforced as if the conversion registration had not occurred. The Act says conversion does not affect debts, liabilities, obligations or contracts entered into before conversion, so no lapse, fresh consent or personal liability of promoters arises.

  1. AThe contract lapses because a new certificate has been issued
  2. BThe contract can be enforced as if the registration had not been doneCorrect
  3. CThe contract becomes enforceable only after fresh consent of Nashik Traders
  4. DThe contract is enforceable only against the promoters personally

Explanation

Section 18(3) provides that registration on conversion does not affect debts, liabilities, obligations or contracts incurred before conversion, which may be enforced as if the registration had not been done. Hence lapse or fresh consent is not required.

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