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

Under the Companies Act, 2013, what is the effect of a conversion of a company of one class into a company of another class on contracts the company entered into before the conversion?

Contracts entered into before conversion remain enforceable as if the conversion had not occurred. Section 18(3) says conversion does not affect earlier debts, liabilities, obligations or contracts, so the converted company stays bound and entitled without any fresh execution or Registrar certification.

  1. ASuch contracts lapse and must be re-executed in the name of the converted company
  2. BSuch contracts can be enforced as if the conversion had not taken placeCorrect
  3. CSuch contracts remain valid only if the Registrar certifies them
  4. DSuch contracts can be enforced only against the directors personally

Explanation

Section 18(3) provides that registration of a company on conversion 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 lapse option is wrong because conversion does not extinguish contracts.

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