Before starting operations, a company must enter into several contracts and make several initial expenses. Contracts entered into by project proponents with parties to acquire land or rights for and for a company to be entered into are referred to as “pre-foundation contracts” or “preliminary contracts” .1. Legal status of pre-foundation contract The legal status of a pre-foundation contract is not easy to define. According to the definition of the contract, at least two parties/persons must enter into a contract between them. The general principle therefore states that there is no contract if there is no contractor at the time of the contract. As a result, the company cannot enter into a contract until it is in agreement and does not enter broadcast time until after it has been recorded. It is possible to argue that the pre-foundation contract is entered into by the promoters on behalf of the company. But here, too, there is a tangle. Project proponents act as representatives of the company when the contract is concluded.
But if the client, that is, the company itself, does not exist, how can he appoint an agent acting for him? It is therefore the promoters themselves, not the company, who are personally responsible for all the contracts they have entered into, while they claim to work for the potential company. But, u/s 230 of the Indian Contract Act, an agent cannot personally enforce the contracts he has entered into on behalf of his principal, nor is he personally bound to them if he makes it clear, at the time of signing the contract, that he is acting only as an agent and that he is not personally liable under the contract. Therefore, if this principle is applied, the contract becomes thrifty, since neither party is responsible in accordance with the treaty. However, the solution to our problem is u/s 15 (h) and you/s 19 (e) of the Specific Relief Act of 1963. While these provisions depart to some extent from common law principles, they render pre-founding contracts valid. U/s 15 (h), unless otherwise stated in this chapter, the specific performance of a contract may be obtained by — a) any party in it; (b) the representative of a party or the contracting entity of a party, which is only a conclusion of a pre-foundation contract, is that it must be reduced to the letter. The Companies Act provides that if the company`s board of directors has neither ratified nor refused a specific pre-foundation contract concluded within three months of the date of the company`s incorporation or concluded on behalf of the company, the company is presumed to have ratified that agreement.