Before incorporation, the promoters of ABC Mills Ltd., Ms. Desai & Mr. Advani entered into an agreement with Mr. Dalvi to buy a plot of land in Pune, on behalf of a Company. After incorporation, ABC Mills Ltd. refuse

The legality of the contracts formed before the incorporation stage is a little difficult to define because it was entered on behalf of company by promoters but company is not in existence. But anyhow, the promoters are themselves liable for all the contracts entered by them. Further, according to section 19(e) of the Specific Relief Act, 1963, except as otherwise provided by Chapter II, specific performance of a contract may be enforced against when the promoters of a company have, before its incorporation, entered into a contract for the purpose of the company and such contract is warranted by the terms of the incorporation, the company: Provided that the company has accepted the contract and communicated such acceptance to the other party to the contract. In the given situation, Mr Dalvi can hold Ms. Desai and Mr. Advani personally liable and sue them to specifically enforce his right to sell the Pune land in accordance with Specific Relief Act, 1963 or take action in accordance with Indian Contract Act, 1872. Pre-incorporation contracts in general are void ab initio and hence not binding on the company. Thus, Mr. Dalvi can take action against Mr. Desai and Mr. Advani.