Conversion From Private To Public Company Doesn't Affect Existing Contracts: Gauhati High Court
The Gauhati High Court has recently clarified that when a company changes its class under the Companies Act, 2013 for instance, from a private company to a public company or vice versa, the mere issuance of a fresh certificate of incorporation does not wipe out its existing legal commitments. Its contracts, liabilities and obligations continue to subsist and remain fully...
The Gauhati High Court has recently clarified that when a company changes its class under the Companies Act, 2013 for instance, from a private company to a public company or vice versa, the mere issuance of a fresh certificate of incorporation does not wipe out its existing legal commitments.
Its contracts, liabilities and obligations continue to subsist and remain fully enforceable notwithstanding such conversion
A single judge bench of Justice Devashis Baruah observed that although Section 18 (3) of the Companies Act provides that the earlier registration of a company stands closed upon conversion, the law expressly preserves continuity of obligations.
“The fresh registration granted by issuance of a Certificate of Incorporation shall not affect any debts, liabilities, obligations or contracts incurred or entered into by or on behalf of the company before conversion and such debts, liabilities, obligations and contracts shall be enforced in the manner as if such registration have not been done.” the court observed.
The proceedings arise from a tender issued by the Northeast Frontier Railway for appointment of a General Consultant. The bid was submitted by Aarvee Associates Architects Engineers and Consultants Private Limited as part of a consortium.
While the tender process was still in progress, the company secured the necessary approvals, changed its name to Aarvee Engineering Consultants Limited and converted from a private limited company into a public limited company.
These changes, along with all supporting documents, were duly communicated to the Railway authorities. Nevertheless, after issuing the Letter of Acceptance in the company's former name and granting several extensions for submission of performance security, the Railway went on to cancel the Letter of Acceptance and forfeit the bid security, on the ground that the performance bank guarantee had been furnished by a different entity.
The Railway authorities contended that the bid and Letter of Acceptance were issued in favour of the joint venture constituted under the original name, that no amended joint bidding agreement had been submitted after the conversion, and that the tender conditions did not permit any change in the composition of the consortium.
Rejecting this stand, the High Court held that all contractual obligations of the original private limited company automatically continued to bind the converted entity by operation of law.
“all debts, liabilities, obligations or contracts incurred or entered by M/s Aarvee Associates Architects Engineers and Consultants Private Limited shall continue to remain in force as debs, liabilities, obligations and contracts of the M/s Aarvee Engineering Consultants Limited i.e. the Petitioner No.1. ,” the court said.
It further held that the joint bidding agreement also survived the conversion,
“The Joint Bidding Agreement so submitted by the M/s Aarvee Associates Architects Engineers and Consultants Private Limited in consortium with Petitioner No.2 shall be deemed to be the Joint Bidding Agreement of Petitioner No.1 in consortium with Petitioner No.2 and both the Petitioner No.1 and Petitioner No.2 shall be bound by the said Joint Bidding Agreement in respect to the contract in question”
Taking note of the railway's conduct in recognizing the conversion earlier but later ignoring it, the court added, “Respondent Authorities had completely disregarded the various communications prior to issuance of the Letter of Acceptance as discussed above and ignored the provisions of Section 18(3) of the Act of 2013. Under such circumstances, the impugned order suffers from malice in law as well as contrary to the provisions in law. Accordingly, the impugned order cannot be sustained in law."
Case Number: WP(C) No. 5504 of 2025
Case Title: Arvee Engineering Consultants Ltd (formerly known as Aarvee Associates Architects Engineers and Consultants Pvt Ltd) & Ors v Union of India & Ors