Ratify Pre explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A company cannot technically ratify a contract made before it existed; after incorporation it adopts or novates the pre-incorporation contract by Board resolution or a fresh agreement. Under Sections 15(h) and 19(e) of the Specific Relief Act, 1963, the company can enforce such a contract if its terms warranted incorporation and the company accepts and communicates acceptance.
Overview
Before a company is incorporated it has no legal existence and cannot contract. Yet promoters routinely sign leases, vendor agreements or purchase deals to get the business off the ground. These are pre-incorporation contracts. Because the company did not exist at signing, ordinary ratification is not available — the company must instead adopt or novate the contract after it comes into being.
When It Is Required & Legal Basis
The common-law rule is that a company cannot ratify a contract made before its incorporation, and the promoter remains personally liable. The Specific Relief Act, 1963 modifies this: Section 15(h) lets the company enforce such a contract, and Section 19(e) lets the other party enforce it against the company, where the contract's terms warranted incorporation and the company has accepted it and communicated the acceptance. The Companies Act, 2013 requires the company, once incorporated, to act through its Board.
Step-by-Step Process
- Review the contract. After incorporation, examine each pre-incorporation contract and confirm its terms warranted the company's formation.
- Board meeting. Convene the first Board meeting and place the contracts before the Board.
- Adopt by resolution. Pass a Board resolution adopting/accepting the contract in the company's name and authorise a director to sign confirmations.
- Communicate acceptance. Formally inform each counterparty that the company has accepted the contract.
- Novate where possible. Execute a fresh post-incorporation agreement (novation) so the company replaces the promoter as a party.
- Record and disclose. Minute the adoption, update the register of contracts (MBP-4) where a director is interested, and reflect any related-party aspect under Section 188.
Forms, Attachments & Fees
| Step / Document | Purpose | Timeline |
|---|---|---|
| Board resolution | Adopt pre-incorporation contract | First Board meeting |
| Letter of acceptance | Communicate acceptance to counterparty | Promptly after adoption |
| Novation / fresh agreement | Replace promoter with company | Post-incorporation |
| MBP-4 entry / MGT-14 | Where director interested / special resolution | Per Sections 188/189 |
No dedicated MCA e-form governs adoption; costs are limited to stamp duty on any fresh agreement and standard filing fees on consequential forms (₹300–₹600 range).
Timeline & Due Dates
Adoption is best done at the first Board meeting after incorporation. Any consequential MGT-14 (for related-party approval) is filed within 30 days. Novation agreements should be executed before performance milestones fall due.
Penalty for Delay / Non-compliance
There is no specific penal provision for delayed adoption, but the promoter remains personally liable until the company validly adopts or novates the contract. If the transaction is a related-party contract not approved under Section 188, the penalties of ₹5 lakh (unlisted) or ₹25 lakh (listed) can apply, and any interested-director contract not recorded attracts Section 189 penalties.
Practical Tips
- Prefer novation over mere adoption — a fresh signed agreement removes doubt about the company's liability.
- List all pre-incorporation contracts in the promoters' agreement so nothing is missed at adoption.
- Keep the counterparty's written acceptance of the substitution on file.
- Flag any contract with a promoter-director for Section 188/189 compliance.