Companies Act Section 369

Companies Act, Section 369: Saving of Existing Liabilities upon Registration

Section 369 of the Companies Act, 2013 serves as an important safeguard provision that ensures continuity and legal accountability during the process of transitioning a pre-existing business entity such as a partnership firm, limited liability partnership, society, or cooperative society into a company registered under the Companies Act. Specifically, this section makes it clear that the act of registration under Part XXI of the Act does not affect the entity’s pre-existing legal obligations or rights, including liabilities, contracts, and debts.

This provision is critical for maintaining legal certainty and commercial integrity, both for the newly registered company and for external stakeholders such as creditors, customers, and contractual counterparties.

Preservation of Pre-Registration Liabilities and Obligations

Once an existing entity is registered under the Companies Act and becomes a legally incorporated company, all debts, liabilities, and contractual obligations that existed prior to registration continue to remain in force and binding. 

In other words, the process of incorporation does not wipe out or extinguish any existing legal responsibilities that the entity had undertaken before it became a company. The liabilities and obligations may relate to:

Loans, borrowings, or other financial debts incurred from banks, financial institutions, or private lenders.
Contracts and agreements entered into with customers, vendors, suppliers, or partners, Warranties, indemnities, and guarantees provided by or to the entity, Legal claims, suits, or enforcement actions pending or anticipated,Any other enforceable legal, commercial, or financial commitment made before the registration.
This means that the newly registered company becomes the legal successor to the unregistered entity in all respects related to its rights and liabilities. It assumes the same obligations and can also enforce the same rights, as if it had always existed in the incorporated form.

Applicability to All Types of Pre-Registration Dealings

Section 369 explicitly applies to:

Debts and obligations incurred by the entity before registration, Contracts made with the entity before its incorporation under the Companies Act, Contracts made on behalf of the entity, such as those entered into by its partners, managers, trustees, or authorized agents before incorporation.
This wide coverage ensures that the conversion into a company does not become a means of avoiding legal responsibility, and that third parties who dealt in good faith with the entity prior to its registration are not prejudiced or left without legal recourse.

Legal Continuity and Corporate Accountability

This section upholds the principle of legal continuity by ensuring that the transformation of an entity’s legal structure into a company:

Preserves the legal personality and business obligations that existed under the prior form, Ensures accountability to creditors and counterparties, and Avoids the risk of fraudulent avoidance of liabilities through corporate conversion.
Thus, from a legal standpoint, the newly incorporated company stands in the shoes of the former entity for all purposes connected to past contracts, debts, and responsibilities.