Companies Act Section 370

Companies Act, Section 370: Continuation of Pending Legal Proceedings After Registration

Section 370 of the Companies Act, 2013 addresses the status of legal proceedings such as lawsuits, claims, or any judicial or quasi-judicial matters that are already ongoing at the time a business entity is registered as a company under Part XXI of the Act. It ensures that the process of registration does not disrupt or invalidate existing legal actions involving the entity. The section also introduces protections for individual members of the newly incorporated company from personal liability in such proceedings and outlines the mechanism for satisfying judgments if the company’s assets are insufficient.

This provision is crucial to ensuring legal continuity, procedural fairness, and the integrity of judicial proceedings even when an entity transitions to a new legal form.

1. Legal Proceedings Before Registration May Continue Without Interruption

When an existing business entity such as a partnership firm, limited liability partnership (LLP), cooperative society, or any other eligible body registers as a company under Part XXI of the Companies Act, any legal proceeding that was already in progress before the date of registration shall continue without interruption. This includes:

Civil suits filed by or against the entity, Criminal cases (where applicable), Arbitration proceedings, Tribunal or regulatory authority matters, Any other judicial or quasi-judicial process involving the entity, any public officer, or any of its members.
Such proceedings shall be deemed to proceed as though the registration of the entity as a company had never occurred. This legal fiction ensures that the act of incorporation does not create any procedural disadvantage or force a fresh initiation of cases.

2. Protection of Individual Members from Execution of Judgments

While legal proceedings may continue after the registration of the entity as a company, the law provides a shield to individual members of the company in terms of enforcement of judgments.

Specifically, no decree or order passed in such pending proceedings may be executed against the personal property or person of any individual member of the company. This protection reflects the principle of limited liability, which is a core feature of corporate identity under company law.

For instance, if a money judgment is obtained against the entity, the personal assets of the company’s members cannot be attached or seized in satisfaction of that judgment merely because the proceedings began prior to registration.

3. Recourse in Case of Insufficient Company Assets

In cases where a decree or order is obtained in a pending legal proceeding, and the company’s assets are insufficient to satisfy the amount due, the law provides a structured remedy. 

The affected party may apply for winding up of the company to recover what is owed. The winding-up proceedings may be initiated:

Under the relevant provisions of the Companies Act, 2013, or Under the Insolvency and Bankruptcy Code, 2016 (where applicable).
This allows creditors or judgment-holders to seek an equitable resolution of claims through a formal process of liquidation or insolvency, rather than pursuing individual members or seeking personal redress against those behind the company.