Unborn firm cannot sign arbitration agreement

A company cannot enter into an arbitration agreement even before it is formally registered under the Companies Act, the Supreme Court (SC) ruled in the case, Andhra Pradesh Tourism Development Corporation vs Pampa Hotels Ltd. However, the promoters of the company can enter into such an agreement if it was warranted by the terms of incorporation of the company. But the company which is yet to be born cannot sign an arbitration agreement. In this case, the corporation and the hotel chain signed agreements on lease and management of a new hotel in Hyderabad. The corporation later terminated the agreement. The hotel company moved the high court for appointment of an arbitrator. It appointed an arbitrator. The state corporation appealed to the Supreme Court, which set aside the high court order stating that the registration of the company was a year after signing the agreement.