Applicability of Section 297
This query is : Resolved
29 December 2010
In case there are two companies, co 1 pub co having paid up capital less than Rs 1 crore and Co 2 Pvt Company having paid up capital more than 1 crore
now these companies enter into transcations in which directors are common. Whether the transaction attracts under sec 297 of the Act, kindly let me know which company pub or pvt has to take the approval of Central Govt ( RD).
please support answer with reasoining
now these companies enter into transcations in which directors are common. Whether the transaction attracts under sec 297 of the Act, kindly let me know which company pub or pvt has to take the approval of Central Govt ( RD).
please support answer with reasoining
29 December 2010
My own answer to the query is:
In the instant case Board Resolution is sufficient. As per Section 297(1) consent of the Board of Directors of the company (public or private) is required for entering into contract with a private company (public company is not covered) of which the director is a director. Here, the transaction is between a public company and a private company. Hence approval of Board of Directors of public company is required while vice-versa is not required. As regards CG approval the public company's paid up share capital is less than Rs. 1 crore, hence it's not required.
Section 297(1) gets attracted when a company, Public or Private enters into a contract with
i) Director
ii) Director’s relative
iii) Firm in which director is a partner
iv) A private company in which such director is a director or member
So transactions between a public company and another public company is outside the scope. In the instant case the public company is entering into transactions with a private company having common director. So the paid up capital of the public company is to be considered and not that of the private company. In any case transactions between public to private, only public companies are required to obtain approval. Hence I am of the opinion that CG approval is not required.
Experts please confirm if my intrepretation is right?
In the instant case Board Resolution is sufficient. As per Section 297(1) consent of the Board of Directors of the company (public or private) is required for entering into contract with a private company (public company is not covered) of which the director is a director. Here, the transaction is between a public company and a private company. Hence approval of Board of Directors of public company is required while vice-versa is not required. As regards CG approval the public company's paid up share capital is less than Rs. 1 crore, hence it's not required.
Section 297(1) gets attracted when a company, Public or Private enters into a contract with
i) Director
ii) Director’s relative
iii) Firm in which director is a partner
iv) A private company in which such director is a director or member
So transactions between a public company and another public company is outside the scope. In the instant case the public company is entering into transactions with a private company having common director. So the paid up capital of the public company is to be considered and not that of the private company. In any case transactions between public to private, only public companies are required to obtain approval. Hence I am of the opinion that CG approval is not required.
Experts please confirm if my intrepretation is right?
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29 December 2010
Agreed with your interpretation mam!
Regards
CS Udit Sharma
Regards
CS Udit Sharma
29 December 2010
you correctly said jayashree...
29 December 2010
Further related queries on the subject -
1)In the instant case if the paid up capital of the public company is > 1 crore, the public company should go for CG approval. Right?
2)In case of tranctions between two private companies, both having a paid up capital > Rs.1 crore, do both the companies need to take CG approval?
In my opinion one approval covers transactions between both the companies and hence one application is sufficient.
View of the experts please?
1)In the instant case if the paid up capital of the public company is > 1 crore, the public company should go for CG approval. Right?
2)In case of tranctions between two private companies, both having a paid up capital > Rs.1 crore, do both the companies need to take CG approval?
In my opinion one approval covers transactions between both the companies and hence one application is sufficient.
View of the experts please?
29 December 2010
Agreed with Jayashree......
Section 297 does not apply to:
1. Giving or taking loans.
2.Contract in respect of immovable property (as it is not 'good' ).{Letter No. 9/4190-CL-X dated 27.03.1990}.
3.Contract between two public Companies.
4.Contract of employment of director or managing or whole time director.[ Circuler No.8/11/75-CL-V dated 27.03.1975]
5.Contract for employment of relative of director.
6.Contract entered into by the company with the dealer on principle to principle basis. [Circuler No. FM 8/297/56-PR dated 02-08-1956]
7. Professional services of the nature given by firms of solicitors and advocates, etc.[circuler No. 8/11/75-CL-V dated 05.06.1975]
8.hiring of office premises on rent as the transaction is in immovable property. [Department Clarification dated 10-09-1990]
Regards
Section 297 does not apply to:
1. Giving or taking loans.
2.Contract in respect of immovable property (as it is not 'good' ).{Letter No. 9/4190-CL-X dated 27.03.1990}.
3.Contract between two public Companies.
4.Contract of employment of director or managing or whole time director.[ Circuler No.8/11/75-CL-V dated 27.03.1975]
5.Contract for employment of relative of director.
6.Contract entered into by the company with the dealer on principle to principle basis. [Circuler No. FM 8/297/56-PR dated 02-08-1956]
7. Professional services of the nature given by firms of solicitors and advocates, etc.[circuler No. 8/11/75-CL-V dated 05.06.1975]
8.hiring of office premises on rent as the transaction is in immovable property. [Department Clarification dated 10-09-1990]
Regards
29 December 2010
Regarding ur second query mam, i have a different opinion:
in case of transcations between 2 Private Companies both having a paid up capital of more than Rs. 1 Crores, both the Companies will have to go for CG approval.
Regards
CS Udit Sharma
in case of transcations between 2 Private Companies both having a paid up capital of more than Rs. 1 Crores, both the Companies will have to go for CG approval.
Regards
CS Udit Sharma
29 December 2010
Der Udit,
When 'X' Co. applies for contract between 'X' and 'Y' and the CG approves it, does it not mean contract between 'X' and 'Y' or vice versa is approved. Then why 'Y' Company is also required to apply because the contracting parties, terms, conditions, etc are same.
When 'X' Co. applies for contract between 'X' and 'Y' and the CG approves it, does it not mean contract between 'X' and 'Y' or vice versa is approved. Then why 'Y' Company is also required to apply because the contracting parties, terms, conditions, etc are same.
29 December 2010
Respected Mam,
There are 2 companies X Pvt.Ltd. and Y Pvt. Ltd. each having a paid up capital of more than Rs.1 Crores. When X proposes to enter into a transaction with Y, then it has to obtain the approval of the CG in Form 24A. Similarly, Y Pvt. Ltd. for entering into a transaction with X pvt. Ltd. has to obatin the prior approval of the CG in prescribed E- form 24A.
In case only X Pvt. Ltd. obatins the approval of the Central Government, then is it considered that the approval has been granted to Y Pvt. Ltd also for entering into a contract with X Pvt.Ltd.????? In my opinion, Y Pvt. Ltd. also needs to obatin the approval of the CG.
In my opinion, both the Companies will have to comply with the provisions of section 297 of the Companies Act, 1956. If only X Pvt. Ltd. obtains the consent of CG for entering into a transaction with Y Pvt. Ltd., then can it be said that Y Pvt. Ltd. has also complied with the provisions of section 297?
Does that mean that X Pvt. Ltd. has applied for the approval of Central Government and Y Ltd. is deemed to have been granted the approval even without applying?
Regards
CS Udit Sharma
There are 2 companies X Pvt.Ltd. and Y Pvt. Ltd. each having a paid up capital of more than Rs.1 Crores. When X proposes to enter into a transaction with Y, then it has to obtain the approval of the CG in Form 24A. Similarly, Y Pvt. Ltd. for entering into a transaction with X pvt. Ltd. has to obatin the prior approval of the CG in prescribed E- form 24A.
In case only X Pvt. Ltd. obatins the approval of the Central Government, then is it considered that the approval has been granted to Y Pvt. Ltd also for entering into a contract with X Pvt.Ltd.????? In my opinion, Y Pvt. Ltd. also needs to obatin the approval of the CG.
In my opinion, both the Companies will have to comply with the provisions of section 297 of the Companies Act, 1956. If only X Pvt. Ltd. obtains the consent of CG for entering into a transaction with Y Pvt. Ltd., then can it be said that Y Pvt. Ltd. has also complied with the provisions of section 297?
Does that mean that X Pvt. Ltd. has applied for the approval of Central Government and Y Ltd. is deemed to have been granted the approval even without applying?
Regards
CS Udit Sharma
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