Applicability of section 297 for existing contract

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Kavitha (Querist)
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15 March 2013 Dear All,

Please clarify my following doubt:
A Pvt Ltd and B Pvt Ltd enter into a contract on 01/04/2011 for sale and purchase. The term of the contract is for 3 years. Mr. X who is a director of A Pvt Ltd is appointed as director of B pvt Ltd on 15/04/2011. He becomes an interested director. Does this require Board's/Central Government Approval? Please let me know if there is any department circular/clarification for applicability of Section 297 for existing contract.

Ajay Mishra

Ajay Mishra (Expert)
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15 March 2013 Hi

Every director of a company, who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into, by or on behalf of the company, shall disclose the nature of his concern or interest at a meeting of the Board of directors. Section 299(2) relates to the time of disclosure, which may be described as under, depending upon the status of contract.
In the case of proposed contract or arrangement, the disclosure shall be made at the meeting of the Board at which the question of entering into the contract or arrangement is first taken into consideration, or if the director was not, at the date of that meeting, concerned or interested in the proposed contract or arrangement, at the first meeting of the Board held after he becomes so concerned or interested. [Section 299(2)(a)]

In your case, the contract has been made before Mr. X, appointment, so he is not in picture, so he is not interested at that time.

Kavitha

Kavitha (Querist)
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15 March 2013 Thank you for your reply. But in this case the time gap between the contract being entered and Mr. X becoming interested is only 15 days. Does it not matter? What if he resigns before entering into every contract and then is appointed again after the contract is executed?

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Ajay Mishra

Ajay Mishra (Expert)
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15 March 2013 Hi

As per our understanding, he will intimate their interest as and when he will be appointed and give details of the company in which he is interested.

So at the time of entering into contract the proposed director is not in Board so he will not be covered under section 297, 299 and 300.

Kavitha

Kavitha (Querist)
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15 March 2013 Thank you Sir