Does section 299 attract here?please help

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C.A Alok Mukherjee (Querist)
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11 July 2011 We are a public limited company say X limited. 43% of our share is held by another company say Y limited. Two directors are the common directors i.e in both the company they are the directors and in company X their shareholding in individual capacity is not exceeding 2% but in company Y limited their shareholding is exceeding 2%.

Now X limited by an agreement with Y limited take two employees service one is driver and the other one is a peon for it's business need. For this Y limited charged a bill on submission of a copy of pay details and X limited is making the reimbursement to Y limited.

This contract since a reimbursement of expenses only x limited did not take cognizance of requirement of section 299. The auditor is of the view since this a violation on the part of section 299 and thereby section 301 this is to be qualified in CARO.

Sir, will you please help us whether this is a violation at all or not and if yes where is the escape route?

regards,

Alok Mukherjee

CS Bijoy

CS Bijoy (Expert)
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11 July 2011 According to me Section 299 of the Companies Act.1956 is applicable only on those transaction or contract where Directors are interested in which Directors together holding in excess of 2% share in other Company.

Section 299 does not require any approval just Discloser is enough.
So if proper disclouser is made than there is no Violation.