Under Section 301 of the Companies Act

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 January 2011 One of the Director in our Company is also on th Board of our foreign Subsidiary Company. So do we include the transactions with foreign companies under Section 301 of the Companies Act ??????????

udit sharma

udit sharma (Expert)
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12 January 2011 In my opinion,transactions with foreign companies will not fall within the ambit of section 301 of the Companies Act, 1956.

God Bless

CS Udit Sharma

Jayashree S Iyer

Jayashree S Iyer (Expert)
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12 January 2011 I feel section 299 and 301 should apply for contracts or arrangements with foreign companies also if the director is directly or indirectly concerned or interested.

If X is a MD of ABC Limited (India) and also a director of ABC Inc. (US) defninitely the terms of contract could be prejudicial to the interest of shareholders and hence would attract the provisions of Section 299 and consequently 300 and 301.

Section 297 however would not be applicable.

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udit sharma

udit sharma (Expert)
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12 January 2011 Respected Mam,

As per the definition of the term'Company' provided in section 3 of the Companies Act, 1956, Company means a Company formed and registered under the Companies Act, 1956 or an Existing Company as defined under section 3(ii) of the Companies Act, 1956.

Whether a Foreign Company formed and registered in accordance with the laws of the country in which it is incorporated fall within the definition of the term'Company' under the Companies Act, 1956?????? Kindly throw some light......

Regards

udit sharma

udit sharma (Expert)
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12 January 2011 Continuing further,

If the Foreign subsdiairy is a Company as per opinion of Jayashree Mam, then whether the provisions of section 297 will be applicable or not will depend on the nature of transcations between the 2 Companies. Further, the provisions are not applicable between two public Limited Companies.

Provisions of section 299 will not be applicable merely because the Director of the Company is also a Director of the Foreign Subsidiary Company. Section 299(6) of the Companies Act, 1956 provides that nothing contained in section 299 shall be applicable unless the Director of one Company is holding either singly or in connection with other Director more than 2% of the paid up capital of the other Company.

Therefore, if a Director of the Indian Company is not holding more than 2 % of the paid up capital of the Foreign subsidiary Company,he cant be considered as interested in the transcations entered into with the Foreign Subsidiary Company and the provisions of section 299 will not be applicable.

If the provisions of section 297 nd 299 are not applicable, obviously the provisions of section 301 of the Companies Act, 1956 will not be applicable.

Experts please correct me if i m wrong.....

CA Ankit Gulgulia (Jain)

CA Ankit Gulgulia (Jain) (Expert)
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12 January 2011 As per S.591(2)

Notwithstanding anything contained in sub-section (1), where not less than fifty per cent, of the paid-up share capital (whether equity or preference or partly equity and partly preference) of a company incorporated outside India and having an established place of business in India, is held by one or more citizens of India or by one or more bodies corporate incorporated in India, or by one or more citizens of India and one or more bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with such of the provisions of this Act as may be prescribed with regard to the business carried on by it in India, as if it were a company incorporated in India

So without Doubt S.297 & 299 will be Applicable if Transaction is Involving Foreign Companies. But I Agree with Mr. Udit on the Fact that S.299 shall apply on if 2% Condition (Note :Not only that Specific director but it can be all Director's Composite Holding) is Fulfilled and Applicability of S.297 is Completely Specific to the Factual Circumstances between the Two Companies in Light of Provisions of The Act.

Further to Substantiate my Claim on Applicability of S.297 & S.299 for Foreign Companies i would like to draw your attention to Disclosures made in Form 24AA , where directors Disclose their Shareholding in foreign Companies Also.

Regards
Ankit Gulgulia