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Applicaiton of Section 297 to Trusts.

JAYAKUMAR (MANAGEMENT TRAINEE) (57 Points)

31 March 2010

Hi Friends,

If a Company with paid up share capital over 1 Crore, enters into a contract with a Trust for Sales, whether the Company has to get Central Govenment's approval for such contract under Section 297.

Could anyone explain the logic elaborately.

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5 Replies

Ashish Sharma (Service) (1028 Points)
Replied 31 March 2010

Dear Jayakumar,

Section 297 is for the Transactions of company with the Director, relative , any firm in which he is partner or relative partner and any company in which he or his relative director

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 31 March 2010

Agree with Ashish.

Section 297 is not applicable. No special logic. Just see the parties covered by the language of section 297(1).

Regards

JAYAKUMAR (MANAGEMENT TRAINEE) (57 Points)
Replied 01 April 2010

Hi Ashish,

A huge thanks for your response.

I would really appreciate if someone help me with this doubt.

Does contract with sole proprietorship attract provisions of Section 297. Contract with Director of the Company attracts Section 297

If the Director is a soleproprietor, and the Company in which he is a Director enters into Contract with that Soleproprietorship, don't the provisions of Section 297 be attracted.

What about the Trust, the entire operation of which is carried out by an individual ( Trustee). In case, if the Director of the Company acts as the sole trustee, does the Contract with that trust by that Company attracts provisions of Secton 297.

Thanks in advance.

RITU BAJAJ (COMPANY SECRETARY) (158 Points)
Replied 01 April 2010

In case of Sole proprietorship Firm Section 297 will be attracted as its equal to as entering into a contract with an individual who is the director of the Company because the identity of sole proprietorship firm & that of proprietor is same. Thus Section 297 gets attracted.

While in the case of Trust Section 297 does not get attracted as because Companies Act is silent in regard to it. Section 297 attracts where the contract is with :-

Director or his relative, or

Firm in which such director or his relative is partner or any other partner in such a firm, or

Private Company of which such director is a member or director

Thus we can take plead and can enter into contract with a Trust.

This is my opinion......wait for opinion from some experts.

Ashish Sharma (Service) (1028 Points)
Replied 01 April 2010

Hi Jayakumar,

As per the Act trust is not added separately in section 297. Surely the Soleproprietorship will attract in section 297. but as far as trust concerns trustee act for the benefit of beneficiary so it can't say soleproprietorship of director. still i am finding legal liability of trustee or any other case related to this.

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