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Contract in which directors are interested

Linta (16 Points)

07 June 2007

This is query with regard to the Companies Act. One public company has taken advance from another public company for services to be rendered in the next financial year. Two directors are common in both the companies. Is it possible to conclude that the company has entered into a contract in which the directors are interested?

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5 Replies

CA Nikita (Chartered Accountant) (4158 Points)
Replied 11 June 2007

Not necessarily if the contract entered in as per the terms and conditions prevelant in the market presently.. and there is no benefit specifically derived in monetary terms from the contract entered .. so to know the facts of the contract is must before concluding on anything...

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Vinod Kashyap (XBRL Training) (451 Points)
Replied 12 June 2007

Section 297 does not apply to the contacts between two public companies and accordingly Board's Sanction will not be required in the present case.

SUBRAMANIA SARMA G (CHARTERED ACCOUNTANT) (162 Points)
Replied 16 June 2007

Even though two public companies are outside the scope of section 297 of the companies act, compliance of section 299 of the act is mandatory unless it falls within sec 299(6).

Srivathsan Rangarajan (Chartered Accountant) (66 Points)
Replied 31 July 2007

Assuming that the common directors do not hold any shares or only hold shares representing less than 2% of the paid up capital then the provisions of section 297 and 299 shall not apply.