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This case falls under which provision ?
This case shall certainly not fall under Section 297 of the Companies Act 1956 as it refers to certain direct contracts only. Section 299 of the Act refers to the interest of a director “in any way directly or indirectly”, so it is wider in scope than Section 297. Hence, this case will definitely fall u/s 299.
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Provisions of Section 299 in brief :
As per Section 299 of the Act, every director of a company must disclose to it’s Board of Directors at a meeting of the Board the nature of his/her interest :
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If he/she is in any way, whether directly or indirectly, concerned or interested;
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In any contract or arrangement, or proposed contract or arrangement; entered into, or proposed to be entered into, by or on behalf of the company.
Section 299 applies to arrangements, besides contracts, in which a director is concerned or interested ‘in any way’, ‘whether directly or indirectly’, eg, a contract in which a director is interested through his relatives. {Pydah Venkatachalapati vs. New Belgium (Transvaal) Land & Development Co. [1914] 2 Ch 488 (CA); TR Pratt (Bombay) Ltd. vs. MT Ltd (1938) 8 Comp Cas 137 (PC).}
Nothing in Section 299 is applicable to any contract or arrangement between two companies, if any one or more of the directors of the one company together holds / hold 2% or less of the paid–up share capital in the other company. [Section 299 (6)].
Further, Section 299 applies to all types of companies, public and private as well. It applies to all types of directors.
GENERAL NOTICE OF INTEREST [SECTION 299 (3)]
Where general notice is given to the Board as regards the interest of a director in any contract or arrangement, it is not effective, unless the director concerned either gives it at a meeting of the Board or takes reasonable steps to secure that it is brought up and read at the next meeting of the Board after it is given. The Notice then gets entered in the minutes of the Board Meeting at which it is given or read. The Notice in Form No. 24AA as prescribed under Companies (Central Government’s) General Rules & Forms, 1956, is also required to be given afresh year after year, so that new directors who may be coming into the Board may be aware of the interest of that particular director. Once a director has given general notice of interest, it is not necessary for him to once again disclose his interest when the matter comes up before the Board.
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Conclusion :
No Government approval is required. Only Board approval is sufficient but the interested Chairman is not supposed to vote in the Board meeting in which the resolution is to be passed.
If the wife of Chairman holds more than 2% shares of the paid-up capital, Section 299 will apply and subsequently the Chairman will have to make the disclosure under Section 299. Also, an entry in the Register maintained u/s 301 of the Act will have to bemade.
If the wife holds 2% or less shares of the paid-up capital, the provisions of Section 299 will not apply.
Regards,
Veeral Gandhi