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Querry on Companies Act & Accounting Standard

CA L Gopal Shah (CA Practice in the area of GST Litigation ) (266 Points)

19 November 2009

Hi Friends
My query
On whether the following 2 company are related or not
Apple Pvt Ltd Company, where Mr A and Mr B is a director ,
Orange Ltd Company is another Company where Mr A is the director, and
Mango Ltd Company is another Company where Mr B is the Director.
Now there is a transaction between Orange and Mango, wheather in the annual report of Orange Ltd it has to be reported, whether Sec 297, 301, and AS-18 will apply
Hope you understand my question
Thanks and Regards
CA L.GopalShah

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2 Replies

gokul (Accountant) (126 Points)
Replied 24 November 2009

I. Sec 297 is attracted in case of transactions between the company (i.e., Orange Ltd) and any of the following persons:

A director of the company (A director of Orange Ltd)
A relative of any director of the company (Orange ltd)
A firm in which such a director or relative is a partner.
Any other partner of such person
A private company in which the director is a member or director.

It can be seen that a transaction with a public limited company doesn’t find a place in Sec 297. Therefore Sec 297 is not attracted when there is a transaction between two public limited companies i.e., Orange Ltd and Mango Ltd.

If the transaction was between Orange Ltd and Apple Pvt Ltd, Sec 297 is attracted - as per point no. 5 above.

II. However Sec 299 – Disclosure of interest by a director in a contract or arrangement is attracted.

III. Extracts from AS 18:

“4. In the context of this Statement, the following are deemed not to be related parties:

(a) two companies simply because they have a director in common, notwithstanding paragraph 3(d) or (e) above (unless the director is able to affect the policies of both companies in their mutual dealings);”

Thus unless the director is able to affect the policies of both the companies, the transaction doesn’t fall under the purview of AS 18

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Ratti Wahal (Company Secretary) (139 Points)
Replied 25 November 2009

Dear Mr. Gopal,

As per the information furnished, the provisions of Section 297 of the Companies Act, 1956 will not be attracted.

The transactions is between M/s Orange Limited and M/s Mango Limited. The provisions of Section 297 of the Companies Act, 1956 would have attracted if the transaction would have between M/s Orange Limited and M/s Apple Private Limited or M/s Mango Limited and M/s Apple Private Limited.

This is for your information, please.

Regards,

Ratti Wahal, ACS

Assistant Manager

Kapgrow Corporate Advisory Services Private Limtied

E-173, Kalkaji, New Delhi-110019

Contact No.: 011-40553774, 9310270885

e-mail id.: ratti.wahal @ kapgrow.com