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Query related to related party transactions

JOHNSON (Company Secretary) (31 Points)

10 January 2014

Hi Professionals..

A public limited company having paid up capital of more than one crore decided to sell the shares of its subsidiary company to another private limited company. The only relation between these two companies is the directors of the transferee company (pvt ltd) are related to the Director of Tranferor company (ltd). Kindly suggest your opinions on applicability of sec 297 or any other provisions of Companies Act 1956 which requires prior approval of CG. what are other obligations vests with both the companies on this particular transaction.

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P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 01 February 2014

1) Sec.297 applies to sale or purchase of goods or services. Shares are also goods and hence sale of shares will be covered u/s 297.

2) In this case seller is public company and the buyer is private company.

3) Sec.297 will apply in the given case to the buyer private company only if any director of selling public company is a director or member of the buyer private company. However, from the fact it appears that only relative of director of selling co. is director of private company. Hence Sec.297 will not apply.

Assuming that the transaction is not covered u/s 108A to 108I of the Act, no other formalities will be required. All companies have to pass suitable Board resolution in this regard.

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