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Section 297 of companies act

dipali shinde (company secretary) (163 Points)

01 October 2012

A pvt ltd has entered into a contract with its JV company B pvt ltd and JV partner company C pvt ltd for a cost sharing agreement. Through this agreement A pvt ltd has agreed to share cost of certain common facilities in a common premises on basis of number of employees. Common facilities shared are like, xerox machine, gas connection, fire extinguishers , office furniture. will this arrangement attract the provisions of section 297 of the companies act, 1956?

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3 Replies

Shridhi Jain (Company Secretary) (1678 Points)
Replied 01 October 2012

Section 297 applies to sale and/or purchase of goods and services. So in your case, this section is not applicable.

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Aakash (Audit Assistant) (41 Points)
Replied 01 October 2012

Section 297 of Co. Act is applicable to the followingA-

-The contract made between company & specified persons

- and the contract is a specified contract.

Here Specified Persons include : -
1. A director of the company

2. Relative of any Director

3. A firm in which Director or his relative is a partner.

4.Any other partner in such a firm

5. A pvt. co. of which Director is a member or Director.

Dear Dipali as per your query , a contract has been made between two companies which dont fall under the specified persons category . Hence provisions of sec 297 are not applicable in this case.

Thanks & Regard

Aakash Thakral

Smriti Dhawan (Company Secretary ) (347 Points)
Replied 01 October 2012

Section 297 , Board's sanction to be required for certain contracts in which particular directors are interested, applies to all companies, public as well as private.

The object of the Section is that the Board should have knowledge of the extent of interest of a director in any contractual dealings with the company; or of any person connected with the director and accord their consent to such dealings.

The consent of Board of Directors of the Company is required for the contracts entered with the Company, except for the contracts which are exempted under Section 297 (2), as one of the party and other party being any of the following: -

1) director of the Company; or

2) any relative of any director of the Company; or

3) any partnership firm in which any director of the Company is partner; or

4) any partnership firm in which any relative of any director of the Company is partner; or

5) any partner of the partnership firm in which any director of the Company is a partner; or

6) any partner of the partnership firm in which any relative of any director of the Company is a partner; or

7) any private company in which any director of the Company is a member; or

8) any private company in which any director of the Company is a director.

The Contract to be entered is for :

1) sale, purchase or supply of any goods or material;

2)sale, purchase or supply of any;

3) for underwriting the subscripttion of any shares in, or debentures of, the company.

In your case the contract is for sharing cost of office by the Companies., Section 297 will not be applicale in my opinion, view of other members are solicited.