03 March 2013
IS A DIRECTOR IS INTERESTED AS PER SECTION 299 IN FOLLOWING CASES? CASE- I: IF MR. X A DIRECTOR OF ABC LTD. HOLDS 1.5% SHARES OF XYZ PVT. LTD. AND HIS WIFE HOLDS 2% SHARES OF THE SAME COMPANY.
CASE-II : IF MR A, DIRECTOR OF ABC LTD.. HIS WIFE HOLDS 3% SHARES IN XYZ LTD.
Every director of a company, who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into, by or on behalf of the company, shall disclose the nature of his concern or interest at a meeting of the Board of directors. Section 299(2) relates to the time of disclosure, which may be described as under, depending upon the status of contract.
In the case of proposed contract or arrangement, the disclosure shall be made at the meeting of the Board at which the question of entering into the contract or arrangement is first taken into consideration, or if the director was not, at the date of that meeting, concerned or interested in the proposed contract or arrangement, at the first meeting of the Board held after he becomes so concerned or interested. [Section 299(2)(a)]
Section 299 applies also to contracts other than those entered into at a meeting of the directors. The following types of contracts or arrangements are exempted from the requirement of disclosure of interest by a director:— (i) In cases where the contract or arrangement entered into or to be entered into is between two companies and where the interest of any director of one company or two or more of them together does not exceed a shareholding of 2% of the paid-up share capital in the other company. [Section 299(6)] In other words, where a director singly or together with other directors or all the directors holds not more than 2% of the paid up share capital of the company, directors will not be deemed to be interested or concerned in any contract or arrangement of that company with the company in which they hold the office of director. Section 299 will be attracted only where a director or two or more or all of the directors hold more than 2% of the paid up share capital of another company. If at the date on which the contract or arrangement is entered into, the holding of a director in the other company exceeds 2% but may fall below 2% on the date of the meeting at which the disclosure is required to be made, holding of shares on the date of contract entered into is relevant for the purpose of disclosure under section 299. (Circular No. 4 [8/16(1)/61], dated 19th May, 1961)