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Register of Contract U/S 301

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)

08 February 2010

In case of two public companies viz XYZ Limited (having 7 directors) and ABC Limited (having 4 directors all are same that of XYZ limited and having shareholding above 2% in XYZ Limited) an agreement has been entered. Entry is required to be made in register u/s 301. In XYZ limited there will be no problem because of remaining directors would form valid quorum.

However, in case of ABC limited how the entry would be made? Because all directors are interested and they cannot take part in the discussion niether their presence can be counted (section 300)

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8 Replies

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 08 February 2010

Hello,

I do not think it’s a big issue. Your observation is correct regarding XYZ Ltd. However in case of ABC Ltd. section 287 is indeed a problem.

As per my understanding hold a board meeting of ABC Ltd. for a general discussion and pass a board resolution and refer the matter to shareholders of the Company. Also approve the GM notice. Cover all the 299 and 300 aspects in the commentary of board meeting resolution. Contrary views are invited.

Best Regards

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 09 February 2010

Thankyou Ankur Ji,

But the matter is how to incorporate it into the register of Contracts.

I do not have any contrary view but i dont think that it is expedient to call an EGM at the time of each contract and it would be expensive also ( in case ABC Ltd is a listed company it would be highly expensive).

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 09 February 2010

Totally agree that my suggestion is not feasible for a Listed Company as i wasn't aware about the status of ABC Ltd. The only option left is to increase the strangth of board.

Further kindly let me know what do you mean by "how to incorporate it in the register of contract"? As per my simple understanding after passing desired resolution you may enter the same in register.

Best Regards

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 09 February 2010

Dear Ankur Ji,

How the resolution can be passed because in the Board Meeting valid quorum is required in each and every stage of meeting but in this case all the directors are interested so what about the quorum under section 287.

Further, in the register the name of the directors voting for and against is also required to be mentioned. And under section 300 interested directors cannot participate in that resolution and all the directors are interested. so who will participate in the resolution.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 09 February 2010

Further, the strength of the Board can be increased from any of the latest date. However, in case the contract was executed in November, how it can be approved because it can only be approved within 3 months.

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 09 February 2010

Cone on...you are completely misunderstanding me. I need to repeat it. Further we don't need to refer section like 300 or 299 for each other. What say???

In my second reply i use the word "desired resolution" which means the GM resolution (obviously) in accordance with my first reply. Further who told you increase BM strangth by the appointment of AD. When you hold the BM also put the agenda of appointment of dir. and get it approved through GM. This GM is necessary to resolve the problem of quorum once for all.

Further at the time of entereing the contract in register note everything clearly like lack of quorum, referring the agenda to GM and other relevant details. Recording of contract is much more imp rather than word to word compliance of section. Finish it off sir. Once again telling you that it is not a big issue for a learned CS like you.

Waiting for contrary views.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 10 February 2010

Ya, you are absolutely right , i agree that, we dont need to refer sections for each other.

Got it Sir.

Where the directors are interested in any item, the valid quorum must be ensured before the item is discusssed and voted on.

Further, the difficulties of getting requied quorum at the Board Meeting where the directors are interested should be solved by increasing the number of directors. However, it is not practicable to do so, the matter may be placed before the general meeting for approval. [ Department of Cocmpany Affairs letter no. 7(22) CLV/68, Ayyanar Spinning and Weaving Mills Ltd. v. Rajendran (V.V.V.) (1973)43 Comp Cas 225 (Mad)]

And the details must be entered in the register of contracts clearly.

Anyways Sir, Thanks for your valuable replies.