Applicability of section 297

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CA YOGESH (Querist)

09 May 2009 If a pvt. company (having paid up capital of Rs. 1 crore )enters into contract with its director's relative for purchase of shares of and not obtained the central govt. approval. Further, company sold shares (acquird frm director relative ) to third party.

Now my question is :-
1. Whether contract is void and if contract is void then wht will be the impact with sale of shares by the company ?

CA. B.SRINIVASULU

CA. B.SRINIVASULU (Expert)

09 May 2009 Section 297 of the companies act do not apply to Private Limited company until and unless it is a subsidiary of a Public limited Company having a subscribed capital of more than 1 Crore.

If the above condition is applicable then you should get the permission from Regional Registrar of comapnies (Shifted the permitting authority from Central Govt. to regional registrar of companies).

If without getting the permission where requiured, if you enter into contract then that contract is void and penalitites are initiable on the comany and its officers and directors.

CS SIDDHARTHA BANIK

CS SIDDHARTHA BANIK (Expert)

09 May 2009 1)i have gone through Sec.297. Nowhere it is mentioned that this section is not applicable to a pvt. limited co.

2)in your case, it is not clear wheather the board approval is taken or not. If board's approval has not been taken, then the contract is voidable at the option of board. If the board condone the non-compliance or ratify the event later on then the contract is not void.

3)as the co. has not taken the approval of central govt., they can proceed for compounding of offense u/621A.

Thanks,
CS Siddhartha Banik

Ankur Garg

Ankur Garg (Expert)

10 May 2009 Agree with Mr. Banik.

Section-297 is applicable to all the companies i.e. Public & Private.

Any contract in violation of sec.297 is not void per se. As per section-297(5) contract is voidable at the option of board.

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