contract 297

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Jagruti Shah (Querist)
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27 January 2009 A private company has to enter into an agreement with other company incorporated in Germany. whether provisions of section 297 are applicable?

Jagruti Shah

Jagruti Shah (Querist)
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04 February 2009 why there is no reply to my query since long

Asha Kanta Sharma online

Asha Kanta Sharma online

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20 July 2024 Section 297 of the Companies Act, 2013 deals with contracts or arrangements with related parties. It primarily focuses on ensuring transparency and preventing conflicts of interest in transactions where directors or their relatives have an interest. Here’s how it applies to your scenario:

### Applicability of Section 297:

1. **Definition of Related Party**:
- Under Section 2(76) of the Companies Act, 2013, a related party includes:
- A director or his relative.
- A key managerial personnel or his relative.
- A firm, in which a director, manager, or his relative is a partner.
- A private company in which a director or manager is a member or director.
- A public company in which a director or manager is a director and holds along with his relatives, more than 2% of its paid-up share capital.
- Any body corporate whose board of directors, managing director, or manager is accustomed to act in accordance with the advice, directions, or instructions of a director or manager.

2. **Section 297 Provisions**:
- Section 297 mandates that any contract or arrangement with a related party that exceeds certain monetary thresholds or is not in the ordinary course of business must be approved by the board of directors and shareholders.
- It requires disclosure of the nature, terms, and particulars of such contracts or arrangements in the financial statements.

3. **Application to your Case**:
- If the private company in India intends to enter into an agreement with a company incorporated in Germany, Section 297 will apply if:
- Any director or his relative of the Indian private company is also directly or indirectly involved in the German company.
- The transaction is significant in value or is not considered part of the ordinary course of business.

4. **Key Considerations**:
- **Related Party**: Check if any directors of the Indian private company have interests in the German company, either through directorship, shareholding, or influence.
- **Nature of Transaction**: Assess whether the proposed agreement with the German company falls under the purview of Section 297 due to its value or nature.
- **Approval Requirements**: Ensure that if Section 297 applies, the transaction must be approved by the board of directors and shareholders of the Indian private company.

### Conclusion:

To determine the applicability of Section 297, you need to evaluate whether there are related party relationships between directors (or their relatives) of the Indian private company and the German company. If such relationships exist or if the transaction is significant in value or not in the ordinary course of business, Section 297 will likely apply. It’s advisable to seek legal counsel or consult with a company secretary to ensure compliance with all regulatory requirements under the Companies Act, 2013.

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