Interested Directors

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This query is : Resolved

Gayathri (Querist)

15 February 2011 Please clarify this:

Mr.A is a director in X ltd and also in Y Ltd. Mr.A has no shareholding in both the Companies.

Being an interested Director, is it required for him to make disclosure under Section 299 of the Companies Act for any contract or arrangement entered into or can he claim exemption under Section 299(6) stating that he has no shareholding in the Company??

Thanks in advance.

Regards

Jayashree S Iyer

Jayashree S Iyer (Expert)

16 February 2011 299(6) exempts the applicability of Section 299, to any contract or arragement entered into between two companies where any of the directors of the one company or two or more of them together holds or hold not more than 2% of the paid up share capital in the other company.

So the limit of 2% is not the individual limit. You have to ascertain all the Directors' shareholding in y Ltd and if their combined shareholding exceeds 2% of the paid up capital of y Ltd. then the directors are construed to have interest in the contract or arrangement and the disclosure is required to be made.

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Gayathri

Gayathri (Querist)

16 February 2011 Jayashree Ma'am,

Thanks for your reply.But doesn't the section say any of the Directors "(OR)" two or more of them. which means even a director's individual shareholding will qualify for that 2%. Kindly clarify.

udit sharma

udit sharma (Expert)

16 February 2011 As quoted by Jayashree Mam in first para of her reply, director's individual shareholding will also be taken for determining the shareholding of 2% or more in the other Company.

U r absolutely right gayathri...agreed.

God Bless

CS Udit Sharma

Jayashree S Iyer

Jayashree S Iyer (Expert)

16 February 2011 When we say combined shareholding limit of 2%, it automatically covers Individual director holding 2% shares also.

Individual or combined shareholding of 2% or more will attract provisions of Section 299.

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