Sec 297

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rahul (Querist)
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07 August 2013 one pvt limited company having paid up share capital more then 1 crore paying rent to another pvt company where there is a substantial int of directors.

1.rent for immovable property-more than 100000
2.getting information technology services of value more then 100000

whether sec 297 applicable or anyother section of companies act applicable

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
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07 August 2013 The ans is yes.

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rahul

rahul (Querist)
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08 August 2013 dear sir
what i understood sec 297 is not applicable for immovable property ,we are paying rent for immovable property.please correct me if i am wrong.
for that particular contract sec 297 is applicable or not.

Aashok Kumar Sharma

Aashok Kumar Sharma

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23 July 2025 ### **Section 297 of the Companies Act, 1956 (Now Section 188 of the Companies Act, 2013)**

Section 297 of the Companies Act, 1956, which governed **related party transactions** for private companies, has been replaced by **Section 188** under the **Companies Act, 2013**.

Let’s analyze the situation based on **Section 188** of the Companies Act, 2013, as Section 297 is no longer applicable.

### **Scenario**:

* A **Private Limited Company** with a paid-up share capital of more than ₹1 crore.
* This company is paying **rent for immovable property** and receiving **IT services** from another private company where there is a **substantial interest of directors**.
* **Rent for immovable property is more than ₹1,00,000** and **IT services valued over ₹1,00,000**.

### **Applicability of Section 188 (Companies Act, 2013)**

Under **Section 188 of the Companies Act, 2013**, the following transactions are considered as **related party transactions**:

1. **Sale, purchase, or supply of goods or materials**.
2. **Selling or otherwise disposing of or buying property**.
3. **Leasing of property**.
4. **Availing or rendering of services** (which would include IT services).
5. **Appointment of an agent** for the company.
6. **Related party transactions** regarding **loans and guarantees**.

### Key Points of Section 188:

1. **Related Party Definition**:

* A **related party** includes the company’s directors, their relatives, key managerial personnel (KMP), and companies in which they have a substantial interest (typically 20% or more of the paid-up share capital or voting power).

2. **Threshold Limit**:

* For **private limited companies**, the provisions under Section 188 apply when the transaction exceeds **₹1,00,000**.

* Since **rent for immovable property** and **IT services** are both **above ₹1,00,000**, these transactions come under the ambit of **related party transactions**.

3. **Approval Process**:

* **Prior approval of the Board of Directors** is required for **related party transactions**, and such transactions should be **disclosed** in the financial statements.
* If the transaction is with a **related party** that is a director or a person who holds **20% or more** of the paid-up share capital of the company, **approval by the Board** and **shareholders** (in a general meeting) is necessary.

4. **Related Party Transaction - Rent Payment**:

* **Rent for immovable property** provided by a related company would fall under the **"leasing of property"** category and would require approval from the board and shareholders if the amount exceeds ₹1,00,000.

5. **Related Party Transaction - IT Services**:

* Similarly, **IT services** from a related party also fall under the **"rendering of services"** category and would be covered under Section 188 if the value exceeds ₹1,00,000.

### **Conclusion**:

1. **Section 297** (under the old Companies Act, 1956) is not applicable anymore. It has been replaced by **Section 188** under the **Companies Act, 2013**.

2. **Section 188** applies to **related party transactions** for amounts exceeding **₹1,00,000**. Since the rent for immovable property and IT services both exceed ₹1,00,000, **Section 188** will apply.

3. You will need:

* **Board Approval** before entering into such transactions.
* If the transaction is substantial (for example, if it involves a director or substantial shareholder), you may also need **shareholder approval** in a general meeting.

#### **Action Points:**

* Ensure that **Board approval** is obtained for the rent and IT service transactions.
* If the transactions are with directors or related parties (who have substantial interest), **shareholder approval** may also be required.

Let me know if you need more details or further clarification!

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