Section 297

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Querist : Anonymous

Querist : Anonymous (Querist)

22 October 2013 suppose if a private ltd company is provided services to another private ltd company which is subsidiary of earlier co. and if the paid up share capital is above 1 crore so is it necessary to obtain prior approval of Central Govt.Please revert me the solution as soon as possible

Ajay Mishra

Ajay Mishra (Expert)
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22 October 2013 Hi

In the case of a company having a paid-up share capital of Rupees One Crore or more, all contracts of the nature referred below other than the exempted contracts can be entered into only after they are approved by the Central Government as per the proviso under section 297(1):—
(a) sale, purchase or supply of any goods or materials or services;
(b) underwriting the subscription of any shares in or debentures of the company.

Pursuant to the proviso under section 297(1), a company (public or private) having not less than Rupees One Crore share capital shall not, without the previous approval of the Central Government, enter into contracts with the persons specified in which a director is deemed to be interested. However, the said government approval is not necessary in respect of contracts, which are exempted under sub-section (2). But the extension of time of three months for taking the consent of the Board under sub-section (3) will not apply to a company having paid-up capital of at least Rupees One Crore.

Ajay Mishra

Ajay Mishra (Expert)
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22 October 2013
No requirement of approval in case of change in the circumstances
If at the time of entering into the contract, no approval of Central Government is required then no subsequent approval is to be obtained though section 297 becomes applicable due to any of the following reasons:—
(a) The company's paid up share capital is enhanced to Rupees One Crore or more.
(b) The contracting person occupies any of the position stated above.
(c) The public company is converted into a private company. If the companies between which contract is entered into are public companies and later on one or both the companies are converted into private companies.

However, any modification is made in the terms of contract or it is renewed after the expiry of its original period, previous approval of the Central Government would become necessary.

Ajay Mishra

Ajay Mishra (Expert)
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22 October 2013
Section 297 does not apply to:

1. Giving or taking loans.
2.Contract in respect of immovable property (as it is not 'good' ).{Letter No. 9/4190-CL-X dated 27.03.1990}.
3.Contract between two public Companies.
4.Contract of employment of director or managing or whole time director.[ Circuler No.8/11/75-CL-V dated 27.03.1975]
5.Contract for employment of relative of director.
6.Contract entered into by the company with the dealer on principle to principle basis. [Circuler No. FM 8/297/56-PR dated 02-08-1956]
7. Professional services of the nature given by firms of solicitors and advocates, etc.[circuler No. 8/11/75-CL-V dated 05.06.1975]
8.hiring of office premises on rent as the transaction is in immovable property. [Department Clarification dated 10-09-1990]

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