section 297

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Prashant Parekh (Querist)

30 April 2010 section 297 is applicable if private company purchases or sells goods or services to public company or it is reverse.Further limit of Rs. 1 crore applies to the company giving services or receiving services.

can any one give me explanation of section 297 as it is very confusing ?

Aditya Maheshwari

Aditya Maheshwari (Expert)

30 April 2010 Secion 297 states as under:
297. Board's sanction to be required for certain contracts in which particular directors are interested
(1) Except with the consent of the Board of directors of a company, a director of the company or his relative, a firm in which such a director or relative is a partner, any other partner in such a firm, or a private company of which the director is a member or director, shall not enter into any contract with the company-
(a) for the sale, purchase or supply of any goods, material or services; or

(b) after the commencement of this Act, for underwriting the subscription of any shares in, or debentures of, the company:

1[Provided that in the case of a company having a paid-up share capital of not less than rupees one crore, no such contract shall be entered into except with the previous approval of the Central Government.]

Exemption is also provided:
2[(2) Nothing contained in clause (a) of sub-section (1) shall affect-
(a) the purchase of goods and materials from the company, or the sale of goods and materials to the company, by any director, relative, firm, partner or private company as aforesaid for cash at prevailing market prices; or

(b) any contract or contracts between the company on one side and any such director, relative, firm, partner or private company on the other for sale, purchase or -supply of any goods, materials and services in which either the company or the director, relative, firm, partner or private company, as the case may be, regularly trades or does business.

Provided that such contract or contracts do not relate to goods and materials the value of which, or services the cost of which, exceeds five thousand rupees in the aggregate in any year comprised in the period of the contract or contracts; or

(c) in the case of a banking or insurance company any transaction in the ordinary course of business of such company with any director, relative, firm, partner or private company as aforesaid.

So it is applicable to all companies and limit of 1 crore to be seen by the company entering the contract i. e. the paying company

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