Section 297

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NITIN BANSAL (Querist)
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18 May 2010 Dear Friends

A Private Company having a paid up Capital of more than Rs. 1 Crore has entered into a Lease Agreement with one of its Group Company (also a Pvt. Ltd. Company) in which the Directors of the Company are interested and is paying a rent of Rs. 40000/- p.m.

Is this transaction covered u/s 297 and if yes, then CG approval will also be required as the paid up capital of the Company exceeds Rs. 1 crore.

please support your answer with ref. to any notification/ circular/ case laws comes in this regard

Plz. advise.

Thanks & Regards

Jagruti (CS)

Jagruti (CS) (Expert)
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19 May 2010 In case of lease of immovable property Section 297 is not applicable as 297 is applicable for dealing in goods and services only & not immovable property.

For ref. you can refer to Sec 297 Commentary of any book.

NITIN BANSAL

NITIN BANSAL (Querist)
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19 May 2010 if the company in the business of renting immovable property then also sec 297 not attracted plz clarify

NITIN BANSAL

NITIN BANSAL (Querist)
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22 May 2010 PLease respond

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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23 July 2025 You're raising an important and often misunderstood aspect of Section 297 of the Companies Act, 1956.

Let’s break it down clearly:

✅ Your Scenario Summary:
Company type: Private Limited Company (Paid-up capital > ₹1 crore)

Transaction: Lease of immovable property (paying ₹40,000/month)

Counterparty: Another Group Private Limited Company

Interest: Common directors involved

Question: Is Section 297 applicable? Does it require Central Government (CG) approval?

🔍 Section 297 - Applicability
Section 297(1) governs contracts for sale, purchase, or supply of goods or services with:

Directors or their relatives

Firms in which such directors or relatives are partners

Private companies where such directors are members or directors

Public companies in which the director is a director and holds 2% or more paid-up share capital

📌 Key Point:
Section 297 does not apply to lease of immovable property because:

Leasing of immovable property is not considered a contract for sale, purchase, or supply of "goods or services" under this section.

⚖️ Legal and Commentary Support:
Departmental Clarification:

Circular No. 8/99 dated 4 June 1999, Ministry of Corporate Affairs (MCA), clarified:

“Section 297 does not apply to transactions involving immovable property.”

Judicial Precedents:

There are various commentaries (e.g., A. Ramaiya on Company Law) supporting the view that Section 297 is limited to movable goods and services.

Renting/leasing of immovable property (unless the company is in real estate business and the transaction is in the ordinary course) is not covered.

ICSI & ICAI Guidance Notes:

Transactions for lease/rent of immovable property are outside the scope of Section 297 unless structured as service contracts (like facilities management).

🔎 Exception – If Treated as a Service?
There could be a narrow interpretation if the lease includes additional service elements (e.g., maintenance, cleaning, security), in which case the service component could come under Section 297.

However, a pure lease of property does not attract 297, even if:

The paid-up capital is more than ₹1 crore.

There are common directors.

✅ Conclusion:
Aspect Applicability
Section 297 ❌ Not applicable to immovable property lease
Central Govt. Approval ❌ Not required
If services are bundled ⚠️ Possible applicability (case-specific)

📝 Recommendation:
No CG approval is needed under Section 297 for this lease agreement.

If desired, for corporate governance and transparency, get the board’s approval under Section 299/301 for disclosure of director’s interest (which does apply here).

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