Section 297

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This query is : Resolved

NITIN BANSAL (Querist)

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)

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)

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)

22 May 2010 PLease respond

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

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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