Section 297

Save Share

This query is : Resolved

rahul nagori (Querist)

10 April 2012 does a commission charged as on corporate gaurantee come under the services of section 297 ? please reply to the earliest.

Ajay Mishra

Ajay Mishra (Expert)

10 April 2012 Hi

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]

If charging a commission is its normal course of busineess then it apply otherwise it will not apply.

Regards

rahul nagori

rahul nagori (Querist)

10 April 2012 Dear Ajay,
thanks to reply, but thats all i have researched, my query is very specific does commmision charged for providing corporate gaurantee will come under the word services u/s 297

rahul nagori

rahul nagori (Querist)

10 April 2012 Plz give a specific answer.
thanks

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

23 July 2025 Great question.

Yes, charging commission for providing a corporate guarantee does come under the scope of Section 297 of the Companies Act, 1956, if the other party is:

A director or relative,

A firm in which a director or relative is a partner,

A private company in which a director is a member or director, or

A public company in which such director is a director and holds ≥2% paid-up share capital.

📌 Why?
Under Section 297, the phrase used is “supply of goods or services”. While the term "services" is not explicitly defined in the section, corporate guarantee commission is treated as a financial service, and falls within its ambit.

💡 Supporting Interpretations:
Financial guarantees offered for a fee (commission) are considered a service under general legal and accounting interpretations.

If such a service is provided to a related party, the transaction is covered under Section 297, and:

Board’s approval is required.

If the company’s paid-up capital > ₹1 crore, Central Government’s prior approval is mandatory (as per the section, before the 2013 Act took effect).

✅ Conclusion:
Yes, commission for a corporate guarantee is a service, and Section 297 applies if the guarantee is given to a related party.

Let me know if you need a sample board resolution, or details under the Companies Act, 2013 (which has replaced Section 297 with Section 188 for related party transactions).

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now