Section 297

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rahul nagori (Querist)
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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)
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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)
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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)
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10 April 2012 Plz give a specific answer.
thanks

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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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).

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