Section 299

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11 September 2012 What are the contracts covered under section 299?

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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11 September 2012 Section 299 casts upon directors of companies an onerous obligation. It is a statutory obligation violation of which may result in serious consequences. This Section applies to all companies and all directors. It also applies to directors nominated by Government on the Board of the Company.

The Object of Section 299 is that the Board of Directors should be made aware of all contracts and arrangements in which any director has an interest, whether direct or indirect, so that the Board may be in a position to satisfy itself as to the fairness and reasonableness of the contract from the point of view of the company and then accord its consent therefor.

As per Section 299, every Director of a company must disclose to its Board of Directors at a meeting of the Board the nature of his / her interest: -

if he / she is any way, whether directly or indirectly, concerned or interested in any contract or arrangement or proposed contract or arrangement entered into or proposed to be enter into, by or on behalf of the company.

GENERAL NOTICE OF INTERST [SECTION 299 (3)]

Where general notice is given to the Board as regards the interest of a director in any contract or arrangement, it is not effective, unless the director concerned either gives it at a meeting of the Board or takes reasonable steps to secure that it is brought up and read at the next meeting of the Board after it is given. The Notice then gets entered in the minutes of the Board Meeting at which it is given or read. The Notice in Form No. 24AA as prescribed under Companies (Central Government’s) General Rules & Forms, 1956, is also required to be given afresh year after year, so that new directors who may be coming into the Board may be aware of the interest of that particular director. Once a director has give general notice of interest, it is not necessary for him to once again disclose his interest when the matter comes up before the Board.

Nothing in Section 299 is applicable to any contract or arrangement between two companies, if any one or more of the directors of the one company together holds / hold 2% or less of the paid–up share capital in the other company. [Section 299 (6)].

This limit of 2% has to be taken either as an individual director’s holding or the aggregate holding of two or more directors. It is, therefore necessary for the company to ascertain the aggregate holding of Directors even if every director has given in the general notice his individual holding. The point of time with reference to which the fact whether or not the holding exceeds 2% limit laid down in sub-section (6) should be verified is the date on which the contract is entered into.

Querist : Anonymous

Querist : Anonymous (Querist)

12 September 2012 thanks sir

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