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Applicability of section 297????????

Puja MOHAN (company secretary) (72 Points)

22 August 2011

A public limited company incorporated in 2005 (with paid up capital below 1 crore) had passed a board resolution for entering into contract with a related party (its associate private company with paid up of less than 1 crore) as per definition of 297 of companies act for 6 years.

Now when this period is over they wish to take approval of RD for entering into fresh contract FOR purchase and sale with the same private compnay since the paid up capital of the public compny has increased to 30 crore during thie 6 years span.

NOW THE QUESTION IS THAT IF IT FILES FORM 24A TO RD, WILL THEY ASK FOR EARLIER CONTRACTS VALIDITY AND SEEK COMPOUNDING OR THE COMPANY IS NOT REQUIRED TO GO FOR COMPOUNDING?????????

NEED URGENT ANSWER....

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4 Replies

S. Satheesh Kumar (Assistant Company Secretary) (84 Points)
Replied 22 August 2011

Apart from the consent of the Board, previous approval of the Central Government is also required where the paid up capital of the Company isOne Crore or more.

The Application for approval shall be made to the concerned Regional Director in Form No. 24A prescribed under Companies (Central Government’s) General Rules & Forms, 1956 along with a certified copy of the contract and / or relevant papers and Demand Draft for the fees payable under the Companies (Fees on Applications Rules, 1968).

Further, this provision does not have any impact on contacts entered into prior to the date of crossing of the limit ofOne Crore, and subsisting after that date.

In your case, Compounding of offence will not arise under Section 297 of the Companies Act, 1956 and the company should submit previous contract along with form 24A.

S. Satheesh Kumar (Assistant Company Secretary) (84 Points)
Replied 22 August 2011

Hi Puja,

Please ignore demand Draft for the fees payable under the Companies (Fees on Applications Rules, 1968).

Puja MOHAN (company secretary) (72 Points)
Replied 22 August 2011

thanks Kumar,

Pls clarify do you mean Board resolution passed before the paid up capital crossed 1 crore by 'previous contract' as suggested by you above.

S. Satheesh Kumar (Assistant Company Secretary) (84 Points)
Replied 23 August 2011

Hi Puja,

Board resolution should have been passed before crossing paid up capital of Rs. 1 crore.

As per recent circular No. 52/2011 dated 25th July, 2011, the Ministry has decided to simplify the procedures and to give approval online, if the proposed contract has been approved by the shareholders by way of special resolutions in a general meeting. Your Company can obtain online approval as it is applicable from 24th September 2011.