Disclosure of interest by directors and approval

It shall not fall u/s 297 Board approval is more than sufficient. Maintain the disclosures u/s 299 and enter into register u/s 301.

Further, shareholding in XYZ by wife of director of ABC shall also not change the situation. 279 talks about a contract with a private company in which director is either a memeber or director.

Expert opinion is solicited.

SHABNAM JI.. CAN U EXPLAIN IN DETAIL PLEASE.......?

no approval required by Central Government.

As per Sec.297, permission of Central Govt.  is applicable if the paid up capital of any of the two companies exceed Rs.1 Crore. You are safe.

1. This case falls under which provision ?

This case shall certainly not fall under Section 297 of the Companies Act 1956 as it refers to certain direct contracts only. Section 299 of the Act refers to the interest of a director “in any way directly or indirectly”, so it is wider in scope than Section 297. Hence, this case will definitely fall u/s 299.

2. Provisions of Section 299 in brief :

As per Section 299 of the Act, every director of a company must disclose to it’s Board of Directors at a meeting of the Board the nature of his/her interest :

1. If he/she is in any way, whether directly or indirectly, concerned or interested;

2. In any contract or arrangement, or proposed contract or arrangement; entered into, or proposed to be entered into, by or on behalf of the company.

Section 299 applies to arrangements, besides contracts, in which a director is concerned or interested ‘in any way’, ‘whether directly or indirectly’, eg, a contract in which a director is interested through his relatives. {Pydah Venkatachalapati vs. New Belgium (Transvaal) Land & Development Co. [1914] 2 Ch 488 (CA); TR Pratt (Bombay) Ltd. vs. MT Ltd (1938) 8 Comp Cas 137 (PC).}

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)].

Further, Section 299 applies to all types of companies, public and private as well. It applies to all types of directors.

GENERAL NOTICE OF INTEREST [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 given general notice of interest, it is not necessary for him to once again disclose his interest when the matter comes up before the Board.

3. Conclusion :

No Government approval is required. Only Board approval is sufficient but the interested Chairman is not supposed to vote in the Board meeting in which the resolution is to be passed.

If the wife of Chairman holds more than 2% shares of the paid-up capital, Section 299 will apply and subsequently the Chairman will have to make the disclosure under Section 299. Also, an entry in the Register maintained u/s 301 of the Act will have to bemade.

If the wife holds 2% or less shares of the paid-up capital, the provisions of Section 299 will not apply.

Regards,

Veeral Gandhi

n what about disclosure under section 299?????????

Disclosure must be in Form 24AA and it must be renewed for every financial year and must be given to the Board.

Nice explanation by Mr. Veeral Gandhi. Thanks.

Nicely explained by Mr. Veeral

Section 297 of the Companies Act, 1956 will not apply to the aforementioned case mainly for two reasons:-

Firstly, the paid capital of both the Companies is less than one crores.

Secondly, Section 297(1) of the Company Act says "Except with the consent of the Board of directors of a company,

a director of the company or his relative,

a firm in which such a director or relative is a partner, any other partner in such a firm,

or a private company of which the director is a member or director.........'. 

The highlighted line does not talk about the relative.So this situation falls outside the purview of Section 297.

As far as Section 299 is concerned , the director is required to disclose its interest in the Board Meeting in which the resolution for the same is passed or else can furnish the general disclosure at the end of the financial year. 

Must say very nicely explained by Veeral ji.......

Agree with the view of Charu ji....