Firm in which director is a partner

As per Section 297 (1) Board’s sanction is required if:

1. a director;
2. or his relative;
3. a firm in which such a director or relative is a partner;
4. any other partner in such a firm ( ie; a firm as stated in (iii) above);
5. a private company of which the director is a member or director;

enters into a contract with the company (a) for the sale, purchase or supply of any goods, materials or services; or (b) for underwriting the subscripttion of any shares in, or debentures of the company.

Further, the board’s sanction to be supported by the PREVIOUS approval of the Central Government, if the company’s paid-up capital is not less than Rs.1 Crore.

As per Section 297 (2) Exemption to board’s sanction - to the  contract for the sale, purchase or supply of goods, materials or services, ie: Section 297 (1) (a) doest not apply, to the following:

1. purchase / sale for cash at prevailing market prices; or
2. regular trade / business between the company and party (director etc.), up to Rs.5,000/- per annum for the contract period;
3. any transaction in the ordinary course of business (exemption only for banking / insurance company).

So from the above it is clear that the company should pass a resolution in the Board Meeting for availing the services of teh Firm as the Director is interested in the particular Firm as he is a partner and require Central Government Approval if the capital is more than Rs. 1 Crores.