Loan form Directors

In my opinion loan transactions are not covered u/s 297.  Contracts related to sale/purchase of goods/services and underwriting are covered in it...Will wait for others to confirm.

Dear Jaideep,

Mr. Mohit is right. Section 297 not applicable on this transaction.

Dear Mohit, I appreciate your view but loan transaction are also type of Banking Services.

plz clarify.

Regards

Hello!

No, Sec 297 will not be applicable....as its rightly pointed out....that sec 297 is only applicable to the contract of Sale, purchase or supply of goods and services or for subscripttion of shares........So, in ur case u have to comply with Sec 295 only........

Regards

Nidhi

Nidhi ji,

how can you say that sec. 295 applicable on this transaction???

Will not be Applicable.

Section 297 applies to all companies, public as well as private. However, it does not apply to the contracts where both the parties to the contract are public companies. The section would apply where one of the two companies (being parties to the contract) is a private company and the other is a public company, but in such a case, it will have to be complied with by the public company only.

BOARD’S CONSENT AND CENTRAL GOVERNMENT’S APPROVAL FOR CERTAIN CONTRACTS IN WHICH PARTICULAR DIRECTORS ARE INTERESTED [Sec. 297]

The object of the Section is that the Board should have knowledge of the extent of interest of a director in any contractual dealings with the company; or of any person connected with the director and accord their consent to such dealings.

The consent of Board of Directors of the Company is required for the contracts entered with the Company, except for the contracts which are exempted under Section 297 (2), as one of the party and other party being any of the following: -

1)    director of the Company; or

2)    any relative of any director of the Company; or

3)    any partnership firm in which any director of the Company is partner; or

4)    any partnership firm in which any relative of any director of the Company is partner; or

5)    any partner of the partnership firm in which any director of the Company is a partner; or

6)    any partner of the partnership firm in which any relative of any director of the Company is a partner; or

7)    any private company in which any director of the Company is a member; or

8)    any private company in which any director of the Company is a director.

The Contract to be entered can be for:

(a)  sale, purchase or supply of any goods or material;

(b)  sale, purchase or supply of any;

(c)  for underwriting the subscriptttion of any shares in, or debentures of, the company.

This section does not apply to contracts between two public companies and also is not attracted to a transaction of loan  because it is not a sale or purchase of goods or a contract to render services.

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:

Thanks for the reply Nidhi

In my view, Section 295 will be applicable if Company is providing loan to directors.

In this case company in which director are common is providing loan. As said Section 297, will be applicable to supply of services. My point is

whether providing loan is a type of service. 

Regards

Dear Jaideep,

Is private company has a status of  NBFC?? if not then how can we say its a service.?

Originally posted by : CMA. Sanjay Gupta
	This section does not apply to contracts between two public companies and also is not attracted to a transaction of loan  because it is not a sale or purchase of goods or a contract to render services.

Aforesaid, decided in Alber Judah Judah v. Ramapada Gupta (1960), however itwas specifically for loan from directors to company. Can we extend it to this case.

Thanks Mr. Sanjay

Yes we can. If loan can be taken from Director why should there be any objection in taking loan from a Pvt Ltd company in which director is interested.

Originally posted by : Aman Jain
	Is private company has a status of  NBFC?? if not then how can we say its a service.?

Sanjay Sir,  Agreed with you.

But, our freind Mr Aman Jain is also having above valid and important point. Will it create any difference???

Regards

In my view NBFC or not it will not make any difference. Giving loan by NBFC is not a service.

Hello!

If Pvt. co is a banking co then only u will consider it as service ........otherwise not,...........Providing loan is nt a sort of service

Regards

Nidhi

In my opinion, in NBFC or banking company, providing loan is considered as service. NBFC is classified as a loan company which means it has mainly engaged in providing loan to the others so providing loan should ne considered as a service in case of NBFC.

Regards,

If anythng wrong then pls make it right