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Regarding Section 297 of The Companies Act,1956

Ketan Shah (CA) (347 Points)

17 July 2009

Hi all,

Can any one explain me about the section 297 of The Companies Act, 1956.

Is it applicable to Private Ltd companies?

Thanks in advance

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12 Replies

Ajay Mishra (Company Secretary) (74332 Points)
Replied 17 July 2009

Dear Mr. Ketan

Section 297 does not apply to:

1. Giving or taking loans.

2.Contract in respect of immovable property (as it is not 'good' ).{Letter No. 9/4190-CL-X dated 27.03.1990}.

3.Contract between two public Companies.

4.Contract of employment of director or managing or whole time director.[ Circuler No.8/11/75-CL-V dated 27.03.1975]

5.Contract for employment of relative of director.

6.Contract entered into by the company with the dealer on principle to principle basis. [Circuler No. FM 8/297/56-PR dated 02-08-1956]

7. Professional services of the nature given by firms of solicitors and advocates, etc.[circuler No. 8/11/75-CL-V dated 05.06.1975]

8.hiring of office premises on rent as the transaction is in immovable property. [Department Clarification dated 10-09-1990]

I think section 297 is applicable to private company.

Regards

Pavan Jain S (Chartered Accountant) (1575 Points)
Replied 18 July 2009

IT is very much applicable to private companies

kamaljeet (C.S) (51 Points)
Replied 18 July 2009

Hi All,

I totally agree with mr. Ajay.. Yes Section 297 is applicable to Private Company.

CS Malatesh G. Kalal (Company Secretary) (44 Points)
Replied 29 March 2011

Applicability of the Section 297:

This section applies to:

1. All companies, public and private.[2]

2. Contract for sale, purchase or supply of any goods, materials or services in which a director or any person connected with a director in any of the ways mentioned in sub-section (1) of section 297 is interested,

3. Contract for underwriting subscripttion of any shares in or debentures of the company,

4. Oral contract, if it can be proved by circumstantial evidence. Under the Indian Contract act, a contract need not be in writing, and an oral contract is also valid in law. The provisions of Section 297 will accordingly also apply in respect of an oral contract.

This section does not apply to:

1. Contracts between two public companies

2. Transaction in immovable properties [Letter No. 9/4190-CL-X, dated 27th March, 1990],

3. Contract of employment of a director or managing or whole-time director [Circular No. 8/11/75-CL-V, dated 5th June, 1975],

4. Contract entered into by the company with a dealer on a principal to principal basis [Circular No. FM 8/297/56-PR, dated 2nd August, 1956],

5. Professional services of the nature given by firms of solicitors and advocates, etc. [Circular No. 8/11/75-CL-V, dated 5th June, 1975],

6. Indirect interest of a director as provided in section 299. unlike Section 299 this Section does not deal with indirect interest of a director, even though it may be substantial or real.[3]

7. a government company in respect of contracts entered into by it with another Government company [Notification GSR No. 233, dated 31st January, 1978].

8. A company and a body corporate or a co-operative society in which a director or relative is a member or diretor. [4]

Applicability of the Section is to be determined at the time of entering into the contract. If no permission under this section is required at the time of entering into the contract, subsequent permission is not necessary even though there may be a change of circumstances which would require permission to be taken for a fresh contract.

CA DHANRAJ GOHEL (AUDIT & TAXATION) (23 Points)
Replied 27 July 2011

If private comoany dealing with proprietory concern of one of director with all director's concent than whether section 297 applicable to such company?

please immediately reply

thanks you in advance.

CS Shraddha G. Kulkarni (Practising Company Secretary) (38 Points)
Replied 29 July 2011

Yes it is applicable to such private company.

Sumit Arora (Manager Accounts) (204 Points)
Replied 12 June 2012

HI friends

can any one tell me whether section 297 is applicable on the contracts between 2 private companies

i.e both the parties is private company.

CS Shraddha G. Kulkarni (Practising Company Secretary) (38 Points)
Replied 12 June 2012

Yes, S. 297 is applicable to both the private companies.

Sumit Arora (Manager Accounts) (204 Points)
Replied 12 June 2012

Thanks Mr. Kulkarni,

But i heard somewhere that it is not applicable in Transactions between 2 private companies.

i know nothing is mentioned in the section, but i think i read a case law on it. & it is not specifically mentioned in the act.

can u send me the case law .

waiting for your positive reply.

Ajay Mishra (Company Secretary) (74332 Points)
Replied 12 June 2012

Mr. Kulkarni is right, the provision of section 297 will apply to private and public limited company. If both contracting company is private company then section 297 will apply. However, if botj are public company then this section will not apply.

Regards

CS Shraddha G. Kulkarni (Practising Company Secretary) (38 Points)
Replied 16 June 2012

Sec 297 claerly says, "a private company of which the director is member or director, shall not enter into any contract with the company except with the consent of the board of Directors." Therefore the meaning is very clear that both the private companies will require the approval under sec.297. I hope this clears the doubt. It is not applicable where both the parties are public limited companies. (And it is "Mrs. Kulkarni" not "Mr.")