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Section 295 and section 297

13 June 2012

Dear All,

I have one query regarding applicability of Section 295 and 297 of the Company's Act, 1956?

Suppose Mr. A is a director of ABC Ltd. (Closely held Public Co.) and Mr. B (son of Mr. A) is a director of PQR Pvt. Ltd. If ABC Ltd gives on rent its showroom to PQR Ltd. then whether section 295 or section 297 would be attracted? if yes then whether Central Govt. approval is required or not? What needs to be done if Central Govt. approval had not been obtained before giving Showroom on rent.

Thanks & Regards

Sarabjeet Kaur

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4 Replies

(Guest)

Dear Sarabjeet,

Section 295 of the Companies Act imposes some restrictions on loans as well as guarantees and securities to be given by a company to any of the persons specified in Sec 295(1).

Further, Section 297 requires certain contracts in which directors of a company are interested to be sanctioned by the Board of the company and, in certain cases, to be approved by the Central Government. However, it applies to sale, purchase or supply of goods and materials. It also applies to supply of services. But, this Section does not deal with sale or purchase or lease of immovable property.

Thus, neither of these Sections apply in your case.

Regards,

Veeral Gandhi

Sarabjeet Kaur (CS) (196 Points)
Replied 13 June 2012

But sir our Auditor is asking us to enter this lease transaction in the Register u/s 301 as the relative of the director is interested. If this transaction doesnot falls under section 295 or section 297 then it should not be entered into Register u/s 301

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 13 June 2012

Section 299 i.e. disclosure of interest by the director is applicable on this transaction. Hence it is required to be entered in section 301 register.

In other words this transaction is required to be entered in the register maintained u/s 301 via route of section 299.

Regards

(Guest)

Dear Sarabjeet,

In the light of the further clarification made by you, my reply would not be different from what Ankur said. Since this transaction falls under Sec. 299, it should be entered in the register maintained under Sec. 301.

Sec. 299 of the Companies Act, 1956 provides that every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement on behalf of the company shall disclose the nature of his concern or interest at a meeting of the Board of Directors. For this purpose a general notice shall be given by him to the Board of Directors. Any such general notice shall expire at the end of the financial year in which it is given, but may be renewed for further period of one financial year at a time, by a fresh notice given in the last month of the financial year in which it would otherwise expire. Every director who fails to comply with shall be punishable with fine which may extend to fifty thousand rupees. Sec. 300 of the Act provides that interested director shall not participate or vote in Board's proceedings.

As per section 301 of the companies act 1956, every company shall keep one or more registers in which shall be entered seperately particulars of all contracts or arrangements to which section 297 or section 299 applies.

Thus, the contention of the auditor is correct.

Regards,

Veeral Gandhi

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