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Section 297 Query - Urgent

01 November 2010

Hi,

We have two Companies ( Private Limited) having 3 directors each.. now out of these three.....two directors are common in both.....Now one of the Company is proposed to provide services to other which has a paid up capital of more than 1 crore. The value shall be at market rate only....DO we need to take CG approval.. if yes then how do i show the quorum in board meetin as two directors out of three will be interested in both the companies...

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12 Replies

Mayuri Lal (officer CS) (748 Points)
Replied 01 November 2010

hi shruti

i think CG approval will not be required bkoz its mentioned that exemption when :-

Transactions shall be done for Cash at Prevailing Market Prices

so i think not required..

but please confirm

regards

CS mayuri Lal

Ajay Mishra (Company Secretary) (74332 Points)
Replied 01 November 2010

Agreed with Mayuri........

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]

3 Like

Mayuri Lal (officer CS) (748 Points)
Replied 01 November 2010

n also bkopz coz services are not covered u/s 297

1 Like

Shruti Chawla (CS) (258 Points)
Replied 01 November 2010

297 very well covers services-

297 1(a) for the sale, purchase or supply of any goods, materials or services...

Plus the contract wont be a for cash.

NIRALI SOLANKI (JOINT MANAGER LEGAL & SECRETARIAL) (87 Points)
Replied 01 November 2010

Dear Friend,

You have to take approval of Central Govt. and the practical way to pass the resolution is that you may appoint two directors and pass the resolution and after passing resolution you may file there resignation.

1 Like

Shobhit (Associate) (75 Points)
Replied 01 November 2010

Though the directors are interested, but it being a Private company they will not be excluded for the purpose of counting quorum, since sec.300 doesnot applies to pvt. cos.

Had it been a public co., the directors will be excluded for counting quorum and also they cant vote u/s 300. But in that case, i think even a single director can appoint additional director u/s260 if AOA mentions(as per regulation 75 of Table A.)

But in ur case directors will counted for quorum and thereby resolution can be passed and also CG approval will be required.

Pl. guide me if i am wrong somewhere.

1 Like

sheetal (a) (28 Points)
Replied 02 November 2010

CG approval is required as S-297 exempts contracts for sale or purchase of goods at prevailing market prices and not providing services.

1 Like

Vikram Yadav (CS) (53 Points)
Replied 03 November 2010

CG approval is not required.

Shruti Chawla (CS) (258 Points)
Replied 03 November 2010

Originally posted by : Vikram Yadav
	CG approval is not required.

can u please state the reasons for the same.

Anshul (CA Final Aspirant) (42 Points)
Replied 04 November 2010

Hello shruti,

In your case, the Sec. 297(2)(a)principle of cash at prevailing market price is not applicable as it is only for sale of goods or material n not services . Services part is covered under Sec. 297(2)(b) which says for regular trade & Rs. 5000 agreegate limit.

Since, the paid up capital is more than 1 crore thus as per Sec. 297 , prior approval of CG will be required.

As regard to Quorum , Sec. 300 specifically excludes Private companies. It means that even interested directors can constitute a vaild quorum for board meeting.

I hope this shall be helpful

1 Like

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 07 December 2010

Central Government approval is required as Sub-section 2(a) of section 297 of the Companies Act, 1956 excludes only the purchase or sale of the goods and materials to the company at prevailing market prices. Services are not covered and hence do not fall under exclusion.

As regards quorum, yours being a private company section 300 is not applicable and the interested director will be counted for quorum and can also participate in voting.

ankit jain (CS trainee) (152 Points)
Replied 08 December 2010

Dear shruti,

You need to take prior CG approval for such transaction. Quoram for the Board meeting can be shown in the same manner as you were showing because section 300 will not be applicable to a pvt. co. So, the interested director of a pvt. co. can take part in the discussion.

Please correct me if i am wrong.