Section 297, Section 299 and Section 300 of the Companies Act,

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Dear Members

There are two companies, say A Ltd. having 3 Directors Mr. A, Mr.B, and Mr.C,another Company B Pvt. Ltd. having 3 Directors, Mr. A, Mr.D and Mr. E. As evident, one of the Directors of A Ltd. i.e. Mr. A is also a Director of B Pvt. Ltd. Mr. A is also a member of B Pvt. Ltd holding less than 2% of the paid up capital of the Company (B Pvt. Ltd.) 

Now, A Ltd. proposes to enter into a contract for purschase of Goods from B Pvt. Ltd. Provisions of section 297 are applicable in this case. Section 299 of the Companies Act, 1956 is not applicable because as per section 299(6), provisions of section 299 shall not apply in case of contract or arrangement of between 2 companies, wherein Director of one Company either individually or together with one or more Directors of the Company is not holding more than 2% of the paid up capital of the other Company.

Now, Whether Mr. A is entitled to participate in the discussion, or vote on the resolution or shall be counted for the purpose of quorum of the Board Meeting in which the Contract is placed before the Board?

Exemption available under section 300(4) is applicable only in case the Contract is entered or proposed to be entered into with a Public Company or a Private Company which is a subsidiary of a Public Company.

God Bless

Udit Sharma  

Replies (4)

Section 297(1) Except with the consent of the Board of directors of a Company,

 

a Director of the Company

 

or his relative

 

a firm in which such a director or relative is a partner

 

or any other partner in such a firm,

 

or a Private Company of which the director is a member or director

 

shall not enter into any contract with the Company."

 

Therefore, this section does not apply in case of the contract between TWO PUBLIC COMPANY .

IN YOUR CASE ONLY SECTION 297 WOULD APPLY.

 

Section 300 would also apply.

 

In your case section 297 will be applicable but section 299 will not applicable.

however section 300 will be applicable because your case is not exempted u/s 300 as conditions of 2 % holding is only in section 299 and not 300.

Thus as per my view, Mr. A will not be counted for the purpose of quorum neither he will be entitled for discussion and voting. section 301 regarding entry in 301 register within 7 days also applicable.

Thanks

Rajeev Nayak 

Agree with the experts. Sections 297 and 300 are applicable.  Sec. 299 is not applicable.

Hence the interested director cannot take part in the proceedings of the meeting and his presence would not be counted for the purpose of quorum.


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