Live Course on Drafting of Appeal and Reply of Penalty Notice by CA Sachin Sinha. Register Now!!

Sub Section 6 of Section 299 of Companies Act

mukesh (ma) (55 Points)

23 April 2008

Sub Section 6 of Section 299 provides exemption to contracts or arrangements between two companies where the director on one company holds up to 2% of the paid up share capital of the other company.

My question is whether such an exemption is available where the other company is a company registered outside India. For example Mr A is director of I pvt Ltd (an indian company) and is also a director and employee of J Co Ltd (a Japanese Company). He is not holding any shares in both the Companies.

Whether contracts or arrangements between I Pvt Ltd and J Co Ltd are covered under exemption of subsection 6 of Section 299 of the Companies Act 1956.

Reply
Follow
Share

9 Replies

Preeti (Student) (32 Points)
Replied 28 April 2008

a) As per Section 3 (1) of the Companies Act, 1956 (Defination of Company) does not include foreign company.

b) In Sec 299(6) only mentioned about company which attracts sec 3 (1).

c) that contract is also exempted.

DEEPAK KOHLI (CS FINAL) (199 Points)
Replied 10 September 2008

Originally posted by :Preeti
"	a) As per Section 3 (1) of the Companies Act, 1956 (Defination of Company) does not include foreign company. b) In Sec 299(6) only mentioned about company which attracts sec 3 (1). c) that contract is also exempted.	"

(Guest)

Originally posted by :DEEPAK KOHLI

In my view contract between an Indian company and a foreign body corporate will be exempted under Section 299(6) of the Companies Act provided (i) the common director holds 2% or less of the paid up capital of the foreign body corporate and (ii) the foreign body corporate falls within the definition of a company under the Companies Act 1956, which is only possible if the foreign body corporate is either a holding company or a subsidiary company of the Indian company in accordance with section 4(5) of the Companies act 1956.

Applicability of Section 297 may need to be viewed/examined separately....

Originally posted by :Preeti

"
a) As per Section 3 (1) of the Companies Act, 1956 (Defination of Company) does not include foreign company.
b) In Sec 299(6) only mentioned about company which attracts sec 3 (1).
c) that contract is also exempted.
"

Lineesh James (Company Secretary) (30 Points)
Replied 16 September 2008

Originally posted by :mukesh

Section 299(6) applies when a director of Company A is only a Shareholder in Company B holding less than 2% of shares i.e he is not interested in Company B in any other way.

In this case, section 299(6) is irelevant.Since he is a director in both the companies he has to make adequate disclosure to the Board of Indian Company. 299 does not say that the contract has to be between companies.

Whether the Definition of a "Company" includes a Foreign Company or not is a moot Question. Section 297, 299 etc. calls for broader interpretation and in the act , definition of "Company" starts with "unless the context otherwise requires"

S K Jain (Service) (41 Points)
Replied 07 May 2009

I have a doubt, say in both the Companies "A" is a Director and does not hold any shares. Is the declaration still required.

Sangeet Hunjan (Company Secretary) (92 Points)
Replied 07 May 2009

I completely agree with Lineesh. Sec 299(6) is irrelevant here. And the question of whether “Company” includes a foreign company or not does not arise here as the word Company is used only in 299(6). Section 299(1) talks about “any director who is concerned or interested in a contract or arrangement...” Then Section 299(3)(a) explains the meaning of an interested director and clearly states that a director will be regarded as concerned or interested if he is a director or member of a body corporate…..And body corporate includes a Company incorporated outside India. Hence, Mukesh and Santosh, you need the director, here, will be required to make a disclosure of interest.

CA SUDIPTA SINHA (Commerce Coaching- Accounts Cost FM) (735 Points)
Replied 10 May 2009

the term 'company' is defined under the Act as a company formed and registered under this Act. sec 299(6) reads that " Nothing in this seciton shall apply to any contract or arrangement entered into or to be entered into between two companies......." otherwise anything provided in the Act we shoul take the definition of the term as per the Act. hence a foreign company is not covered under Sec. 299(6).

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 11 May 2009

1) The term 'body corporate' includes company incorporated in India as well as outside India.

2) The term 'company' means only a company incorporated in India.

3) Sec.299 is applicable to contracts with 'bodies corporate' as will be evident from Sec.299(3)(a).

4) However, exemption u/s 299(6) is granted to contracts with Indian public companies in which shareholding of the directors is not more than 2% of paid up capital of other company.

5) It means that there is no exemption to contracts with:

a) companies incorporated outside India

b) Indian private limited companies

c) Indian public companies where shareholding of directors is more than 2% of paid-up capital.

Thanks