Chapter IX
Topic 257
1. Convene a Board Meeting after giving notice to all the
directors of the company as per Section 286 and place the terms of contract for
consideration.
2. Please keep in mind that every officer of the company whose
duty is to give notice of the Board Meeting as aforesaid and who fails to do so
will be punishable with fine of upto Rs. 1000/‑ [Section 286(2)].
3. Note that the directors interested or concerned have to
disclose the nature of their interest or concern, as per Section 297 or 299.
4. Further note that so far as Section 299 is concerned,
instead of disclosing interest or concern under that section every time, a
general notice and thereafter its renewal notice may be given annually by the
directors in accordance with that section.
5. Send reminders to the directors at the expiry of every
financial year of your company to disclose their interest by way of a general
notice.
6. Obtain the previous approval of the concerned Regional
Director'2 for entering into such contract where the paid‑up share
capital of the company is not less than rupees one crore. [Proviso to Section
297(1) ].
7. Make the application in Form No. 24A in the above case and
attach the following documents to it:
(i) A
certified true copy of the Board resolution approving the contract;
(ii) A certified true copy of the agreement containing particulars
of the contract entered into;
(iii) A certified true copy of the Memorandum and Articles of
Association of the company;
(iv) A certified true copy of the latest audited balance sheet and
profit and loss account of the company along with Directors' and Auditors'
Reports;
(v) Receipted treasury challan or demand draft evidencing the
payment of requisite fee prescribed by Companies (Fees on Applications) Rules,
1999.
8. If the application fee is paid by way of treasury challan,
then pay the requisite fee of minimum Rs. 500/‑ and maximum Rs. 2000/‑,
as the case may be, as prescribed by the Companies (Fees on Applications)
Rules, 1999 by way of treasury challan prepared in triplicate and paid in cash
into any of the specified branches of the Punjab National Bank for credit.
9. The description of the Head of account of the treasury
challan should be as prescribed under Rule 22(2) of the Companies (Central
Government's) General Rules and Forms, 1956 and as amended vide GSR
251(E),,dated 21‑6‑1996 (w.e.f. 21‑6‑1996). For
account head and code please see Rule 22(2) in Appendix 1.
10. Two copies of the treasury challan will be given back to the
depositor out of which the original copy should be attached to the application.
11. If the application fee is paid by way of demand draft, then
draw the demand draft in favour of "Pay and Accounts Officer, Department
of Company Affairs, New Delhi or Mumbai or Kolkata or Chennai", and
payable at any bank located in New Delhi or Mumbai or Kolkata or Chennai as the
case may be depending on the jurisdiction of the Regional Director of the
region in which the registered office of the company is located, and the said
demand draft should be attached to the application.
12. If the contract entered into relates to (a) purchase or sale
of materials for cash at prevailing market prices or (b) if the person with
whom such contract is entered into regularly trades or does business, then no
consent of the Board or the Central Government will be necessary provided that
the value of such transaction does not exceed Rs. 5,000/‑ in the
aggregate in any year comprising the period of the contract or contracts. [Section
297(2)].
13. If such a contract is entered into without the consent of the
Board in case of urgent necessity then such consent must be obtained at a
meeting within three months of the date on which it was entered. [Section
297(3)].
14. Keep in mind that every consent of the Board required under
Section 297(1) must be accorded only by a resolution passed at a meeting
of the Board and not otherwise. [Section 297(4)].
15. Note that as per Citizen's Charter of the Department of
Company Affairs, Schedule II, Serial No. 4, the application made to the
Regional Director will be processed within 30 days. [No. 5/25/99‑CL‑V,
Press Note No. 9/99 dated 9‑8-1999.]
16. Also keep in mind that excepting the case of a private
company which is neither a holding nor a subsidiary company of a public company
and excepting some other cases as mentioned in Section 300(2), an
interested director cannot take part in discussion and voting in respect of a
contract or arrangement in which he is interested or concerned.
17. Further keep in mind that such an interested or concerned
director will not also be counted in quorum [Section 303], but where the
number of such interested directors exceeds or equals two‑thirds of the
total strength of the Board of Directors, then only, two disinterested
directors present in the meeting will be deemed to be proper quorum. [Proviso to
Section 278(2)].
18. In case the Board cannot have full quorum, get the contract
approved by convening a General Meeting.
19. Make necessary entries in the register to be kept for this
purpose in accordance with Section 301.
20. Remember that if default is made in making the necessary entries
as aforesaid, the company and every officer of the company who is in default
will be punishable with fine upto Rs. 5000/‑5 in respect of each default [Section
301(4)].
21. If your company is a Government company then previous
approval of the Central Government as mentioned in item 6 is not
required.
22. Note that if your compairly's paid‑up share capital is
less than Rs. 50 lakhs but is equal to or more than Rs. 10 lakhs, your company
is required to obtain a Compliance Certificate from a secretary in whole‑time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the company has duly complied with the provisions of section 297
in respect of contracts specified in that section, made necessary entries
in the register maintained under section 301 of the Act and also obtained the
necessary approval of the Regional Director as per paragraph 9, 10 and 17 of
the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001. [Section 383A (1) proviso]
Topic 258
DO YOU WISH TO MAKE A CONTRACT WHERE
YOUR COMPANY IS AN UNDISCLOSED PRINCIPAL?
1. At the time of entering into such a contract, make a
memorandum in writing of the terms of the contract and specify in it the name
and address of the person with whom the contract is entered into. [Section
416(1)].
2. Forthwith deliver the above memorandum to your company and
file it in the office of your company. [Section 416(2)]
3. Send copies of the memorandum to each of the directors of
your company. [Section 416(2)]
4. Lay the memorandum before the Board of Directors of your
company at the next Board Meeting held just after such contract is entered
into. [Section 416(2)].
5. Follow this procedure only when your company is either a
public company or a private company which is a subsidiary of any public
company. [Section 416(1),].
6. If default is made in complying with the requirements of
section 416, the contract will be voidable against the company and the person
who enters into the contract, or every officer of the company who is in default
will be punishable with fine of upto Rs. 2000/2 [Section 416(3)].
Topic 259
1. If the appointment attracts the provisions of Section 314
regarding holding of office or place of profit, follow the procedure, vide
Topic 108.
2. In
any case, the contract:
(i) should not be for tax‑free remuneration [Section
200] except of certain foreign technicians under Section 10(6) of the
Income‑tax Act 1961; and
(ii) should not be based on the percentage of net profits to be
calculated otherwise than as provided under Section 349.