In yet another step to simplify the procedural steps to be taken by a corporate for various approvals, the Ministry of Corporate Affairs has introduced from a procedure effective from 24th Septembre 2011 , for online approval for sanctioning contracts where the particular directors are interested. Section 297 states that a director of the company or his relative, a firm in which such a director or relative is a partner, 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.
The following are the steps to be taken by the company to seek online approval from the Central Government:
- Application to be made in the new e-form along with the payment of prescribed fee.
- Terms of contract, Board Resolutions, Special Resolutions and other relevant information shall be captured in the e-form.
- The correctness of the information and declarations given by the company in the e-form shall be certified by the practicing professional.
- The approval of the Central Government will also be given online to the applicant company on the basis of the e-form filed by the company.
- If the information provided in the e-form is incorrect, then the company shall be liable for penal action under sections 297 and 628 of the Companies Act, 1956
Following specific approvals are to be taken by the company in the Board Meetings or Shareholders Meetings
- Proposed contract is competitive, at an arm’s length, without conflict of interest and is not less advantageous to it as compared to similar contracts with other parties.
- The company has not made any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon and has filed its upto date Balance Sheets and Annual Returns with the Registrar of Companies.
- The proposed contract is falling within the provisions of section 297 of the Act and provisions of sections 198, 269, 309, 314 and 295 are not applicable in the proposed contract.
- The company and its Directors have complied with the provisions of sections 173, 287, 299, 300, 301 and other applicable provisions of the Companies Act, 1956 with regard to the proposed contract.
Circular for Ready Reference
SECTION 297 OF THE COMPANIES ACT, 1956 – BOARD’S SANCTION TO BE REQUIRED FOR CERTAIN CONTRACTS IN WHICH PARTICULAR DIRECTORS ARE INTERESTED – SIMPLIFIED PROCEDURE FOR OBTAINING ONLINE APPROVAL OF CENTRAL GOVERNMENT UNDER SECTION 297
GENERAL CIRCULAR NO. 52/2011, DATED 25-7-2011
The Ministry of Corporate Affairs has been receiving representations form various stakeholders to simplify the approval processes under section 297 of the Companies Act, 1956.
In order to cut timelines in giving approval, the Ministry has decided to simplify the procedures and to give approval online, if the proposed contract has been approved by the shareholders by way of special resolutions in a general meeting.
2. According to new procedure, application will be made in a new e-form with the prescribed fee. The relevant information like terms of contract and details of Board resolutions and special resolutions shall be captured in the e-form. The e-form shall also be certified by the practicing professional who shall specifically certify the correctness of the information and declarations given by the company in the e-form.
3. The company while seeking approval of the directors and shareholders in their meetings shall specifically take approval to the effect that:—
(i) Proposed contract is competitive, at an arm’s length, without conflict of interest and is not less advantageous to it as compared to similar contracts with other parties.
(ii) The company has not made any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon and has filed its upto date Balance Sheets and Annual Returns with the Registrar of Companies.
(iii) The proposed contract is falling within the provisions of section 297 of the Act and provisions of sections 198, 269, 309, 314 and 295 are not applicable in the proposed contract.
(iv) The company and its Directors have complied with the provisions of sections 173, 287, 299, 300, 301 and other applicable provisions of the Companies Act, 1956 with regard to the proposed contract.
4. The application will be processed online and approval of Central Government shall also be made available to the applicant company online on the basis of declarations made by the company and certifications by the professionals given in the e-form.
5. If any of the information or declaration given by the company or certificate given by the professional in the e-form is found to be wrong, then the applicant company, its Directors and professional shall be liable for penal action under sections 297 and 628 of the Companies Act, 1956 in addition to penal action prescribed in regulations of the respective professional institutes.
6. The process of online approval of Central Government under section 297 of the Companies Act, 1956 is likely to be implemented with effect from 24th September, 2011.
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