Online approval of Central Government under section 297 of the Companies Act, 1956

To cater to the much awaited demand of various stakeholders regarding simplification of the procedure of Section 297 of the Companies Act, 1956, the Ministry has come out with Circular No. 52/2011 dated July 25, 2011 wherein Ministry has decided to simplify the procedures for obtaining approval under Section 297.

As specified, the application u/s 297 will now 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.

Moreover, the company while seeking approval of the directors and shareholders in their meetings shall specifically take approval to the effect that: --

1. 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
2. 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;
3. 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.
4. 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

Here again greater trust is laid on the certification provided by the Practicing Professional who along with the Company and Directors is supposed to be equally held liable and subject to penal actions in case of any wrongful certification.

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