Every one Airways is proposing an IPO and for this purpose it proposed a Lead Merchant Banker for managing the issue. Mr. Spice one of the Director, is also a director in the said merchant banking company. Advise on the following situation:
(a) Is Mr. Spice, a concerned director for the purpose of disclosing his interest under Section 299 of the Act?
(b) Should he disclose his interest to the company?
(c) What would be your answer, if the company is already aware of the fact of his interest?
(a) Is Mr. Spice, a concerned director for the purpose of disclosing his interest under Section 299 of the Act?
(b) Should he disclose his interest to the company?
(c) What would be your answer, if the company is already aware of the fact of his interest?
(a) According to Section 297, 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, must not enter into contracts with company for the sale, purchase, or supply of goods, materials or services or for underwriting shares or debentures except with the consent of the Board of Directors [sub-section (1)]. According to the proviso to sub-section (1) in the case of a company having a paid-up capital of Rs.1 crore or more no such contract shall be entered into except with previous approval of the Central Government The consent of the Board is deemed to have been given only if it is accorded by a resolution of the Board and not otherwise, either before or within three months of the date of entering into the contract [sub-section (4)].
If the consent is not accorded to any contract under Section 297, anything done in pursuance of the contract shall be voidable at the option of the Board. [sub-section (5)]. But as a matter of good corporate governance practice, the concerned director may disclose his interest in the proposed contract/arrangement.
(b) The term ‘disclosure’ means to make others aware of something, which they are not aware. The disclosure of interest by a director has been provided in Section 299 only with a view to know that the director occupies fiduciary position in the company should disclose his interest in any arrangement or contract either directly or indirectly so that the company is in a position to know whether he is acting in any way prejudicial to the interest of the company or for his own benefit.
(c) When board is aware of the fact of the interest of a director in a particular transaction, it would not be necessary for such a director to formerly disclose his interest. (Ramakrishna Rao vs. Bangalore Race Club, 40 Comp. Case 674 (Mysore). A. Sivasailam vs. Registrar of Companies.
No comments:
Post a Comment