Upgrad LLM

compounding query

Management trainee


Dear Members,
This is regarding the 2 below-mentioned compounding of offence application under Companies Act, 1956:
1. Under section – 297(1) of the Companies Act, 1956, which is to be dealt in Regional Director’s office.
2. Under section - 211 of the Companies Act, 1956 read Accounting Standard – 18, which is to be dealt in Company Law Board.
Now, does the Compounding Application under section – 297(1) needs to be made by the Company + all Directors(including non-executive directors) + Company Secretary OR is it only to be made by Company + MD + WTD + Company Secretary?
Further, does the Compounding Application, under section - 211 of the Companies Act, 1956 read Accounting Standard – 18 needs to by the Company + all Directors (including non-executive directors) + Company Secretary OR is it only to be made by Company + Directors who have signed the Balance-sheet + Company Secretary.
Further, what is the maximum amount of Penalty under both the compounding applications can be levied/ imposed to each applicants? [Provided in both the above cases, there is no Manager u/s – 2(24) of the Act]
Kindly provide your useful comments in this regard, its very urgent.
Thanking you all in advance.


Dear Arijit,

You are in a tremendous hurry, which may lead to unwarranted confusion. Before I answer your query, may I ask you why are you in such a hurry ?

Section 297 pertains to allotment of a contract for supply of materials / services to a relative of a Director who is an interested party.  It needs to be minuted and a resolution to that effect needs to be passed in the Board meeting. If the paid up share capital of the Company is not less than a crore, prior Central Government approval is required before the contract with the interested party is entered into.

For Section 211 to be answered, you need to tell me what is the core business of the Company you are referring to.

Every consent of the Board required under this section shall be accorded by a resolution passed at a meeting of the Board and not otherwise; and the consent of the Board required under sub-section (1) shall not be deemed to have been given within the meaning of that sub-section unless the consent is accorded before the contract is entered into or within three months of the date on which it was entered into. When a 2/3rd majority of the Directors in the meeting have accorded their approval to such a contract, the Company Secretary is required to record the resolution.

Section 297 does not provide any penalty for non – compliance. The penalty therefore will be as per the provision of Section 629A.Entering into certain contracts with the company in which particular directors are interested without Board’s sanction and where paid-up share capital is not less than Rs. One Crore, without the previous approval of the Central Government (now Regional Director) the company and every officer in default shall be punishable with fine upto Rs. 5000 and further fine upto Rs. 500 for each day of default [sub-section (1)]. The offence punishable is compoundable under section 621A read with section 629A.

Section 2(24) in The Companies Act, 1956

(24) " manager" means an individual (not being the managing agent) who, subject to the superintendence, control and direction of the Board of directors, has the management of the whole, or subsantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract of service or not.

Should you require any further clarification, please feel free to call me or mail me directly at prashant.pscl07@gmail.com



Fca Prashant Chavan

Mumbai - 9920299337




Your are not logged in . Please login to post replies

Click here to Login / Register  


  Search Forum



CrPC MASTERCLASS!     |    x