Upgrad LLM

query on sec 299(6) of ca-56


 

Section 299(6) of the Companies Act, 1956, states as follows:-

 

Nothing in this section shall apply to any contract or arrangement entered into or to be entered into between two companies where any of the directors of the one company or two or more of them together holds or hold not more than two per cent of the paid- up share capital in the other company

As the word ‘Other Company’ is clearly written in the section itself, appears that for a Contract/ transaction between X –Ltd and Y-Ltd,where two Directors together hold more than 2% of the paid-up share capital in X-Ltd but simple Director in Y-Ltd and do not hold any share – for X-Ltd it is exempted whereas, similar exemption is not available in Y-Ltd.

Query – Should we go strictly by the words of the section and  consider exemption in one company and not the other as in that case the spirit of the section appears defeating,since lacking 'Mirror Effect'.

 
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