General meeting in favour of

The director can exercise his voting right at a general meeting in favour of
a contract in which he is interested.
Advise the chairman of a large-size public limited company of legal and
procedural aspects of the following:
(i)The managing director needs an advance of Rs. 5 lakhs as loan for building
iS own residential house.
ii) he chairman wants to take certain furniture items at book value from the
company’s guest house, for use by his son.
(iii) The chairman wants to release company’s advertisement in a souvenir being
brought out by a trade union having affiliation with a political party. The
advertisement is at a cost of Rs. 20,000.
(i)A public limited company is prohibited by Section 295 of the Companies Act, 1956 from giving loan or giving any guarantee or providing any security in connection with a loan made by any other person to its directors without obtaining prior approval of the Central Government.
However, the Department of Company Affairs has clarified that public limited companies may give house building loans to their directors, including managing directors/whole-time directors without obtaining prior approval of the Central Government, provided such loans are given on such terms and conditions as are applicable to the company’s other officers and employees.
Therefore, in the given case, the company may give to its managing director an advance of Rs. 5 lakhs as loan for building his own residential house provided the company has a scheme for giving house building loans to its other officers and employees. However, if the company has no such scheme for its employees, it will have to secure prior approval of the Central Government under the said section for giving the proposed advance as house building loan to its managing director.
(ii) Section 297 of the Companies Act, 1956 lays down that no director or his relative shall enter into any contract for the sale, purchase or supply of any goods, materials or services, with the company, without the consent of the company’s Board of Directors and if the paid-up capital of the company is Rs. 1 crore or above prior approval of the Central Government is also required.
However, the sectiop-provides certain exceptions but the given case is not covered by any of the exceptions.as the proposed purchase is not at the prevailing market price
but at book value, which parently is much less than the prevailing market value
is the company regularly trading in or doing business of sale and purchase of furnit
(iil) Section 293A of the Companies Act, 1956 lays down that no company, which has been in existence for less than three financial years shall contribute any amount, directly or indirectly, to any political party or for any political purpose to any person.
However, a company, which has been in xistence for more than three years may contribute any amount or amounts, directly or indirectly, to any political party or for any political purpose to any person provided that the aggregate of the amounts so contributed in any financial year shall not exceed five per cent of its average net protits determined in accordance with the provisions of Sections 349 and 350 of the Act, during the three immediately preceding financial years.
Assuming that the company in question has been in existence for three or more years, it can issue the proposed advertisement in the souvenir of the trade union having political affiliation at a cost of Rs. 20,000 provided this amount and all other such amounts paid in the financial year are within the ceiling of 5% of the company’s average net profits of the three immediately preceding years.
P. 32. Whether a company can appoint an alternate director in place of a managing
director? Give reasons. [G.S. (Final) Dec., 1994J
Ylns. Section 313 of the Companies Act, 1956 provides that the Board of Directors of a company may, if so authorised by its Articles or by a resolution passed by the company in general meeting, appoint an alternate director to act for a director (hereinafter called the original director) during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held.
An alternate director is like any other director. In respect of compliance with the provisions of the Act, he is in the same position as any other director as regards his rights, duties and liabilities as a director. Taking this statutory position of an alternate director into consideration, an alternate director may be appointed in place of a managing director.
However, another view has also been expressed according to which an alternate director shall not be appointed in place of a managing director, because the appointment of a managing director is a contractual appointment and is very much related to his qualifications, experience, specialised knowledge and expertise relating to the principal business of the company for which he has been so appointed. However, during his absence the Board may appoint a committee of directors to look after the day-to-day business and affairs of the company.