Interested Director- a case study

Wife of a Director advanced a loan to a company on the property of the company. All Directors knew this. The interested Director did not disclose his interest, he even voted on the resolution. Can the company set aside the mortgage?

Section 299 and 300 of the Companies Act, 1956 provides that a Director interested in a contract, with or by a company must disclose his nature of concern or interest in it at a Board Meeting when it is being discussed. Failure in complying with this Section leads to a punishment (fine) to the Director which may extended to Rs.50,000.00. Moreover, under Section 283 of the the Companies Act, 1956, non compliance of Section 299 leads to the vacation of the office of the Director. However, his default does not invalidate the proceedings of the meeting.

Here in this situation, the Director does not disclosed his interest in the contract between the company and his wife. He has even voted on the resolution. Thus he is guilty of contravening the provisions of Section 299 and 300 of the Companies Act, 1956. He is thus liable to a fine of Rs. 50,000.00 and also results in the vacation of his office. The contract is voidable at the instances of the company. Thus the company can set aside the mortgage.

Similar case:

Hely-Hutchinson v.Prayhead Ltd