Conflict of interest by purchase of shares in competing cos.

Karandeep.

You have to clearly distinguish between a company and its members including Directors. A Company is distinct from its members/Directors. All the actions of Directors/Members may not be taken as that of the company.

A company can buy shares in a rival company, there is no conflict of interest otherwsie Mergers and Acquisitions will become illegal.

But if one or some or all Directors buy shares in a rival company then there will be a conflict of interest. Though, legally it is permissible because Directors are afterall free individuals not tied to the company, but such purchases are subjected to :-

1. Whether they are permissible in AOA of the company.

2. The Directors have to disclose the information to the Company. The BOD/ Company may then decide and allow such purchase of shares by a Director. Here Company would mean that a resolution will have to be passed in the AGM.

Ans. Dear friend,

It is established fact that the company can hold shares in his own name irrespective of the fact that the other company is rival or competing one.

Further as far as the question regarding the “conflict of interest” is concern it may arises if and only if all or any of the Director(s) of the both the companies are common. In such a case the shareholder director has to declare his interest vide Form no. 24AA under Sec. 299 of the Companies Act, 1956 on annual basis.