In the legal sense a relative of a director of a company is not disqualified for appointment as an auditor of the company. However, special resolution under section 314 shall be passed if the remuneration of auditor exceeds the limits specified in section 314.
However, the council of the Institute of Chartered Accountants of India has suggested that a chartered accountant shall not accept the audit of a company where he is relative of the company's managing director or whole-time director and he believes that he would not be in a position to express his independent opinion.
Section 297 stipulates requirement for obtaining of Board's sanction for certain contracts in which particular directors are interested, does not come into play where a relative of a director is appointed as an auditor of the company. [DCA Circular No. 13, dated 5-6-1975]
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