Go Ad-Free on CAclubindia with Daily Mobile Updates. Subscribe Now!

Section 314 of the companies act, 1956

BHAVINI SHAH (Company Secretary) (193 Points)

02 February 2013

A person is already appointed in a private ltd. company and is earning more than rs. 2.50 lacs pm. the said person is a relative of the director of the said company. but is not a relative covered u/s 6 of the companies act, 1956. whether section 314 applies to such a person? if yes now that he is already employed in the company years back, how to deal with such a situation from secretarial compliance viewpoint?

Reply
Follow
Share

6 Replies

Sneha (Company Secretary) (1594 Points)
Replied 02 February 2013

According to my perception, Section 314 is not applicable in this case due to two reasons.

1. The said person is not a relative under Section 6 of the Act.

2. The appointment of such person was made before the appointment of the said Director.

Upgrade to CAclubindia Pro. Subscribe Now!

CS Advocate Abhishek Goyal (M Com FCS LLB M-AIMA ) (13709 Points)
Replied 02 February 2013

Yes if the person so appointed is not a relative of the director u/s 6 as you said, provisions of section 314 won't apply. But please also see Scheule 1A for list of relatives and check whether your case falls under that list. Also, the other exception provided under sub section 1A of section 314 itself that nothing contained in sub section (1) will apply where the person concerned was appointed before the appointment of the director. So if in your case the person concerned was appointed before the director appointed then your case will be excluded in view of specific exception.

BHAVINI SHAH (Company Secretary) (193 Points)
Replied 02 February 2013

Thanks for your reply but the person was appointed after the appointment of director.

and the person does not fall under section 6 of the companies act neither in schedule 1A.

Now what is right as per law of companies act, 1956

CS Advocate Abhishek Goyal (M Com FCS LLB M-AIMA ) (13709 Points)
Replied 02 February 2013

Then section 314 would not get attracted as the section would apply in case of a director's relative holding office or place of profit

Sneha (Company Secretary) (1594 Points)
Replied 04 February 2013

Still Section 314 will not apply as the said person is not a relative in the eye of law (as per sec 6 of the Act)

Upgrade to CAclubindia Pro. Subscribe Now!

rohit mansukhani (b) (23 Points)
Replied 05 February 2013

Your contention is 100% correct. If the person holding place of profit is not a relative within the meaning of section 6 then sec 314 will not apply.

To argue my point I would say one should check section 2 (41) which restricts the defination of relative very clearly and there is no further scope of addition and subtraction. Further, 2(41) defines relative for "any section of the ACT" i.e. it is applicable to Sec 314 too. Here is the relevant clause -

Section 2 (41) “relative” means, with reference to any person, any one who is related to such person in any of the ways specified in section 6, and no others