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Whether s.297 & s.314 applicable on payt to director

Sachin j Vatsal (CA, CS, DISA) (67 Points)

26 November 2011

Hiiiiiiii All !

A private limited comany made some purchases from its Director's HUF and made payments against these purchases and also commision on purchases. whether S.297 or S.314 will be applicable on these payments made to HUFs.

Since These two section doesn't specifially covers HUF and HUF also not covered under definition of Relative (S.2(41) & S.6) in my opinion.

I think Definition of Relative cover "members of HUF" but not "HUF" itself.

Please discuss...

Thanks in Advance for you knowledged discussion.

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9 Replies

CA Sripal Jain (Associate Finance) (709 Points)
Replied 26 November 2011

no HUF is not covered under section 297 and 314

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Sachin j Vatsal (CA, CS, DISA) (67 Points)
Replied 28 November 2011

Thank you for discussing the query.

I think there are certain diferences of opinion on this point. Some people are replying that since HUF is recognised by its KARTA under companies act, so any transaction made with HUF will be counted as to be made with KARTA ?

With this view Provisions will be applicable on HUF also.

Please discuss further.

Thanks in advances for youe valuable opinion.

Smriti Dhawan (Company Secretary ) (347 Points)
Replied 28 November 2011

Section 314 of the Companies Act, 1956 will not be applicable in your case.

Section 297 of the Companies Act, 1956 will be applicable as a contract with a HUF wherein the Director is the Karta or a Co-parcener, the contract will fall within the mischief of Section 297 and is not exempt from its provisions, as under Section 6(a) of the Companies Act a person is considered to be a relative of another if they are members of a Hindu Undivided Family.

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Sachin j Vatsal (CA, CS, DISA) (67 Points)
Replied 28 November 2011

Thank you very much for discussing the query.

But, applicability part of both sections are same. so whether both sections should be applicable or none of above.

Would you please make it clear whether the following line used you, is given in any case-law :-

"a contract with a HUF wherein the Director is the Karta or a Co-parcener, the contract will fall within the mischief of Section 297 and is not exempt from its provisions"

CA Sripal Jain (Associate Finance) (709 Points)
Replied 28 November 2011

dear smriti,

i think the question he askd his about his membrship in HUF and director is not karta

say if he is karta it wil be covered

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Smriti Dhawan (Company Secretary ) (347 Points)
Replied 28 November 2011

Dear Sripal, According to my understanding Section 297 will be applicable if Director is karta or member (Co-parcener) of HUF in both the cases applicabilty will be same.

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