Who is a relative under the Companies Act?

Who is a relative under section 2(77)?

Section 2(77) of the Companies Act, 2013 counts three classes of relative, and no fourth. A relative, with reference to any person, means anyone who is related to another if they are members of a Hindu undivided family, they are husband and wife, or one person is related to the other in the manner prescribed.

The prescribed manner is rule 4 of the Companies (Specification of definitions details) Rules, 2014. The HUF limb and the spouse limb do not run through that rule. A wife is a relative because subsection (ii) says so, not because rule 4 repeats the word.

Which relatives does rule 4 list?

Rule 4 names eight relations, and writes five step-relations into the provisos. A person shall be deemed to be the relative of another if he or she is related in that manner.

Who is not a section 2(77) relative?

A father-in-law is not a relative under section 2(77), and neither is a mother-in-law, a brother's wife, a sister's husband, a cousin, an uncle, a nephew, a grandparent or a grandchild. None of them is in rule 4. A step-daughter is not in the proviso to "daughter". The rule included step-son and did not include her.

That cut is easy to miss because the in-laws who did make the list are son's wife and daughter's husband. The parents of a spouse did not. A board note that treats "family" as the test is wider than the Act.

What about the HUF limb?

Members of the same Hindu undivided family are relatives under section 2(77)(i) even when rule 4 would not name them. The rule does not shrink that limb. It also does not turn every cousin into a relative. The cousin has to be an HUF member, or a spouse, or a person in the table.

Where does the relative test apply?

Section 2(77) applies wherever the Act uses "relative" and does not give the word a second meaning. Section 2(76)builds "related party" on that definition. A director or his relative is a related party. So is a key managerial personnel or his relative. So is a private company in which a director, a manager, or his relative is a member or a director.

The public-company limb has a number. Section 2(76)(v) covers a public company in which a director or manager holds, along with his relatives, more than 2% of its paid-up share capital. More than 2% is the line. A holding of 2% does not cross it. That figure feeds section 188 approvals.

Section 166(5) uses the same word for a different job. A director shall not achieve any undue gain for himself, his relatives, partners or associates. A gain for a rule 4 relative is inside that duty. A gain for a father-in-law is not, unless some other word in that subsection catches him.

G.S.R. 464(E) dated 5 June 2015 says section 2(76) does not apply to a private company with respect to section 188. The notification of 13 June 2017 keeps that exemption only for a private company that has not defaulted in filing financial statements under section 137 or the annual return under section 92. The exemption is about section 188. It does not delete section 2(77), and it does not switch off section 166(5).

How do I check a relative claim?

Read section 2(77), then rule 4, then the section that uses the word. Start with the three limbs. If the person is a spouse or an HUF member, stop: the definition is met. If not, match the person to the eight lines in rule 4, including only the step-relations the provisos name.

A listed company has a second list. Section 2(77) does not answer SEBI's related-party definition. Track a change to the rule, or to the private-company exemption, on the MCA updates feed, and read section 2(77) against the current rule 4 before you copy a 2014 checklist that has grown extra in-laws.