Hindu joint family

A Hindu Joint Family or Hindu undivided family (HUF) or a Joint Hindu Family is an extended family arrangement prevalent among Hindus of the Indian subcontinent, consisting of many generations living under the same roof. All the male members are blood relatives and all the women are either mothers, wives, unmarried daughters, or widowed relatives, all bound by the common sapinda relationship. An undivided family, which is the normal condition of a Hindu society, is ordinarily joint; not only in whatever relates to their commensality and their religious duties and observance are regulated by the task of regulation. The joint family status being the result of birth, possession of joint cord that knits the members of the family together is not property but the relationship. The family is headed by a patriarch, usually the oldest male, who makes decisions on economic and social matters on behalf of the entire family. The patriarch's wife generally exerts control over the kitchen, child rearing and minor religious practices. All money goes to the common pool and all property is held jointly.

A daughter cannot remain the member of her father’s family after her marriage and the sisters, though they were once entitled to a share in the property, would lose their right and would be entitled to only maintenance until their marriage and their marriage expenses. A joint family may consist of a single male member and widows of the deceased male members and the property of the family does not cease to belong to the joint family merely because the family is represented by a single coparcener who possesses rights which an absolute owner of the property may possess.

There are several schools of Hindu Law, such Mitakshara, the Dayabhaga, the Murumakkattayam, the Aliyasanthana etc. Broadly, Mitakshara and Dayabhaga systems of laws are very common. Family ties are given more importance than marital ties. The arrangement provides a kind of social security in a familial atmosphere.

Due to the development of Indian Legal System, of late, the female members are also given the right of share to the property in the HUF. In CIT vs Veerappa Chettiar, 76 ITR 467 (SC), Supreme Court had occasion to decide on an issue whether after the death of all the male members in a HUF, the HUF would still exist.

Hindu Coparcenary

A Hindu coparcenary is a much narrower body than the joint family. It includes only those persons who acquire by birth an interest in the joint or coparcenary property. These are the sons, grandsons and great-grandsons of the hands as regards his son. In such a case it is said that the son becomes a coparcener with the father with regard to the property so inherited and the coparcenary consists of the father and the son. But this does not restrict the coparcenary to father and son. Even the grandson and great-grandson are also coparceners they and nephews, cousins, etc.

A coparcenary is a creature of customs among Hindus which is recognised by the Indian law; unlike partnership, it cannot be created by act of parties, except to the extent that by adoption, a stranger can be introduced as a member thereof. It has been held by the Supreme Court of India in Kalyanji Vithaldas and others vs Commissioner of Income tax [5 ITR 90 (PC)] that in a coparcenary, there must be at least two male members; but in a HUF, there is no requirement for more than one male member, the other members being the wife and/or the unmarried daughter of the concerned individual, in case he does not have a son. [http://www.taxworry.com/2007/08/what-is-difference-between-member.html What Is The Difference Between A Member & A Coparcener of An HUF?]

HUF as a partner in a partnership firm

HUF is a joint family consists of all persons lineally descended from a common ancestor. Hence, HUF is a group of members of the same family.

The "father", or the "senior member" of the family called "Kartha", ordinarily manages the property belonging to Joint Family. Hence, the status of HUF cannot be termed as person.

The partnership is a relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Hence, to become a partner in a partnership firm, the partner should be a natural person or recognized as person by the law (Company - by virtue of Companies Act 1956). Since, HUF is not a "person", but only group of persons belonging to the same family and carrying on the family business, HUF cannot be a partner in a partnership firm.

The above view is supported by a catena of judgments.

The Supreme Court of India held (AIR-1930-PC-300 & AIR1956-SC-854) - HUF is an association of persons is "not a person" within the meaning of expression in the Partnership Act. "… it is now well settled that HUF cannot enter into contract of partnership with another person or persons."

The Supreme Court of India, in another case M/s Rasiklal & Co Vs Commissioner of held that "…………. an HUF directly or indirectly cannot become a partner of a firm because the firm is an association of individuals." "…….in law, an HUF can never be a partner of partnership firm."

Position of a Banker in extending credit facilities

A banker dealing with Hindu undivided families will have to be cautious while extending credit facilities to HUF because certain laws and customers relating to succession and transfer of rights among Hindus, put serious obstacles in the way of the Banker’s providing financial accommodation on the security of what is ordinarily considered to be normal and reliable bank security.

HUF can be governed either by Mitakshara Laws or by Dayabhaga Laws. All the HUF to the exception of West Bengal are governed by Mitakshara Law. West Bengal follows the Dayabhaga system. Let us take an example of a HUF governed by the Mitakshara law wherein all the members acquire a right in the ancestral property by birth and the accrual of that right dates from conception of the child who by legal fiction becomes the member of HUF. So that there is always the danger of having transaction impugned by even a person who at the date of the transaction was not born. In order to charge a joint family estate, its is necessary that all the members of the family should join the execution of the deed, or should give their consent, or that the deed should be made by the head of the family in his capacity as karta or manager.

The powers of the karta are, however, limited and charge created by him is binding on the family property, only if the loan for which the charge is created, is taken for a purpose necessary or beneficial to the family, or is in discharge of a lawful antecedent debt due from the family. This is also called as vyavaharika debt. ["Vyavahar" means conduct. In this context, it means good conduct] . In the event of a suit being filed by a banker, who has granted a loan on the security of the joint family estate, the burden of proof that, before he granted the loan, the banker had satisfied himself that the loan was taken for purposes beneficial to the family, lies on the banker. To avoid this and several other difficulties, some banks require a Hindu customer desiring to open an account, to furnish a statement to the effect that the money deposited in a fixed deposit, current or savings bank account is the personal or self-acquired property of himself or himself and not that of a joint Hindu family. The manager of a trading Hindu family may be such a person as the family appoints or who holds out as its accredited representative. He need not be the Karta, for there can be more than one Manager, particularly if the business is carried on at different places.

Powers of Manager

The powers of a Manager are more extensive than those of a Karta. The manager of a joint Hindu Family has all the powers required for the purposes of carrying on the family business. He can contract debts for the purpose of the business, and pledge the credit and property of the family for the purpose of its ordinary business, but not for any speculative transactions. His actions must not be tainted with immorality. He can bind the members of the family including minors by means of Negotiable Instruments, executed in the name of the family firm. He can also compromise a dispute but he cannot embark on a new venture.

Powers of Karta or manager regarding joint Family Property

In Ramdayal and others v. Bhanwarlal and others, AIR 1973 Raj. 173, the Rajasthan High Court held that regarding the transfer of joint family property by the manager, the principles of law are well settled and are as follows:

# The Manager of a joint Hindu Family has the power to alienate (transfer) for value the joint family property so as bind the interests of both adult and minor coparceners in the property, provided that the alienation is made for legal necessity or for the benefit of the estate. That the payment of debts incurred for family business or other necessary purpose constitute a legal necessity.
# That the burden of proving legal necessity to support alienation is upon the alinee.
# That the alinee can succeed not only on proof of legal necessity but also on proof that the alinee made reasonable inquires and was satisfied as to the existence of the legal necessity.

It is sufficient it to say here that the Karta or the manager can create a charge against the joint family property, only if the loan for which the charge is created, is taken for a purpose necessary or beneficial to the family. The burden of proving legal necessity lies on the banker and the banker has not only to prove the legal necessity but also to prove that it made reasonable inquiries and was satisfied as to the existence of the legal necessity.

1. Kartha is the senior most male member of the family2. Only the Kartha has the right to manage the property and business of the HUF.3. Kartha can enter into contract on behalf of the HUF and bind all the members to the extent of their share in the property/usiness4. If the coparceners so desire, all the coparceners and Karcha may authroise any one or more adult coparceners to manage the business. Such a person (s) is/are known as “Manager(s)”

Female Coparceners

In the states of Karnataka and Andhra Pradesh, a Hindu female is considered as equal to a Hindu male with reference to Coparcenery.

The business is conducted in the name of HUF represented by Kartha

Liabilities of the members of a Joint Hindu Family

It is generally presumed that money required for carrying on family business is a family necessity and that the business is carried on with the consent or acquiescence of all the members of the family. Thus, if debts are incurred by the Manager in the ordinary course of the family business, all the coparceners become liable. Ordinary course of the family business, all the coparceners become liable. However, their liability is limited to the extent of their interest in the family property and not beyond that. No doubt, the adult coparceners become personally liable when they themselves are actually contracting parties along with the Manager, or if they ratify the contract entered into by the Manager, except in the case of a minor coparcener, who does not become personally liable unless the contract is ratified by him after attaining majority.

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Whether a Hindu Undivided Family (HUF) can become a partner in a partnership firm?

Under the Indian Partnership Act, partnership is defined under Section 4 as “a relationship between persons who have agreed to share profits of a business carried on by all or any of them acting for all.” Now the question is whether a HUF can be treated as a person under the law. Unlike a company, a HUF has no separate existence from its members. A Company as a separate entity can enforce its rights, whereas, a HUF, has to be necessarily represented by a Kartha or an adult member for enforcing any of its rights. A HUF cannot be treated as a person.

Though under the Income Tax Act, a person includes a HUF also, the Supreme Court in the case of Dulichand Laxminarayanan vs. Commissioner of Income Tax (AIR 1956 SC 354) has clearly held that the said definition cannot be imported to Section 4 of the Partnership Act and a firm cannot enter into partnership with a HUF. Further, in Rashiklal & co vs. Commissioner of IT, Orissa 9AIR 1998 SC 401) it was held that a HUF directly or indirectly cannot become a partner of a firm because firm is an association of individuals. Hence on the strength of the above rulings, it may be stated that a HUF as such cannot be a partner in a partnership firm.

However, in CIT Vs. Seth Govindram Sugar Mills [ ( 1965) 57 ITR 510 SC] THE Supreme Court has held that a Kartha of a HUF or an adult member of the family in their individual capacity can enter into a partnership as a representative of the family. In such cases, it is the individual who is becoming a partner and not the HUF.

ee also

* [http://www.taxworry.com/2007/06/is-distribution-of-capital-assets-by.html Is Distribution Of Capital Assets by HUF to Its Memebers Taxable?]

* Hindu genealogy registers at Haridwar

References

* Tannan's "Banking Law and Practice in India" 20th Edn, Vol 1, Pages 284 to 286.
* Hindu Law : Principles and precedents - N.R.Raghavachariar Vol 1, MLJ Office.