11 April 2017

Article On Hindu Undivided Family (HUF)

Shardul Amarchand Mangaldas & Co


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This article provides an analysis of the roles, duties and responsibilities of a karta in a HUF in light of a landmark verdict delivered by the Delhi High Court which established that the eldest female member of the family can be a karta in a HUF.
India Family and Matrimonial
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This article provides an analysis of the roles, duties and responsibilities of a karta in a Hindu Undivided Family ("HUF") in light of a landmark verdict delivered by the Delhi High Court which established that the eldest female member of the family can be a karta in a HUF.

1. How is a karta appointed in an HUF?

The eldest adult coparcener (head of the family) of an HUF is known as the karta who is responsible for handling the affairs of the family. He is entrusted with the power of managing all assets and other financial matters. All securities of an HUF are typically in the name of the karta. There is no prescribed formal procedure for appointment of the karta in an HUF.

One the death of a karta, the next senior most member automatically becomes the new karta of the HUF but at times, statutory authorities may require a declaration from the members forming part of the HUF declaring the eldest coparcener as the new karta of the HUF. Further, a declaration from the members forming part of the HUF along with the death certificate of the old karta may be mandated by banks in order to give effect to the change of name of karta in the HUF's bank account. Further, in order to transmit securities in the account of the new karta, a joint application coupled with a set of prescribed documents should be filed with the depository participant.

2. If a karta (a man) passes away can his wife or daughter become karta?

Is it also possible for a wife to be karta if she has a son who is above 18 years of age?

On the demise of a male karta, it is now possible for a daughter to become a karta of the HUF under the circumstance where she is the eldest adult coparcener in the family. The courts have found no restriction in the law preventing the eldest female coparcener of an HUF from being its karta.

However, in case of wife of the deceased karta, the same argument cannot be extended since the wife of the deceased karta is never treated as a coparcener to the HUF. A widow therefore, cannot act as karta of the HUF after the death of her husband. Interestingly, in cases where the surviving male coparceners were minors, the courts took a view that the widow can be a manager of the HUF while distinguishing the position of a manager from that of a karta.

Thus, it would be correct to say that as of today, if a woman, who is not a coparcener (widow or wife of a coparcener) has a son above the age of 18 years, in such a case it is not possible for her to be the karta of the HUF.

3. In February, 2016, Delhi High Court in a landmark verdict said that the eldest female member of the family can be its 'karta' in a HUF.

(a) What are the implications of this?

(b) Will women get more rights in an HUF compared to earlier?

(c) What were the rules earlier? What rights did women have earlier?

  1. Implications: The 2016 Delhi High Court verdict serves as an important clarification regarding a woman's status as karta of a HUF. By establishing that daughters can also become karta of the HUF, the verdict is seen to be a significant step forward for women in family matters given the wide arena of discrimination and taboo followed in the classic Indian family. The verdict gives the right balance to the sociological differences between males and females and also serves as an encouragement for change in several other male oriented laws of India.
  2. Extent of rights: As a result of this clarification, the scope of rights of females under Section 6 of the Hindu Succession Act has been expanded. Before the verdict, females were recognised only as coparceners and the right of females to become karta of the HUF was barred. However, the court was explicit in holding that there exists no restriction in the law preventing the eldest female coparcener of an HUF to exercise the right of becoming a karta of an HUF.
  3. Earlier position: The 2005 amendment to the Hindu Succession Act provided that daughters whether married or unmarried would be recognised as coparceners and would thus be entitled to an equal share in the family property. It was however silent as to a daughter's position as karta. This ruling took the reforms therein to their logical conclusion.

4. How does it impact the Hindu Succession Act, which was amended and gave women equal rights of inheritance?

The court in Sujata Sharma v. Manu Gupta clarified and gave a broader interpretation to Section 6 of the Hindu Succession Act. It was argued that the 2005 Amendment to the Hindu Succession Act only recognized the rights of a female member to inheritance and does not address the issue of management of the HUF estate. The court found the language of amended Section 6 to be clear in extending equal rights to women in terms of both, inheritance and management of the estate. It thereby clarified and expanded the ambit of the amendment to Section 6 in finding "no reason to deny Hindu women coparceners the position of karta".

5. Does a karta has absolute rights over assets of the family?

Can the karta take all the decision on behalf of the family assets even if there is no consensus?

Can the decision taken by a karta be challenged in a court?

A karta has absolute power to manage the family property and as such this power cannot be challenged in a court. However, the dis-satisfied coparcener is always free to demand partition of family property at any point of time.

As far as the power of alienation is concerned, as per Mitakshara law and rulings of various courts, the karta requires consent of all the other coparceners for alienation of the family property unless where:

  1. there is a legal necessity (Dev Kishan v. Ram Kishan, AIR 2002 Raj 370), or
  2. it is for the benefit of estate (Balmukund v. Kamlavati, AIR 1964 SC 1385).

The karta may also alienate property without consent of the coparceners for the performance of indispensable duties. A decision taken by the karta in these special circumstances cannot normally be challenged in the court. However, where such a challenge is brought before the court, the burden of proof will lie on the Karta to prove that there was in fact presence of legal necessity, benefit of estate or indispensable duties.

Further, if the karta alienates the HUF property for purposes other than the three mentioned above, without taking consent of all the other coparceners, the alienation becomes voidable at the instance of any one of the coparceners.

Even in the recent case of feud over assets in the Grover Family, it can be seen that the power of alienation of the karta has been challenged before the court by alleging that the karta (Mr. Vishal Grover) misused his position to illegally transfer family properties without the consent of the surviving coparceners.

6. What are the role, duties, moral responsibilities and powers of a karta?

The karta plays a fiduciary role in the HUF as he is entrusted with the management of family property and the general welfare of the family. By virtue of being the senior most member of the family the karta is in addition, morally responsible to act in a bona-fide manner in the best interests of the business and the family as a whole.

The karta has the power to manage the joint family business which involves the power to contract debt for family purposes, enter into contracts, refer matters to arbitration, enter into compromises, alienate joint family property, acknowledge debts and represent the business in suits. Concurrent to these powers is the duty, to render accounts, release debts due to the family, operate in a reasonable and judicious manner and take the consent of other coparceners in making important decisions such as starting a new business or alienating coparcenary property.

7. What are the benefits of having an HUF?

The two fold advantage of an HUF is its easy setup and tax benefits. The membership to an HUF is by birth and there is no prescribed limit on the maximum number of members of an HUF. Since, an HUF is a separate legal entity, it is entitled to have its own PAN card and hence can enjoy tax savings and claim various tax rebates and deductions for an HUF account under Section 80C, 88 and 80L of the Income Tax Act. Further, an HUF can provide loans to coparceners and members of the HUF for various purposes and can also make payments in respect of life insurance policies for any of the members of the HUF.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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