This article has been written by Diya Banerjee, from Symbiosis Law School, Noida. The article explores the liability of the Karta in a Hindu Undivided Family along with the obligations of the male members involved in the business. 

Introduction

Nowhere has the term “Hindu Undivided Family” (HUF) been defined. It derives its meaning and rules from the two schools of Hindu Law, Dayabhaga School in West Bengal and Mitakshara School in the rest of the country. 

Over the years, HUF has expanded its foundations because of the beneficial business scope and is framed under the provisions of the Hindu Succession Act, 1956. If you did not know, the HUF is exempted from income tax payments, which reduces the total tax payments flowing out from the family, in return increasing their liquidity. However, it does not rule out the factor of monitoring the business, not only in terms of the liability they incur but also the legal implications of the same.

Debt liability of joint hindu family

The Hindu Undivided Family is divided between two main bodies, the Karta and the Coparceners. Predominantly male-oriented, the role of the Karta seldom gets passed onto the eldest woman of the family. On a positive note, after the Hindu Succession (Amendment) Act of 2005 to the 1956 Act, the Delhi High Court ruled that daughters can take part in the property just as equally as the sons and shall also enjoy coparcenary rights which they were not allowed before. This also means that after the death of her father, the unmarried daughter eldest among all the children, she will take over as the Karta. Even after marriage, she will continue to hold the rights as a coparcener. 

The same cannot be said for the wife of the deceased Karta or the female members who join the family by the relation of marriage, they are treated as members of the HUF only. They are entitled to maintenance and shares when the partition occurs but not to the actual partition.

Liability of Karta

The liability of the Karta is unlimited against the coparceners. Unlimited liability means that in case the Karta is unable to repay the loan, it is to be recovered by the sale of his personal assets. His liability spreads out as six principle points-

• Liability to maintain: The Karta has a duty to maintain the members of the joint family, even the daughters. He is responsible for the maintenance of the members and their residence, and if he fails to provide (maintenance) for them, they can sue him and recover the amount.
• Liability to provide account: Usually, the Karta is not obligated to keep account of the business but this obligation arises at the time of partition when the coparceners demand it. He can be held liable for any kind of misrepresentation or fraud. 
• Liability to spend reasonably: The Karta has control over the assets, income and expenditure of the family. Therefore, he is also the person who is the sole custodian of the surplus generated. However, he cannot spend the income irresponsibly and has to be transparent about any transaction. 
• Liability to not start a new business: Karta is the oldest male figure in the joint family and thus, the head. He is the owner of the business and cannot deviate from his duty and liability to be faithful to his own business. If he has to start a new business, it should be after the consultation and agreement with the coparceners. 
• Liability to not alienate property: Hindu Joint Family comes into existence on the sole basis of undivided ancestral property. This in itself suffices for the Karta to not alienate the property and maintain it with adequate costs and expenses. Only in the exceptional cases of family benefit can the Karta be allowed to alienate the property, which also after due notification and consent from the coparceners. 
• Liability to recover and repay debts: When the Karta enters into any contract-debt, it has the effect of binding the family to repay the debt. On the contrary, if the Karta has given something on credit, it is his duty to see that the arrears are recovered because, in the end, he would be held liable for the accountability of the accounts. 
• The liability of the Karta is not limited to only the above-mentioned activities, he has responsibility for other family-related issues like that of marriage and representation. 

The pious obligation of a son

In the Hindu Undivided Family, male members are of priority when it comes to carrying out the duties and obligations of the Karta. After the death of the Karta, the male member second to the Karta, either a male relative or the eldest son, takes over the business. 

The history behind the creation of this principle can again be traced back to the traditional Hindu Laws under which the business has come into existence. The Hindu law says that whatever the father was unable to repay during his lifetime, shall be fulfilled by his sons equally and if they were to separate, they shall still complete the duty according to their respective divided shares. In this manner, neither is the obligation left undone nor are the sons overburdened with excessive obligations. 

On these terms considering the Karta is the Father, the son has various pious obligations, the most important being discharging his father’s debts unless the debts are illegal in nature. Lord Dunedin had given his decision on the question of at what stage can a debt be considered as illegal. He has said that any debt can only be considered illegal when the entire motive for obtaining the money was illegal and not if the father had legally obtained the sum but afterwards misappropriated it. Thus, for a debt to be considered illegal to enable the exoneration from fulfilling its repayment, two conditions have to be met with:

1. The debt must be prior in time.
2. The debt must be prior in fact.

Another point to be noted is that, for the acquittal of the son from repaying his father’s debts, it is not necessary that the debt has to be illegal only. It could be obtained through immorality or dishonesty and still would be considered a valid ground for the son’s relief. 

In a nutshell, once the son takes over the family as the Karta, he has to fulfil all of his father’s incomplete obligations as well as perform the duties expected from a Karta and enjoy the powers conferred upon him unless corrupted by any kind of immoral, unlawful or dishonest conduct. 

Landmark judgments

The lack of laws is balanced by the numerous key judgments given by the Apex Court and High Courts. Some of the judgments are old but still serve their purpose as upholding the principles of a Hindu Undivided Family and thus, are still in use and relied upon. 

The following case laws under the points of their importance have been enlisted, spanning a wide range of time, going back to the immediate post-independence years and some principles given during the British era as well.

• Position and Capacity of Karta

  • Chandrakant Manilal Shah and Anr vs. Commissioner of Income Tax (AIR 1992 SC 66): In this case, the issue was that a HUF was later on converted into a partnership, but the son had not brought in the capital in cash and thus, the registration of the firm was refused by the CIT on grounds that it was not a valid partnership. And so was upheld by the Appellate Tribunal and the High Court. However, the Supreme Court decided that just like when an individual brings in cash assets it is useful for the operations of the firm if an individual provides skill and labour to the firm, it is equivalent to the same. From this judgment, it was inferred that Karta being the owner of the HUF turned partnership, he has to bring in capital. The same is not an obligation for the sons. This further drives the point that the Karta being responsible for the maintenance of the family has to bring cash resources to meet the necessary requirements because there is a possibility that the son might not bring in any capital.

• Alienation of the property and legal necessity

  • M/s Nopany Investments Ltd. (P) vs. Santokh Singh (HUF): In this case, there were many questions of law but here, the focus is on the question whether a younger male member of the HUF could act with the capacity of the Karta even if there were other older members and the Karta himself was alive. The ruling given by the Supreme Court said that if due to some unavoidable circumstances the Karta is unable to carry out his duties and obligations, he has the power to appoint another member of his family, be it younger, as the new Karta with the knowledge and consent of the other coparceners and members of the HUF, subsequently relieving himself from his obligations towards the property and the family. 
  • Dev Kishan and Ors. vs. Ram Kishan: In this case, the importance of “legal necessity” was emphasized upon by the Rajasthan High Court. Furthermore, the Court ruled the alienation of the property by the Karta unlawful because he had mortgaged and sold the joint family property for the purpose of marriage of two minor girls, which is unlawful under the Child Marriage Restraint Act, 1929 and does not inspire the confidence of legal necessity. 

• Position of women as Karta and Coparceners 

As discussed above, initially there were a lot of restrictions upon the women on the terms of their contribution to the HUF. The cases below show the transition in the position and power of women in the HUF. 

• • Gangoji Rao and Anr. vs. Channappa (AIR 1982 Kant 222): In this case, the sons had challenged the alienation of the property by their mother who was the widow of the father. The Karnataka High Court had then ruled that women cannot be either the Karta or a coparcener in a HUF. 
  • Mrs Sujata Sharma vs. Shri Manu Gupta: This case is one of the most historic judgments for women and their involvement in a family business. In this case, the Delhi High Court in the year 2015 decided that a female member of the family can also become the Karta and shall enjoy all the equal rights the sons do. 

• Duty to bear expenses

  • Nanak Chand vs. Chandra Kishore Agarwala (AIR 1970 SC 446): Marriage is one of the most sacred and valued relationships in the culture and traditions of Hinduism. As it is, the HUF as well as values the importance of marriage. Karta has a duty to get the unmarried members of the family in wedlock especially the daughters as their marriage is considered sacrosanct under Hindu law. He has to bear all the expenses of the marriage through the funds of the family and if he has to pool in the resources from outside, he has to see them repaid in time.

Conclusion

Regardless of the fact that laws governing Hindu Undivided Family are not codified and written, other than the framework provided by Hindu laws and the Hindu Succession Act, 1956, the legal treatments to be applied to the issues arising out of discrepancies in the family have been well-founded by the principles and landmark judgments pronounced by the Apex Court. 

Laws with respect to such niche subject matter have to be not only made with thorough study, but they also have to be in consonance with the traditional Hindu law. The fact that HUF derives all its powers and functional ability from the traditional personal laws has to be considered so that modernizing or redefining the ambit of the subject matter does not defeat the purpose of why the HUF in framed by the Hindu personal law; it is to facilitate business through the means of traditional concepts including the sanctity of familial involvement as well. 

References

1. To read on the role of Karta and his legal position, refer to: http://www.manupatra.com/roundup/341/Articles/Karta%20and%20his%20Legal%20Position.pdf
2. To read on the brief of the components to HUF, refer to: http://udgamvigyati.org/admin/images/Karta%20and%20his%20Legal%20Position%20in%20Joint%20Hindu%20Family-%20Shruti%20Sahni%20and%20Yogendra%20Singh,%20UPES%20Dehradun.pdf

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