HINDU UNDIVIDED FAMILY

What is a Hindu Undivided Family?
The Joint Hindu Family business is a distinct form of organization that is very much peculiar to India. Joint Hindu Family Firm is created by the operation of law and not by any contract. It does not have any separate legal entity from that of its members. The laws that govern the HUFs are not codified but read along with the Hindu Succession Act and Income Tax Act. The business of the Joint Hindu Family is controlled under the Hindu law rather than Partnership Act. Membership in this form of business organization can be acquired only by birth or by marriage to a male person who is already a member of the Joint Hindu Family. HUF consists of all individuals who are lineally descended from a common ancestor and comprises unmarried daughters.
“When two or more families agree to live and work together, throw their resources and labor with joint stock and share profits and the losses together this family is known as composite family.”
There are two schools of Hindu law – one is Dayabhaga and Mitakshara. The business of the Joint Hindu Family is controlled and managed by one person who is called the ‘Karta’ or the ‘Manager’. The Karta or manager works in consultation with other members of the family but ultimately, he has a final say. The liability of Karta is unlimited while the liability of other members is limited to their shares in the business.
Systems that govern the Hindu Undivided Family:
DAYABHAGA
• It includes both male and female members of the family as coparcenaries.
• children have no right over property by birth and arise only after the death of their fathers.
• The Dayabhaga School of law is mainly observed in the states of Bengal and Assam.
• Father has absolute power of alienation over all the property, whether ancestral or self-acquired.
• Gives the right to stridhan to women and the equal right in husbands’ property.
MITAKSHARA
• Mitakshara law school a joint family refers only to the male family member as the coparceners.
• In the Mitakshara system, the son, grandson, and great-grandson acquire the right to property by birth.
• In Mitakshara wife cannot demand partition, she however has the right to a share in any partition affected between her husband and her sons.
• This system extends to the whole of India except Bengal and Assam.

In the case Venugopal v. Union of India AIR 1969 SC 1094 it was held that under Mitakshara School coparcenary is based on the notion of the birthright of a son, son’s son, son’s son’s son. All these concepts were followed by the Hindu Succession Act, 1956 but there was a recent amendment made to the Hindu Succession (Amendment) Act, 2005 that even a daughter is entitled to a coparcenary under the joint family.
Who can form HUF?
A HUF can be formed by a married couple or members of a joint family belonging to Hindu, Jain, Buddhist, and Sikh communities. Members belonging to Muslim, Christian, or any other communities would not be eligible to form a HUF since HUF is created in accordance with Hindu Law.
Difference between a Member and a Coparcener
A coparcener and a member of a HUF are two different entities. A coparcener has the right to demand partition in the HUF property. So, in case of a partition, a coparcener would receive his or her share while the member would be entitled to receive maintenance from HUF. The family property managed by Karta is considered the joint property for all the coparceners until they ask for a division.
Features of a HUF
Formation: To begin a Hindu Undivided Family there must be a minimum of two related family members. There must be some assets, business, or ancestral property that they have inherited or will eventually inherit. The formation of a HUF does not require any documentation and admission of new members is by birth.
Liability: The liability of all the various co-parceners is only up to their share of the property or business. So, they have limited liability. But the Karta being the head of the HUF has unlimited liability.
Control: The entire control of the entity lies with the Karta. He may choose to confer with the co-parceners about various decisions, but his decision can be independent and his actions will be final and also legally binding.
Continuity: The HUF can be continued perpetually. At the death of the Karta, the next eldest member will become the Karta. However, keep in mind a Hindu Undivided Family can be dissolved if all members mutually agree.
Minority: As we saw earlier the members are eligible to be co-parceners by the virtue of their birth into the family. So, in this case, even minor members will be a part of the HUF. But they will enjoy only the benefits of the organization.

How to create HUF?
STEP 1
The HUF Deed is a written formal document on a Stamp Paper stating the names of the Karta and the Co-parceners (Members) of the HUF. The eldest male member of the HUF becomes the Karta of the HUF. Creating a HUF Deed is not mandatory. A declaration is also provided by each member of the family where they declare the name of Karta and state that –

  1. Karta has the authority of the accounts vested in his hand
  2. That the members are the only members of the HUF
  3. The Karta holds the right to govern all the transactions of the HUF accounts on behalf of the members.
    The names of the members of the HUF and the name of the HUF are also required to be stated in the HUF Deed at the time of the creation of the HUF. The name of the HUF is usually the name of the Karta followed by the word HUF. For e.g.: If the Karta of the HUF is Suresh Kumar, the name of his HUF would be Suresh Kumar HUF. It also states the capital with which the HUF has been initiated.
    STEP 2
    As a HUF is treated as a separate entity different from its members, a HUF is required to apply for a separate PAN Card. An application for HUF PAN Card is required to be made in Form 49A which can be furnished online as well as manually. Once the PAN Card has been allotted, the HUF would be required to file separate Income Tax Returns and can therefore claim the benefit of income tax slab rates and most of the income tax deductions available to an Individual. The application for PAN Card and the Income Tax Return would be signed by Karta.
    STEP 3
    A HUF is also required to open a Bank Account in which it will receive all payments. A HUF Account can be opened in any bank account. At the time of opening of the HUF Bank Account for the creation of HUF, the HUF would also be required to have a Rubber Stamp of the HUF and all documents pertaining to the HUF should be appropriately stamped.

Power of Karta

  • Powers of Management Karta’s power of management is absolute. No one can question the duties of the Karta like, he can manage or mismanage the property, family, or business any way he likes. Karta cannot deny the maintenance and occupation of the property to any members.
  • Rights to Represent Joint Family the Karta represents the family in legal, religious, and social matters. The acts and decisions of the Karta are binding on the members. Karta can enter into any transaction on behalf of the family.
  • Power to refer a Dispute to Arbitration Karta can refer the disputes relating to management, and family property to arbitration. If the award by the arbitration is valid, then it will be binding on the joint family members.
  • Power to Contract Debts the Karta exercises an implied authority to contract debts and pledge the credits and property of the family. Such acts are bound to be followed by the members of the family. Even, in Karta when taking a loan for a family or business, the joint family is liable to pay such a loan.
  • Power of Alienation No one among the family members can alienate joint family property. But Karta has the power to alienate the property under three circumstances: Legal Necessity Benefit of the estate, Indispensable duties, Legal Necessity
    In Dev Kishan v. Ram Kishan AIR 2002 Raj 370, the Karta, under the influence of one other member of a Joint Hindu Family mortgaged and sold the property for the illegal purpose of marriage of two minor daughters. Their contention was that the act was done in furtherance of a legal necessity. The court, in this case, held that the act was done in furtherance of an unlawful purpose, as the act was in contravention of the Child Marriage Restraint Act, 1929, hence, it was not a lawful alienation.
  • Loan on Promissory Note When Karta takes any loan for any family purpose or executes a promissory note, then all the members and the members who are not the party to the note will be sued if the loan is not paid. But Karta is personally liable for the note.
    In Union of India v. Sree Ram Bohra and others AIR 1965 SC 1531, Supreme Court observed that the idea of there being two Karta’s did not appear, prima facie, consistent with the concept of the Karta. Two persons may look after the property management, but the joint family is represented only by one Karta 4. Therefore, there is no scope for two Kartas or two representatives.
    Jaggernath Singh v. Narayan, AIR 1965 AP 300, in this case, the court held that a minor can act as a Karta of the joint family through his natural guardian, his mother, where one does not know where his father is at that time.
    Advantages of HUF
  • Easy to start a joint Hindu family business as there are no legal formalities or agreements are required to be faced.
  • Efficient management as it is centralized in the hands of Karta of the family who even considers the opinions of others but his say is final.
  • Secrecy all decisions taken by Karta are kept to himself and he is in the position to keep all the affairs in perfect secret.
  • Economy and Tax saving is one of the important factors in the success of the business and it is well balanced in Joint Hindu Family as Karta of the family spends money with great caution and economy. Being treated as a separate entity gets certain deductions and exemptions under Income Tax Act.
  • Natural love between Members helps to run the business more efficiently and smoothly.
  • Freedom regarding Selection of business as the Karta is at freedom to select any business of his choice. He is not depending on others.
  • Prompt Decision as Karta is the only person who exercises control and direction over the business.
    Disadvantages of HUF
  • One of the greatest disadvantages of the HUF is that all members have equal rights on the property. The common property cannot be sold without the consent of all the members. In addition, by birth or by marriage a member gets equal rights.
  • Closing a HUF is a tougher task as compared to opening a HUF. A partition of a family with a small group may lead to the partition of the HUF. Once the HUF is closed, then the asset needs to be distributed among all the members of HUF which can become a huge task.
  • Financing a HUF can be complicated. Resources can be brought in only via inheritance or gift (conditional on gift tax laws – an amount exceeding INR 50,000 from non-family members is taxable).
    Partition in Hindu Undivided Family Property
    Partition means ending the status of the Joint Hindu Family. Under Hindu Law when the Joint Family status comes to an end there is a division of property among members and joint ownership of property comes to an end. Partition of the HUF property can be of two types under Hindu Law i.e., Total Partition and Partial Partition.
    In Total Partition, all the member of the HUF ceases to be members of the HUF and the whole property ceases to be the HUF property. The partial partition can be property specific too where the property is divided between members and the rest of the property continues to HUF property. To start partition proceedings all that is necessary is a clear indication by a member of the HUF to separate himself from the family. Partition of the property will only take place when all the members of the HUF agree to the terms of the partition
    Who can ask for partition of HUF assets
    All the coparceners have a right to ask for a partition or file a suit for a partition but a member simpliciter cannot ask for a partition but may get a share in the HUF property as and when a partition takes place. All the male members whether born in the family or adopted as well as daughters are coparceners as well as members but all the females who come into the family by virtue of marriage are members simpliciter.
    A Karta cannot disentitle any coparcener of his right in the HUF property. The assets of the HUF belong to the Karta as much as to the coparcener. If any coparcener demands partition of the assets of the HUF, Karta has to give such a coparcener his share of the HUF assets.
    This situation will result in a partial partition. Though recognized under the Hindu Law, it is not recognized under the income tax laws as discussed above. It is only the adult coparceners who are entitled to ask for a partition and can even file a suit for the partition of HUF assets. Generally, a minor is not entitled to ask for partition of the HUF assets. Still, a suit can be brought on behalf of the minor in case the property is wrongfully alienated adversely affecting the interest of the minor.
    Right to claim partition in HUF
    • Co -parceners
    • A son in the womb of his mother at the time of partition of the property is treated in law in existence and is entitled to receive a share equal to that of his brothers.
    • Female sharers cannot demand a partition. However, are entitled to get their share when the joint family property is divided on the partition:-
    o Mother gets an equal share if there is partition among sons after the death of the father,
    o Wife gets a share equal to that of a son at the time of partition between father and sons.
    o Daughters have the same rights as sons to reside in and to claim for partition of the parental dwelling house.

REFERENCES
o BOOK: Modern Hindu Law by Dr. Paras Diwan
o https://taxguru.in/income-tax/meaning-formation-taxation-membership-and-partition-of-huf.html
o https://www.legalraasta.com/itr/huf/
o https://samarthagrawalbooks.com/2021/08/11/mitakshara-and-dayabhaga-school/
o https://indiankanoon.org/doc/1795275/

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