Hindu Undivided Family Hindu undivided family (abbreviation: HUF) is a legal term related to the Hindu Marriage Act. 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 female members in a HUF, the HUF would still exist. HUF as a partner in a partnership firm HUF is a joint family consists of all 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 “Karta”, 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 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 “…………. n 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. ” HUF is person under Section 2(31) (ii) of Income Tax Act 1961.  The section reads like: (2)(31) “person” includes” i)an individual,(ii) a Hindu undivided family, (iii)a company,iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses.
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 o
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, it 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: 1.
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
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