Supreme Court: The present appeal was filed by appellant against the judgment and decree of the Calcutta High Court (‘High Court’), dated 16-3-1948, decreeing respondents’ suit by reversing the judgment and decree of the trial court which had dismissed the suit. The 3-Judges Bench of M.C. Mahajan, Ghulam Hasan*, and N.H. Bhagwati, JJ., held that a Karta of a joint Hindu family could not embark upon a speculative business attended with risks and charge the joint family property with the payment of monies borrowed for the purposes of business. The Supreme Court stated that there was no legal necessity for entering into a business transaction or purchasing tea estate as it was neither prudent, nor beneficial to the joint family. Thus, the joint family property, i.e., Ghograjan Tea Estate was not liable for sale in execution of mortgage decree obtained by National Agency Company (‘the Company’).
Background
Sitaram Chaukhani was the head of a joint Hindu Mitakshara family consisting of himself, his sons, and grandsons. The family possessed Ghograjan Tea Estate, as ancestral property, having devolved upon Sitaram from his father. In 1926, Sitaram purchased Molan Tea Estate, along with two strangers and in 1929, the three owners of Molan Tea Estate, borrowed money from the Company by hypothecation of crops of Molan Tea Estate, and on collateral security of both Molan Tea Estate and Ghograjan Tea Estate. In 1933, the Company brought a suit against the three owners for recovery of the money due on foot of the mortgage and obtained a preliminary decree in 1935. Thereafter, Sitaram died, and the Company obtained a final decree in 1939 against respondents, sons, and grandsons of Sitaram, being his legal representatives in possession and enjoyment of the estate left by him.
The decree was put into execution by the sale of Ghograjan Tea Estate. Thus, respondents brought a suit against the Company impleading the two co-owners of Sitaram for a declaration that Ghograjan Tea Estate was not liable to sale in execution of the mortgage decree obtained against Sitaram, as the property was joint Hindu family property and that the money was not borrowed for the benefit of the joint family but for the personal benefit of Sitaram for financing the business of Molan Tea Estate in which they had no interest. They submitted that on Sitaram’s death, they succeeded to Ghograjan Tea Estate by survivorship and as the money for which the Company had obtained a mortgage decree had not been taken for family necessity, the said mortgage decree was not binding on Ghograjan Tea Estate.
It was thus submitted that Ghograjan Tea Estate was the self-acquired property of Sitaram, that the money was borrowed for the benefit of the family and that Ghograjan Tea Estate was liable for the debt. The Trial Court found that “Ghograjan Tea Estate was not the self-acquired property of Sitaram but that it was the joint family property of Sitaram and his descendants. The share in Molan Tea Estate was the self-acquired property of Sitaram and the money was borrowed by Sitaram for raising crops on that estate. The mortgage was not for the necessities of the joint family, and thus the said mortgage and the decree passed thereon were not binding on Ghograjan Tea Estate”. Thus, the Trial Court decreed the suit for declaration.
The Company appealed to the High Court and the findings on the points decided by the trial court were set aside except those which were not challenged before the High Court. The trial court, after remand, tried the suit afresh and thereafter, dismissed the suit. The High Court reversed the trial court’s decision that Sitaram acquired an interest in Molan Tea Estate not in his personal capacity but as representative of the joint family of which he was the head and that even if it was initially the separate property of Sitaram, it ceased to be so because the income was blended and thrown into the common fund.
The High Court held that the trial court had wrongly placed the burden upon respondents to prove that Molan Tea Estate was the self-acquisition of Sitaram, and erred in raising the presumption that as the family was joint and had joint nucleus, the property acquired by Sitaram was the property of the joint family. The High Court concluded that there was no warrant for holding that Molan Tea Estate was thrown into the common stock and treated as joint family property. The High Court reversed the decree of the trial court and decreed the suit and thus, the Company obtained leave to appeal before the Supreme Court.
Analysis, Law, and Decision
The issues for consideration before the Supreme Court were:
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Whether tea estate purchased by Sitaram along with two outsiders was a one-third share in the property and not a share in the tea business?
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Whether joint family was benefitted from the business?
The Supreme Court after taking note of the sale deed, opined that what was transferred was not merely land but all houses, factories, godowns, machineries, tea plants, trees, shrubs, bushes, wells, ways, paths, ditches, and all rights, liberties, privileges, easements, profits, appendages, and appurtenances whatsoever.
The Supreme Court observed that the primary object of purchasing the tea estate was to make a profit by carrying on the business of manufacturing tea, else there was no point in buying the estate as it was common knowledge that bushes grown on the tea estate would be of no practical value, unless they undergo a process of manufacture for making tea and thus that accounted for the transfer of factories, godowns, machineries, etc. as mentioned in the sale deed. Thus, the Supreme Court opined that what Sitaram purchased was a tea estate which was on the face of it a business venture.
The Supreme Court held that a Karta of a joint Hindu family could not embark upon a speculative business attended with risks and charge the joint family property with the payment of monies borrowed for the purposes of business. The Supreme Court stated that there was no legal necessity for entering into a business transaction of this nature as the act was neither prudent, nor beneficial to the joint family.
The Supreme Court observed that there was no doubt that in advancing money to Sitaram for carrying on the business of the tea estate, the Company entered into a hazardous transaction, and it had no reason to think that the business was bound to result in profit and to contribute to the family benefit. Thus, the Supreme Court held that there was no merit in the present appeal and accordingly dismissed it with costs.
[National Agency Co. Ltd. v. Budhkaran Choukhani, (1953) 1 SCC 241, decided on 6-2-1953]
Note: Powers/Rights/Duties of a Karta
A joint family business is a significant part of a Hindu joint family and Karta, being the head, has the power to manage this business. He runs the business and takes necessary measures to promote, run and manage it. Karta has the power to contract debts by taking loans in case he must use it for family business or for any other legally acceptable purpose. However, the estate of the minor cannot be given for raising the loan amount. Karta also has the power to act on behalf of the family in case of any disputes and initiate compromise, if needed. However, this compromise must be for the family’s welfare and not for his personal interest. If this principle is followed, and the Karta enters into a compromise for the best interest of the family, then all members, including minors, are bound by this.
Karta can also start a new business, but to do it, he must seek consent from all the other coparceners. Business has uncertainty, which means the share of the other family members can also be imposed to risks. Hence, it is the duty of the Karta to not start a new business without the consent of other coparceners in the Joint Hindu family.
*Judgment authored by: Justice Ghulam Hasan
Advocates who appeared in this case :
For the Appellant: Bankim Chandra Bannerjee, Jagan Nath Gangopadhya, Advocates
For the Respondents: Ambika Pada Chaudhury, A.K. Dutt, Advocates
