sale of joint family property by Karta

Supreme Court: The present appeal by special leave arises out of a suit for partition of four items of properties alleged to belong to a joint Hindu family. The Division Bench of M.C. Mahajan and S.R. Das*, JJ., held that the sale of joint family property by Karta to pay off debts/liabilities of business, which was not a joint family business, could not bind other members of the joint family property. Thus, the Supreme Court dismissed the present appeal with costs.

Lahori Mal owned considerable properties and he and his family were also the owners of three different businesses. In 1927, the family properties were partitioned between the three branches of Lahori Mal’s descendants by an award of arbitrators. After setting apart certain properties for the payment of debts, the remaining properties were divided up into three portions. Four items of property fell to the share of Prabhu Dyal and thereafter, disputes and differences between Prabhu Dyal and some of his sons, led to the institution of the present suit. Appellants were Suraj Bhan, Prabhu Dyal’s son by another wife and the latter’s wife, Phooli and Deputy Parshad, another son of Prabhu Dyal, besides four other persons who were alienees of portions of the joint family properties from the defendants Suraj Bhan and Deputy Parshad. Respondents were Prabhu Dyal, his three sons, namely, Janeshwar Dass, Basheshar Dass and Hem Chand, and his wife, Musammat Anguri.

The suit was resisted by appellants and in particular by the alienee appellants and their defence was that in or about March 1926, Prabhu Dyal started a joint family business under the name and style of Suraj Bhan-Janeshwar Dass. In March 1929, Prabhu Dyal was declared a lunatic by the Court of the District Judge and Suraj Bhan, his eldest son, was appointed as his guardian. Thereafter, Suraj Bhan and Deputy Parshad carried on this joint family business and in order to pay off the debts of this family business they sold some properties.

The issues for consideration were:

  1. Whether Suraj Bhan sold the property in suit for consideration and legal necessity?

  2. Was the family of appellants and respondents carrying on a joint family business and what was its effect?

The Trial Court held that the transfers were not for legal necessity, and that the business started under the name of Suraj Bhan-Janeshwar Dass was not an ancestral business but was a new business of a hazardous and speculative character. Accordingly, the Trial Court passed a preliminary decree declaring that the respondents were entitled to 5/7th shares in the several properties and directed partition according to the shares so declared. Some of the transferee went up in appeal to the Lahore High Court (‘High Court’). The High Court, in agreement with the Trial Court, held that the business of Suraj Bhan-Janeshwar Das was started not by Prabhu Dyal but by Suraj Bhan in partnership with three other outside partners and that it was at no time a joint family business and that the transfers were not for any legal necessity of the joint family and accordingly dismissed the appeal with the modification that Prabhu Dyal having died, the remaining respondents were only entitled to 4/6th shares in the disputed properties.

Appellants applied for leave to appeal to the Privy Council, but that application was dismissed as being out of time. Thereafter, appellants made an application to the Federal Court for special leave to appeal which was granted, on the ground that the dismissal of the application for leave to the Privy Council as time-barred was erroneous. The appeal had now come up for final disposal before the Supreme Court.

The Supreme Court noted that counsel for appellants relied on Niladri Sahu v. Chaturbhuj Das, 1926 SCC OnLine PC 37 (‘Niladri Sahu Case’) and contended that even if the original liabilities had been incurred by Suraj Bhan recklessly, they would yet support the sales as being for good legal necessity. The Supreme Court stated that Niladri Sahu Case (supra) could have no application to the facts of the present case.

The Supreme Court opined that if the business had been a joint family business and if Suraj Bhan as karta mismanaged the business and incurred liabilities in connection with that business then a question might have been raised as to the applicability of the decision of the Privy Council to that state of affairs. The concurrent findings of the courts below being that the business of Suraj Bhan-Janeshwar Dass was not an ancestral business but was a new and hazardous business started by Suraj Bhan, the other members of the family were at no time liable for the debts of that business and, therefore, sales of joint family properties in liquidation of such alleged liabilities could not be binding on respondents. Thus, Niladri Sahu Case (supra) had no application to this appeal which was concluded by the concurrent findings of facts by the lower courts and must, therefore, be dismissed.

The Supreme Court opined that there was no reason why the ordinary rule that costs should follow the event should not be applied to this case and thus, dismissed the present appeal with costs.

[Anup Singh v. Janeshar Das, (1953) 1 SCC 245, decided on 6-2-1953]

Note – Sale of joint family property by 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. Karta also has the power to act on behalf of the family in case of any disputes and initiate compromise, if needed. The Supreme Court in N.S. Balaji v. Debt Recovery Tribunal, 2023 SCC OnLine SC 1266, explained that “an HUF is capable of acting through its Karta or an adult member of the family in the management of the HUF property”. The Supreme Court cautiously expressed that post alienation of HUF property, a coparcener may challenge the act of a Karta in case the alienation was not done due to a legal necessity or for betterment of the estate.

*Judgment authored by: Justice S.R. Das

Advocates who appeared in this case :

For the Appellants: S.P. Sinha, Senior Advocate (V.N. Sethi, Advocate, with him)

For the Respondents: Bakshi Tek Chand, Senior Advocate (G.C. Mathur, Advocate, with him)

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