Unique complexities of Indian succession laws: part two

HUF
Uniform civil code

This article is part two of a two-part series on the complexities of Indian succession laws. Part one provided a general overview of the multiplicity of personal laws in India. This part discusses specific concepts of national succession laws and provides a toolkit for practitioners faced with an estate that has an Indian connection.

HUF

A concept unique to India – in particular, to Hindus – is the Hindu undivided family (HUF). The HUF is a vehicle for the common holding of property by a joint family that derives its origins from ancient Hindu law. Although an HUF is not a separate juristic entity, it is a separate taxable entity in India.

The HUF concept does not exist under personal laws applicable to persons of other religions (eg, Muslims, Parsis or Christians). Further, even among Hindus, there are two schools of law (ie, the Mitakshara and Dayabhaga schools), which follow differing rules as regards HUFs. As most Hindus follow the Mitakshara school, this article summarises the position of the HUF under Mitakshara law.

Notably, the laws that govern HUFs are only partly codified. To understand the complete legal framework relating to HUFs, it would be necessary to study commentaries of jurists which analyse relevant ancient Hindu texts and more recent court judgments, in addition to the Hindu Succession Act 1956 (HSA) and the Income Tax Act 1961.

HUF property
Under Hindu law, property may be divided into:

• joint family/HUF property (also known as coparcenary property); and
• separate property.

HUF property may be further divided according to its source into:

• ancestral property inherited up to four generations (ie, the paternal great-grandfather); and
• separate or self-acquired property of coparceners blended into the common coparcenary stock.

On the other hand, separate property is property acquired by an individual through their personal exertions but may also include property received on partition of an HUF in certain cases or through a relative's will.

The principles of succession to HUF property differ from the general principles applicable to separate property held by individuals (see "Unique complexities of Indian succession laws" for further details on the succession laws applicable to separate property of an individual).

Unique features of HUF
An HUF is somewhat akin to a trust in that it is not a separate juristic entity and that its property is, in fact, not held by it but by a legal person – in the case of a trust, the legal owner of the property is the trustee and in the case of an HUF, the legal owner is the karta (ie, the manager of the HUF) on behalf of the HUF. However, the similarities end there.

Some unique features of HUFs are as follows:

• Only family members may be stakeholders (coparceners) in HUF property. Under ancient Hindu law, only male members of the family could be coparceners, but following radical changes to the law in 2005, daughters now have the same rights as sons to be coparceners.
• An HUF can be created only by operation of law and not by agreement of parties, except in the case of reunion (ie, recreation of an HUF after partition).
• An HUF may be wound up through its partition. This may be by agreement of the parties or the court.
• The pool of coparceners is constantly fluctuating on the basis of births and deaths within the family. For this reason, the interest of any coparcener in HUF property at any time is an undivided interest, which cannot be specifically determined or crystallised, except on partition.
• If a Hindu solemnises their marriage under the Special Marriage Act 1954 (except with a Hindu, Jain, Buddhist or Sikh), the action will be deemed to effect their severance from the HUF.

Succession to HUF interest
No coparcener can claim a transferable or heritable interest in underlying HUF property. Unless a partition occurs, HUF property remains undivided joint family property. Therefore, HUF property cannot form part of a coparcener's will. Even the karta, who may be named as the legal owner of the HUF property in governmental or company records on the HUF's behalf, cannot bequeath the same under their will.

However, a coparcener's interest in an HUF devolves by intestate or testamentary succession on the coparcener's death, depending on whether the coparcener has made a will.

Therefore, it is important to understand whether the individual's interest in ancestral property is held in an HUF or individually. The answer to this question will determine their ability to plan for its inheritance.

Takeaway toolkit
Indian succession laws are manifold and complex. As such, an estate and succession plan should be devised for a person of Indian origin or with any Indian connection only once the applicable succession rules have been determined. As a takeaway, the relevant key information that would aid in making this determination is as follows:

• personal information, including:
  • the person's religion;
  • whether they or any immediate lineal ascendant has converted to a religion other than their birth religion;
  • the person's sect and sub-sect (particularly if they are Muslim);
  • the school of Hindu law followed (ie, Mitakshara or Dayabhaga);
  • whether the marriage of the person or their lineal ascendants has been solemnised under the Special Marriage Act. If yes, the religion of both parties at the time of marriage should also be noted; and
  • whether the person is of Goan domicile or origin;
• the nature of assets;
• whether the assets are held in an individual capacity or as karta of an HUF;
• whether any assets are ancestral assets not identified in tax returns as HUF property;
• whether any assets have been acquired by partition of an HUF;
• whether any self-acquired property has been blended into an HUF; and
• whether ownership of assets is sole or joint.

The aforesaid information is only indicative and preliminary, to identify – as a first step – which legal framework will apply to the individual in question. Once this framework has been identified, it would be prudent to seek advice from a specialist in that field of law to develop a robust estate and succession plan.

Uniform civil code

The endeavour to enact a code which will unify and simplify India's succession laws dates back to the late 1940s, when it was debated in the Constituent Assembly while framing the Constitution. There is widespread recognition that the present framework is too complex and results in inequality. The solution proposed is the enactment of a uniform civil code to deal with not only inheritance matters, but also all aspects governed by personal law (eg, marriage, divorce, adoption and guardianship). However, the opponents of a uniform civil code argue that it would impinge on the freedom of religion guaranteed by the Constitution.

More recently, some Supreme Court judges have advocated for a uniform civil code and the Law Commission of India has also submitted a report on the issues concerning such code and made suggestions on unifying personal laws to eradicate, to the extent possible, some blatant inequalities.

While India is no closer to enacting a uniform civil code now than it was when the Constitution was drafted 70 years ago, there appears to be a greater impetus on this subject in recent times. If enacted, the uniform civil code will be a landmark in India's legal history.

For further information on this topic please contact Radhika Gaggar, Shaishavi Kadakia or Chirag Shah at Cyril Amarchand Mangaldas by telephone(+91 22 2496 4455) or email (radhika.gaggar@cyrilshroff.com, shaishavi.kadakia@cyrilshroff.com or ck.shah@cyrilshroff.com). The Cyril Amarchand Mangaldas website can be accessed at www.cyrilshroff.com.