Litigation may go up after SC ruling on daughters’ rights in HUFs3 min read . Updated: 13 Aug 2020, 11:04 AM IST
- Daughters who got unfair treatment after the law was modified in 2005 may question valuations now, said lawyers
- After the Supreme Court ruling on daughters' rights, families may dissolve HUFs to avoid disputes
The Supreme Court (SC), on 11 August, ruled that daughters have equal rights in a Hindu Undivided Family (HUF) just like sons right from their birth. The ruling clarified the earlier judgments, which had said that daughters do have equal rights (they are coparceners) in HUF, but only if the father was alive when the Hindu Succession Act was modified on 9 September 2005.
According to lawyers, after the 2005 judgment, many business families would dissolve HUFs and replace it with trusts. A trust allows better control on distribution of assets. The beneficiaries must follow the decision of the trustees and it’s difficult to challenge their acts in court. “HUF is not preferred as its position keeps changing in the law, which makes many families uncomfortable with it," said Rishabh Shroff, partner, Cyril Amarchand Mangaldas.
Until now, many families kept HUF for ancestral property and transferred their assets into trusts. They may now dissolve HUFs altogether to avoid disputes in future.
The ruling can also lead to rise in litigation. When the law was modified in 2005, many families cashed out daughters asking them to give up their rights in HUF. In return, daughters received cash or assets. “Many received unfair settlements. What they got was not commensurate to the full extent of their rights in the HUF. We expect many to approach courts in a few weeks and question the valuations the family had adopted then," said Shroff.
However, there is an exception. Daughters can claim their rights in HUF, provided there has been no partition, or the HUF had not been dissolved before 20 December 2004.
Rights of daughters
Sons and daughters both have equal rights in an HUF, along with other family members. An HUF, typically, has properties and assets which the father has inherited. Everyone in the HUF, therefore, has equal rights on the assets. Usually, the father is the karta in an HUF, who is the manager and has wide powers to control the affairs. Sons and daughters are considered coparceners, who have equal rights on assets.
From the succession point of view, a Hindu family is considered as an HUF. It’s not a structure that is created separately.
In 2005, the law was changed to make coparceners in HUF. But in some recent cases, SC had ruled that daughters would be considered coparceners only if the father was alive when the Hindu Succession Act was amended. A larger bench has now ruled that there is no such restriction. Daughters are coparceners since their birth. It doesn’t matter whether the father was alive when the laws were changed.
A married woman is part of two HUFs. She is a coparcener in the father’s HUF and a member in the husband’s. There are three key differences between a coparcener and a member.
A coparcener can ask for partition, but a member cannot. “A daughter can ask for partition of her father’s HUF, even if the brothers don’t agree, and enforce it legally. She can get her share and the karta and other coparceners will need to give it to her," said Shroff.
Coparceners can also give away their membership share in the HUF through a Will to anyone they wish to. This means that daughters can give their rights in ancestral property through a Will to anyone. Members cannot give away any share. A wife, who is a member, would get her husband’s share in an HUF after his death.
When families are deciding on distribution of assets, they don’t usually consider the rights of daughters and her children, according to lawyers. Most families transfer some assets to daughters on their marriage, which they consider the settlement of her rights.
Going by the rulings, the children of the daughter would become coparceners in two HUFs—in their father’s as well as their mother’s. Courts have not yet ruled on whether they can stake a claim to ancestral properties on both paternal and maternal sides.
“The law is not entirely settled on whether children of daughters can be coparcener in mother’s as well as father’s HUF. If you go by strict reading of the law, it says both sons and daughters are equal. So, their children should also have the same right. There is no judgment on this aspect as of now. But it may soon come out, given the developments," said Shroff.