TaxTMI 
TaxTMI 
TaxTMI 
2017 (2) TMI 927
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....alal Dhirajlal Popat, serving as a 'Manager' of Dhirajlal Pranjivandas Popat, H.U.F. The H.U.F. is carrying on business and is running a firm in the name of 'D. Pranjivandas and Sons'. It is the case of the complainant that the accused herein is a member of an H.U.F. running in the name of 'R.J. Shah', H.U.F. The accused is the 'Karta' of the 'R.J. Shah', H.U.F.. The accused Nos.2 and 3, in the complaint, are the members of the H.U.F. being the wife and son of the 'Karta'. In connection with a business transaction with the complainant, the accused, in his capacity as the 'Karta' - 'Manager' of the R.J. Shah, H.U.F. issued a cheque dated 15th September 2013 for the amount of Rs. 5,00,000/( Rupees Five Lac only) in favour of the complainant drawn on the Sardargunj Mercantile Cooperative Bank, Market Yard, Patan. The cheque in question drawn by the accused in favour of the complainant came to be dishonoured, as the funds were insufficient in the account maintained by the H.U.F.. In such circumstances, a statutory Notice under Section 138 of the Negotiable Instruments Act (for short, the "N.I. Act") dated 21st November 201....
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....ced reliance on the following decisions: (1) Kapurchand Shrimal vs. Tax Recovery Officer, Hyderabad [AIR 1969 SC 682] (2) Mrs. Kshetra Mohan - Sannyasi Charan Sadhukhan vs. Commissioner of Excess Profits Tax, West Bengal [AIR 1953 SC 516] (3) Sathyaprema Manjunatha Gowda vs. Controller of Estate Duty. Karnataka [(1997) 10 SCC 684] (4) Income Tax Officer, Gorakhpur vs. Ram Prasad [(1973) 3 SCC 25] (5) Alladi Narasimha Rao vs. M/s. Core Tree Solutions Pvt. Ltd, A.C. Guards [2013 Criminal Law Journal 1046] (6) United Phospherus Limited vs. Saiteja Fertilizers and Pesticides [2003 (114) Company Cases 587] (7) Aneeta Hada vs. Godfather Travels & Tours Pvt. Ltd [(2012) 5 SCC 661] (8) Dadasaheb Rawal Cooperative Bank of Dondaicha vs. R.J. Jain [2009 Criminal Law Journal 67] ● SUBMISSIONS ON BEHALF OF THE COMPLAINANT: 8 On the other hand, this writ application has been vehemently opposed by Mr. Davawala, the learned counsel appearing for the complainant. Mr. Davawala submits that by any stretch of imagination, a Hindu Undivided Family is not a firm nor an association of persons. In such circumstances, an H.U.F. will not constitute an "association of individuals", ac....
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....the Madras High Court in the case of Arpit Jhanwar vs. Kamlesh Jain [(2012) 3 L.W. 776]. 13 Having heard the learned counsel appearing for the parties and having considered the materials on record, the only question that falls for my consideration is whether an H.U.F. will constitute an "association of individuals" according to the term "company" as explained in Section 141 of the Act. 14 For the purpose of answering the question posed as referred to above, it is necessary to understand the concept of H.U.F. 15 WHAT IS AN H.U.F.? A Hindu Undivided Family is an extended family arrangement prevalent among Hindus of the Indian subcontinent, consisting of many generations living under the same roof. All the male members are blood relatives and all the women are either mothers, wives, unmarried daughters, or widowed relatives, all bound by the common sapinda relationship. The joint family status being the result of birth, the possession of joint cord that knits the members of the family together is not property or business but the relationship. The family is headed by a patriarch, usually the oldest male, who makes decisions on economic and social matters on behalf of the entire fa....
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.... concerns of the joint family, but whatever relates to their commonality and their religious duties and observances are regulated by the members or by the manager to whom they have, expressly or by implication, delegated the task of regulation. The joint family status being the result of birth, possession of joint properties is only an adjunct of the joint family and is not necessary for its constitution. Nor is it necessary that all the members possess rights or status even though the property of the family is called joint family property. 9 On the other hand, coparcenary is a narrower body than a joint family and consists of only those persons who have taken by birth an interest in the property of the holder fro the time being and who can enforce a partition whenever they like. It commences with a common ancestor and includes a holder of joint property and only those males in his male line who are not removed from him by more than three degrees. Thus while a son, a grandson or a greatgrandson is a coparcener with the holder of the property, the greatgreatgrandson cannot be coparcencer with him, because he is removed by more than three degrees from the holder. 10 Hindu Undivid....
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.... rights and, while acting within those rights, he can bind every member of the family by his actions or deal with the joint family property which, though it does not belong to him and belongs to all, he has been given the power to manage or dispose of, in the interest of the family. It is difficult to equate or define the position of a joint Hindu family as understood under the Hindu Law with the modern conception of a company or a firm or association of individuals for trade or business purposes." ● DIFFERENCES BETWEEN PARTNERSHIP & H.U.F. BUSINESS: 19 A Partnership comes into existence, by means of a contract between partners, whereas, a joint Hindu family arises as a result of status, i.e., by birth in the family. Accordingly, if two or more members of an HUF carry on an inherited business, it is not a partnership because it has been created by status or obtained by birth and not by an agreement. H.U.F. is a unique form of business existing only in India and is governed by the provisions of the Hindu Law. It comes into existence by operation of Hindu Law and not out of contract. The firm is owned by the members of undivided Hindu family, called coparceners. The busine....
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....f members (coparceners) in HUF. 4. Admission of new members No new partner can be admitted to the existing partnership without the consent of all the other partners. In case of HUF firm, a person becomes a member (coparcener) merely by his birth. 5. Minor member A minor cannot become a fullfledged partner in a firm; he can be admitted only to the benefits of partnership. In an H.U.F., a male child becomes a fullfledged member by birth. 6. Rights of females In a partnership, women can become partners and they enjoy the same rights and privileges, as do male partners. In case of an HUF business, on the other hand, the membership is restricted to male members only. However, as per Hindu Law Succession Act,1956, a female relative of a deceased male member gets a coparcenery interest in the event of his death. 7. Implied agency In a partnership, every partner has implied authority to represent the firm and bind the other partners by his acts. In H.U.F. this right rests with the Karta only, other members may be allowed by Karta expressly or impliedly to contract debts on behalf of the firm. 8. Liability of members In a partnership, the liability of all the partners is unli....
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....Court in Shiromani Gurdwara Prabandhak Committee Vs. Som Nath Dass [(2000) 4 SCC 146] observed in para 19 as under: "19. Thus, it is well settled and confirmed by the authorities on jurisprudence and courts of various countries that for a bigger thrust of sociopoliticalscientific development evolution of a fictional personality to be a juristic person became inevitable. This may be any entity, living, inanimate, objects or things. It may be a religious institution or any such useful unit which may impel the courts to recognise it. This recognition is for subserving the needs and faith of the society. A juristic person, like any other natural person is in law also conferred with rights and obligations and is dealt with in accordance with law. In other words, the entity acts like a natural person but only through a designated person, whose acts are processed within the ambit of law. When an idol was recognised as a juristic person, it was known it could not act by itself. As in the case of minor a guardian is appointed, so in the case of idol, a Shebait or manager is appointed to act on its behalf. In that sense, relation between an idol and Shebait is akin to that of a minor and a ....
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.... in this subsection shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence : a [Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.] (2) Notwithstanding anything contained in subsection (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.For the purposes of this section.( a) "company" means any body corporation and includes a firm or other asso....
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....sed on behalf of the applicant being the 'Karta' of the H.U.F. is that an H.U.F. is a legal entity and should be read in Section 141 of the N.I. Act. In other words, according to the applicant, an H.U.F. is a company as defined in Section 141 of the Act. If it is argued that if that be so, then the H.U.F. is a "association of individuals" as expressed in the explanation (a) to Section 141 of the N.I. Act. 27 The explanation (a) to Section 141 of the N.I. Act, would go to indicate that it is indisputably an inclusive definition. The use of the word "include" would clearly indicate the intention of the legislature to enlarge the meaning of the word used in the statute. The Supreme Court in Ramanlal Bhailal Patel (supra) held that the word must be construed as comprehending not only such things which they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. Thus, where a definition uses the word "includes", as contrasted from means, the word defined not only bears its ordinary, popular and natural meaning, but in addition also bears the extended statutory meaning. [See: Arpit Jhanwar (supra)]. 28 Th....
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.... as having the rights and duties of a human being. Salmond defines 'person' as 'any being whom the law regards as capable of rights and duties' or as 'a being, whether human or not, of which rights and duties are the attributes' (Jurisprudence : 12th Edition Page 299]. Thus the word 'person', in law, unless otherwise intended, refers not only to a natural person (male or female human being), but also any legal person (that is an entity that is recognized by law as having or capable of having rights and duties). The General Clauses Act thus defines a 'person' as including a corporation or an association of persons or a body of individuals whether incorporated or not. The said general legal definition is, however, either modified or restricted or expanded in different statutes with reference to the object of the enactment or the context in which it is used. For instance, the definition of the word 'person' in Income Tax Act, is very wide and includes an individual, a Hindu Undivided Family, a company, a firm, an association of persons or body of individuals whether incorporated or not, a local authority and every other artificial juridi....
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.... incorporated or not, there cannot be a different definition in the Ceiling Act, and therefore, section 6(2) of the Ceiling Act treating family as a 'person' was unconstitutional. It was pointed out that section 6(2) had the effect of making a person who held land within ceiling limit, to lose part of his/ her holding, on marriage to someone who also held land within ceiling limit. (For example, if a bachelor who was holding 35 acres of land which is within ceiling limit, married someone who held 20 acres, they will together lose 19 acres by reason of the fact that they formed a 'family'). This Court negatived the challenge to the definition of 'person'. In that context this Court observed that the term 'person' is not, strictly speaking, defined in the Act, and the definition merely clarified that the term includes a joint family and did not exclude an individual from being a person in the eye of law. This Court observed that the term 'person' for the purposes of Ceiling Act would include individuals as natural persons as well as group or body of individuals as artificial persons, as also a joint family and a family. This Court proceeded to ....
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....y fact that it has not been done so would only reflect the intention of the Parliament not to include a HUF as a company in terms of Section 141 of the Act. [See: Arpit Jhanwar (supra)]. ● CONCEPT OF "ASSOCIATION OF INDIVIDUALS": 30 According to the English Oxford Dictionary, "associate" means : "to join in common purpose, action or condition; to link together, unite, combine, ally, confederate." In my opinion, this connotes that when two or more persons unite together of their own free volition in some common purpose or action they can be deemed to have associated together and formed an association. 31 The expression "Association of individuals" was considered by a Division Bench of the Calcutta High Court in a decision reported in ' B.N. Elias, In re', 19353 ITR 408 (A). At page 415 Derbyshire, C.J., in delivering the judgment quoted with approval the following passage from the judgment of Cotton, L.J. in Smith v. Anderson, (1880) 15 Ch D 247 at p. 282 (B) : "I do not think it very material to consider how far the word 'association' differs from company or partnership, but I think we may say that if 'association' is intended to denote something ....
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.... whether the expression "association of persons" should be read ejusdem generis with the word "firm." Suffice it to say that before any group of persons can be called an association of persons it must be established on facts that they are in the nature of partners, i.e. in my opinion, the established facts of the case must at least lead to an inference that the members of the group of their volition or free will have joined in a venture with a view to earn profit. 36 In ' Commissioner of Incometax, Burma vs. M.A. Baporia', AIR 1939 Bang 258 (SB) (B), it was held that the expression "association of individuals" in Section 3 of the Act must be construed 'ejusdem generis' not only with the word immediately preceding i.e. "firm" but with all other groups of assessees mentioned in the section. The common generic quality appears to be joint interest. There must be some kind of arrangement amongst the adult "persons" to indicate their intention to earn income profits and gains in common. In 'Mohammad Aslam vs. Commissioner of Incometax U.P.', AIR 1936 All 317 (C), the learned Judges preferred to construe the expression as ' ejusdem generis ' with the word ....
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....ed integrity of what is owned." 28 The terms 'association of persons' and 'body of individuals' (which are interchangeable) have a legal connotation and refer to an entity having rights and duties. They are not to be understood literally. For example, if half a dozen people are travelling in a car or a boat, or standing in a bus stop, they may be a group of persons or a 'body of individuals' in the literal sense. But they are not an association of persons/body of individuals in the legal sense. When a calamity occurs or a disaster strikes, and a band of volunteers or doctors meet at the site and associate or cooperate with each other for providing relief to victims, and not doing anything for their own benefit, they may literally be an association of persons, but they are not 'an association of persons/ body of individuals' in the legal sense. A mere combination of persons or coming together of persons without anything more, without any intention to have a joint venture or carry on some common activity with a common understanding and purpose will not convert two or more persons into a body of individuals/association of persons. An 'association ....
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....ons/body of individuals', in the absence of a deeming provision in a statute or an agreement. Similarly, when two or more persons merely purchase a property, under a common sale deed, without any agreement to have a common or joint venture, they will not become an 'association of persons/body of individuals'. Mere purchase under a common deed without anything more, will not convert a coownership into a joint enterprise. Thus when there are ten coowners of a property, they are ten persons and not a 'body of individuals' to be treated as a 'single person'. But if the coowners proceed further and enter into an arrangement or agreement to have a joint enterprise or venture to produce a common result for their benefit, then the coowners may answer the definition of a 'person'." 38 A learned Single Judge of the Andhra Pradesh High Court in the case of Alladi Narasimha Rao (supra) considered the question whether the words "other association of individuals" should be in relation to a business enterprise or a business deal. I may quote the relevant observations made by the learned Judge as contained in paras 13, 14 and 15 as under: "13 In Commissioner ....
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....eme Court in the case of Income Tax Officer, Gorakhpur (supra), in context with the Excess Profits Tax Act, 1940 considered the question whether a Hindu Undivided Family is a firm or an association of person. The Supreme Court answered the question in para 10, which reads as under: "This provision applies only to firms and associations of persons. Hindu undivided family is neither a firm nor an association of persons. It is a separate entity by itself. That is made clear by Section 3 of the Indian IncomeTax Act, 1922 which classifies the assessee under the heads "individuals". "Hindu undivided families" "companies", "local authorities", "firms" and "other associations of persons".... If Hindu undivided family is to be considered as an association of persons, there was no point in making separate provision for the assessment of Hindu undivided family. This conclusion is strengthened by Section 25A of the Indian IncomeTax Act, 1922 which provides for the assessment of Hindu undivided family after its partition." 40 In the case of Commissioner of Income Tax, Bombay North, Kutch and Saurashtra, Ahmedabad vs. Smt. Indira Balkrishna [AIR 1960 Supreme Court 1172] in context with Sectio....
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.... the rights and obligations of one against the other. Persona who have no mutual rights and obligations do not constitute an association because they happen to have a common interest or several interests in something which is to be divided between them. James L.J. in Smith vs. Andersen, (1880) 15 Ch. Div. 247 at p. 273 : (50 L.J. Ch. 39) has observed as follows : "Now there are three words there, 'company, association, or partnership.' I cannot understand what the difference is between a company and an association. The word association, in the sense in which it is now commonly used, is etymologically inaccurate, for 'association' does not properly describe the thing formed, but properly and etymologically describes the act of associating together, from which act of associating there is formed a company or partnership." And again "A company or association (which I take to be synonymous terms) is the result of an arrangement by which parties intend to form a partnership which is constantly changing." He laid stress on the fact that an association creates mutual rights and obligations between the persona associating and observed as follows : "Persons who have ....
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....Section 141 of the Act. In a HUF, the members do not become coowners by their own volition and there is also no common purpose in their coownership. As has been held by the Hon'ble Supreme Court, each member of the HUF can act in regard to his or her share without any request or obligation to the other owners. They do not automatically become an Association of persons/body of individuals. Thus, the law laid down by the Hon'ble Supreme Court squarely applies to the Negotiable Instruments Act, for the purpose of understanding the definition of the term company and thus, a HUF can not be a company in terms of Section 141 of the Act." 44 Thus, I have reached to the conclusion that although the H.U.F. in the case at hand may be engaged in a business and is running a firm in the name of M.S. Traders and may be having a common purpose, yet what is missing is the element of free will and volition. A mere combination of individuals will not constitute an "association of individuals" . To make it as an "association of individuals", in terms of Section 141 of the N.I. Act, it is absolutely necessary that the combination of individuals must be on their own free will and volition. Sec....
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....he Explanation is that it is inclusive of any body corporate or "other association of individuals". The term "association of individuals" will include club, trust, HUF business, etc. It shall have to be construed ejusdem generis along with other expressions "company" or "firm". Therefore, a joint family business must be deemed as a juristic person like a company or firm. When it is specifically alleged that the respondent Nos. 1 and 2 are the joint proprietors/owners of the business of M/s New Sheetal Traders, which is a joint family business of themselves and their son Sheetal, prima facie, they are covered under Section 141 of the Negotiable Instruments Act in view of the Explanation appended thereto. 10. In "Baskar v. Muthuswamy" (2001) 106 Comp Cas 489, a Bench of Madras High Court held that where there were positive allegations in the complaint that the accused was partner of the firm, but he denied his such status on strength of extracts from Register of Firms, it was improper to go into evidence at the premature stage. It was held that the true state of affairs could only be gone into at the stage of trial. Hence, the Bench of Madras High Court declined to quash the proces....