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Understanding the Karta's Powers: Supreme Court's Ruling in N.S. Balaji Case

Introduction

[SC] The Karta of a Hindu Undivided Family (HUF) can sell, dispose of, or transfer any property owned by the HUF, even if a minor member of the family has an undivided interest.


The Supreme Court recently in the case of N.S. Balaji v Presiding Officer, Debt Recovery Tribunal & Ors.[i] observed that the Karta has the right to sell/dispose of/alienate or alienate HUF property, even if a minor member of the family has an undivided interest in it. The reasoning behind this is that an HUF can act through its Karta or an adult member of the family when managing HUF property.


Brief Facts

  • In the present case, the Petitioner, N. S. Balaji, a minor, is the alleged son of N.S. Subburaman through his second wife, N.S. Anshuya. The Petitioner claimed to have a 1/8rth share in the two properties that were auctioned by the bank to recover a loan that the Petitioner’s father had defaulted as one of the guarantors.

  • The Debt Recovery Tribunal (‘DRT’), Madurai had passed final orders on 05.02.2009 holding that the defendants along with the Petitioner’s father were jointly and severally liable to pay the bank a sum of Rs. 53,86,563/- together with the interest.

  • In 2016, the Petitioner filed a Writ of Certiorari before the Hon’ble Madurai bench of the Madras High Court for calling and quashing the records relating to the above order passed by the Presiding Officer, DRT, in 2009 and consequential sale certificate issued by the recovery officer of the DRT in 2010.

  • The Hon’ble Madurai bench of the Madras High Court on 31.07.2023 relying on the decision of Phoenix ARC Private Limited v. Vishwa Bharti Vidya Mandir[ii] dismissed the Writ Petition on the ground of maintainability stating that the Hon’ble Supreme Court has been repeatedly criticizing the practice of defaulters like the Petitioner’s father, who use Article 226 of the Constitution of India to challenge the proceedings of the DRT or the sale certificate pursuant to its orders.

  • The Hon’ble Madras High Court also observed that the Hon’ble Supreme Court has ruled that the discretionary jurisdiction under Article 226 of the Constitution of India is not absolute but must be exercised judiciously in accordance with the law and further held that when Section 17 of the SARFAESI Act, 2002 provides for an efficacious remedy by way of an appeal the Writ Petitions under Article 226 of the Constitution of India should not be entertained if alternative statutory remedies are available, except in cases that fall within certain well-defined exceptions.

  • Aggrieved by the order dated 31.07.2023, the Petitioner filed a Review Petition raising various grounds, which were already in the 2016 Writ Petition but the Hon’ble Madurai bench of Madras High Court dismissed the same, stating that the Hon’ble Court did not find any merits to review its earlier order and the Petitioner has raised no grounds to substantiate as to how the decision in Phoenix ARC Private Limited’s case (supra) is not applicable.

  • Hence, the Petitioner filed a Special Leave Petition before the Hon’ble Supreme Court claiming that the property in question was a joint family property / HUF property, which was mortgaged by his father (Karta of the HUF) as one of the guarantors.

The decision of the Hon’ble Supreme Court

The Hon’ble Madurai Bench of the Madras High Court relied on the decision of the Phoenix ARC Private Limited’s case (supra) in which the Hon’ble Supreme Court held that if the proceedings are initiated and/or proposed action is to be taken under the SARFAESI Act, 2002 and a borrower is aggrieved by such actions of a bank or any private financial institutions such as an ARC, then the borrower must avail the remedy under SARFAESI Act, 2002 only and no Writ Petition under Article 226 of the Constitution of India would be maintainable or entertainable against any bank or ARC, and that such institutions cannot be said to be performing public functions, which are usually expected to be performed by state authorities.


In the present case, the Petitioner filed an SLP before the Hon’ble Supreme Court on different grounds raising a contention that the Petitioner's father who was the Karta of the HUF did not take his consent before mortgaging an HUF property. The Hon’ble Supreme Court held that the position on the rights of a Karta in relation to HUF property was well settled by this court in the case of Sri Narayan Bal v. Sridhar Sutar[iii] in which it was held that the Karta has the right to sell/dispose of/alienate an HUF property, even if a minor of the family has an undivided interest because an HUF is capable of acting through its Karta or an adult member of the family who is managing the HUF property.


Analysis

The Hon’ble Supreme Court’s decision, in this case, is a significant development in the law relating to HUFs as it reaffirms the wide powers that a Karta of an HUF has in managing HUF property. This includes the power to mortgage HUF property, even if a minor of the family has an undivided interest in the property. This decision also protects the interests of the creditors who lend money to HUFs, as they can rely on the Karta’s power to mortgage HUF property to secure their loans. However, it is important to note that the Court’s decision does not mean that Karta has absolute power over HUF property. Coparceners and other members of an HUF can challenge the act of a Karta in alienating HUF property, but only if the alienation is not for legal necessity or for the betterment of the estate. The facts of this case again raised some questions about the use of writ petitions to challenge DRT proceedings to delay the recovery process. Still, the Hon'ble Supreme Court was obviously not inclined to interfere with the judgment passed by the Hon'ble Madurai Bench of the Madras Court. Hence, it is clear that the rights of the secured creditor to recover the amount due and payable should not be prejudiced.


End Notes:

[i] 2023 SCC OnLine SC 1266

[ii] (2022) 5 SCC 345

[iii] (1996) 8 SCC 54



Authored by Jitin Bharadwaj, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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