AHMEDABAD: In a significant judgment on matters pertaining to cheques not being honoured, the Gujarat high court has held that only the ‘karta’ (manager) of a Hindu Undivided Family (HUF) can be prosecuted. The entire HUF cannot be held liable and prosecuted, the court said.
To arrive at this conclusion, Justice JB Pardiwala discussed various legal provisions and definitions of ‘person’ – juristic, juridical and artificial. In the process, the high court also drew an interesting comparison with a religious institution and an idol to analyse the character of HUF.
The court quoted the Supreme Court saying how an idol in a temple is recognized as a juristic person, but it is also accepted that it cannot act by itself. As in the case of minor, a guardian is appointed, so in the case of an idol, a Shebait or manager is appointed to act on its behalf. The relationship between an idol and Shebait is akin to that of a minor and a guardian.
The high court further said that an idol is a juridical person capable of owning property and hence a ‘person’ by definition. “Similarly, an HUF is a legal entity capable of owning property and, therefore, undoubtedly, such a HUF is a person as defined in section 3(42) of the General Clauses Act and section 11 of the IPC. Therefore, for an offence committed by a HUF punishable under section 138 of the Negotiable Instruments Act (for cheque return cases), the HUF can be prosecuted and punished. But at the same time, since the HUF is an artificial person, the sentence of imprisonment cannot be imposed on the HUF,” the court order reads.
The court also made it clear that the HUF is not like a company, partnership firm, corporation or a limited company. It is not a legal entity distinct and separate from that of the members who constitute it. Members of HUF are not part of it because of their free will, but only by birth. Hence, it is not an ‘association of individuals’ like a business company where people come together with a common intention.
The high court made these observations on a petition filed by one RJ Shah, who had issued a Rs 5 lakh cheque on behalf of HUF but the cheque was not honoured. A case was filed against him. He demanded that other members of HUF should also be held responsible and the entire HUF should be prosecuted.