Business Standard | August 13, 2020
A three-judge bench of the Supreme Court of India on Monday held that daughters enjoy coparcenary rights — the right to inherit father’s property — at birth, and are to be treated at par with sons in this respect. Here is a look at what the order means for the Hindu Undivided Family (HUF) structure, and how it impacts succession planning, especially in family-oriented businesses.
What is the genesis of the case?
The Hindu Succession Act, 1956, based on the Mitakshara law, did not give coparcenary rights to daughters. However, this law was amended in 2005 to grant equal rights to both sons and daughters of the coparceners. But issues arose when it was held by the apex court in 2015 that only those daughters whose father was alive on the date of the amendment would be granted inheritance rights. Another SC bench contradicted this order in 2018 and granted inheritance rights to daughters whose father had died prior to the amendment in the law. Various high courts across the country have given varying rulings over the issue.
Legal experts say the latest apex court order has put the matter to rest by clarifying that coparcenary rights are acquired by a daughter at birth. The date of the father’s death is irrelevant for the daughter to be granted inheritance rights in her father’s property.
What is the impact of the order on HUFs?
There is no public data to show how many HUFs are affected by the order, say experts. However, they point out that some older family businesses still use HUFs as an instrument to retain and manage family wealth.
Though there has been a spate of HUF dissolutions and partitions in the last few years, there is still huge wealth held in assets with HUFs, including the interest in businesses, says Rajesh N Gupta, managing partner, SNG & Partners, a Mumbai-based law firm.
The judgment would have retrospective and retroactive implications on such assets, needing deep due diligence and careful planning, especially where the daughters can put a challenge if the partition or dissolution has happened without their consent, adds Gupta.
In practice, many families have been winding up or partitioning HUFs for the last decade or so, and this new change will push more families to do so, says Rishabh Shroff, partner at law firm Cyril Amarchand Mangaldas.
“This judgement does provide some relief to the families with existing HUFs and provides clarity on how to plan their succession to coparcenary properties,” he adds.
How does the order influence succession planning in business families, especially with regard to their private and business wealth?
Experts say that though this is a landmark judgement that helps to clear up any confusion, its real-world application is limited. “In reality, most personal wealth, including ownership in valuable family businesses, are either held in personal names of the patriarch/promoters, or in private trusts or holding companies/LLPs,” says Shroff. Almost no business family is setting up new HUFs, and most existing HUFs are being dissolved, he adds.
Experts point out that Hindu inheritance laws continue to remain complex. As a result, most business families tend to avoid the HUF structure. “We see business families focusing on having a structured succession plan by way of a family trust, or a will, rather than leaving it to intestate laws,” says Varghese Thomas, partner at law firm J Sagar Associates.
Even the Law Commission in a 2018 report recommended the abolition of the HUF structure on the grounds that it is often used as a tool for tax evasion.
What does this mean for succession rights of women?
Experts say the judgment does bring into the limelight the issue of women’s succession rights, which are often disregarded or taken for granted. As many women emerge as the heir apparent in family businesses, it becomes all the more important to stay educated regarding their rights to their families’ properties and inheritances, says Shroff.