Karta Has Personal Or Unlimited Liability In Execution When HUF Is Unable To Satisfy Decretal Debt: Bombay High Court

The Bombay High Court has held that under Hindu law, a Karta has personal or unlimited liability in execution when the Hindu Undivided Family (HUF) is unable to satisfy the decretal debt.

The Court held thus in an Interim Application seeking interim relief in aid of enforcement of the final Arbitral Award passed by the Sole Arbitrator.

A Single Bench of Justice R.I. Chagla observed, “The Respondent No.2’s contention based on Order XXX Rule 10 and Order XXI Rule 50 are clearly without merit since they entirely rely upon the artificial distinction drawn between “HUF” and “HUF Firms” which as already held is misconceived / irrelevant and in any event an academic question in the present case where the Respondent No.1 – HUF admittedly is one that carries on business. In any event, this Court has inherent power as a Court of record and equity, as also power under Section 47 of the CPC to determine all questions arising between the parties “relating to the execution, discharge or satisfaction of the decree”. This includes the question of law as to whether under Hindu Law, a Karta has personal / unlimited liability in execution when the Respondent No.1 – HUF is admittedly unable to satisfy the decretal debt. The answer to this issue is in the affirmative as evident from the clear line of authorities.”

The Bench reiterated that the Karta’s liability for unsatisfied debts or dues of the HUF is ‘personal’ and ‘unlimited’.

Advocate Rashmin Khandekar appeared on behalf of the Applicant, while Advocates Prathamesh Kamat and Sanjay Jain appeared on behalf of the Respondents.

Brief Facts

The Sole Arbitrator awarded a principal decretal sum of Rs. 12,52,53,938/- and interest on the principal decretal sum at 10% p.a. from the date of the Award till actual payment against the Respondent and costs of Rs. 22,25,000/- against the Respondents. The Respondents filed a joint/common Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act), challenging the award. By an Order, the execution of the award was stayed to the limited extent of paragraph 176(c) of the award i.e. to the extent of ‘costs’ component of the award of Rs. 22,25,000/- conditional upon a 100% deposit of that sum, which deposit was thereafter made.

Resultantly, the amount of Rs. 14,79,71,228/- under the award remained unsatisfied and outstanding. There was no stay on recovery of the said amount. The High Court in January 2025 directed the Respondent to file an Affidavit of Disclosure of assets/income. The Respondent No. 2 deposing and acting on behalf of Respondent No.1 as its Karta, filed an Affidavit of Disclosure. It was the case of the Applicant that the Affidavit of Disclosure shows that Respondents have clearly been siphoning/dissipating/diverting/stripping the Respondent No.1 of assets / value during the pendency of the legal proceedings with an intent to defeat the Award, which the Applicant claimed highlights its case for reliefs against Respondents.

Reasoning

The High Court in view of the above facts, said, “It is settled law that merely because the Award Creditor has an option/ choice to also file execution proceedings directly before a Court where the assets of the Award Debtor may be located, does not in any way take away the Award Creditor’s right to approach the Seat Court seeking execution and / or interim reliefs in aid of execution. This has been laid down in the judgment of the Full Bench of this Court in Gemini Bay (Supra), wherein it has been held that an Award made under Part 1 of the Arbitration and Conciliation Act, 1996 can be executed not only by the Court as defined by Section 2(1)(e)(i) but also by the Court to which it is sent for execution under Sections 38 and 39 of the CPC. Thus, the Award Creditor is vested with an additional option to directly execute the Award where the assets are located.”

The Court noted that the Respondent No.2 Karta’s liability is unlimited regardless of whether or not the Respondent No.1 HUF is a trading HUF / HUF which carries on business, the enquiry in the present case is irrelevant / academic because it is an admitted position that the Respondent No.1 – HUF is one that carries on business of construction works contracts.

“The contention on behalf of the Respondents that Respondent No.2 - Karta has no liability save and except for the costs component of the Award is ex-facie without merit and merely a brazen attempt to ring fence Respondent No.2’s assets from being applied to enforcement of the Award so that the Applicant is left holding a mere paper decree”, it added.

The Court was of the view that the term “HUF Firm” is merely used by the Court to refer to the circumstance of an HUF “carrying on business” as opposed to an HUF which does not carry on any business.

“In any event, in the present case, it is evident that the Respondent No.1 HUF can be considered as an HUF Firm carrying on business. Respondent No.2’s entire argument attempting to distinguish the said judgment is not only misconceived in law, but also false on facts”, it added.

The Court remarked that neither res judicata nor issue of estoppel have any applicability in the present case at all and the proceedings are execution proceedings unconcerned with the affixing of any contractual liability.

“Further, the issue of Respondent No.2’s liability as Karta of the Hindu Family by operation of Hindu Law for unsatisfied debts of the Respondent No.1- HUF was never raised before the learned Arbitrator and the learned Arbitrator never had occasion to consider the issue of whether Respondent No.2 is personally liable as Karta of Respondent No.1 – HUF in execution of the resulting award when the Respondent No.1 HUF was unable to satisfy the Award. Respondent No.1 – HUF is admittedly unable to satisfy the Award. This issue is unique / peculiar to the post-award and execution stage, and hence it could never have been a question in the arbitration”, it observed.

Conclusion

The Court further said that the two proceedings are totally different in substance as well as form and accordingly, the contention of Respondent No.2 based on issue estoppel / res judicata / constructive res judicata are liable to be rejected.

“Regarding the immovable properties / securities already lying custodia legis as common security for the Respondents’ liability, in respect of which reliefs are required to follow as a matter of course, it would be necessary to appoint a Court Receiver to secure possession and thereafter for sale of the immovable properties to which title deeds are already deposited in this Court under Order dated 26th June, 2024. This Court as Executing Court has the power under Section 51(d) of the CPC to do so”, it concluded.

Accordingly, the High Court disposed of the Interim Application, appointed the Court Receiver as receiver of immovable properties whose title deeds are deposited, and directed the Respondents to disclose all assets by way of Affidavits of Disclosure.

Cause Title- Manjeet Singh T. Anand v. Nishant Enterprises HUF Thru. Its Karta & Anr. (Case Number: INTERIM APPLICATION NO.5306 OF 2025)

Appearance:

Applicant: Advocates Rashmin Khandekar, Jamsheed Master, Anand Mohan, and Aniket Worlikar.

Respondents: Advocates Prathamesh Kamat, Sanjay Jain, S.B. Rao, Gauri Rao, Nakul Jain, Sankalp Anantwar, and Ronak Mistry.

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