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HUF as partner in Partnership Firm (Business Law)

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This query is : Resolved


Author : Anonymous

Posted On 18 April 2011 at 16:28

Unlike a company, which has a separate legal entity, a HUF has no separate existence from its members. A HUF cannot be treated as a person (though under the Income Tax Act, the terms 'person' includes a HUF also for limited purpose only). However, what would be status of a Partnership Firm in which a HUF (and not KARTA) is shown AS one of the Partner? What would happen to credir facilities provided by Bank to such Partnership Firm and what is the remedy?




Expert : Arun Bhatia

Posted On 18 April 2011 at 18:06

Karta can be a partner in the partnership firm for and on behalf of HUF



Expert : M.Sheik Mohammed Ali

Posted On 18 April 2011 at 18:18

yes, i agree



Author : Anonymous

Posted On 18 April 2011 at 18:22

Thanks. But my specific query is here HUF is a partner and not the Karta. What would be the status of Firm?



Expert : A V Vishal

Posted On 19 April 2011 at 10:59

HUF can never be a partner. The Partnership Act, 1932


5. PARTNERSHIP NOT CREATED BY STATUS.


The relation of partnership arises from contract and not from status; and, in particular, the members of a Hindu undivided family carrying on a family business as such, or a Burmese Buddhist husband and wife carrying on business as such are not partners in such business.



Author : Anonymous

Posted On 19 April 2011 at 11:22

What would be remedy available to a Bank who has extended credit facilities to such Firm which has a HUF as one of the Partners. Whether the Partnership Deed would be void?



Expert : A V Vishal

Posted On 19 April 2011 at 12:08

In determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together. Furnish details of the case.



Expert : Parveen Kr. Aggarwal

Posted On 19 April 2011 at 22:49

The partnership deed in such a case cannot be void in its entirety. As HUF cannot be partner in a firm but other persons who can be legally partners in a firm, the rights and liabilities of the other partners remain unaffected.

Regarding the liability of firm towards the bank, the HUF can be held liable on the principle of holding out contained in section 28 of the Indian Partnership Act, 1932.




Author : Anonymous

Posted On 20 April 2011 at 10:21

Thanks for the requisite precise reply.


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