Loan from Father (Hindu Family) - Is it governed by the contracts act (as debtor and creditor) or by the hindu law (amounting to use of "Fathers fund" / detriment to "Fathers fund/estate")
I want to acquire some property / start a business and for that I can take a loan from my father. I shall repay him the amount with interest at market rate. But before doing so I want to be clear so that there is no future disputes/claims by family members on such properties acquired. Between me and my father the understanding is clear. Firstly he does not want any interest but since even I want to do something on my own and not take any favour I shall pay him interest at market rate. Secondly whatever I acquire out of such loan, he shall not put any claim to it.
But since I am taking a loan from my father, I want to understand that whether such Loan from a Father (Hindu) - Is governed by the contracts act (as debtor and creditor) or by the hindu law (amounting to use of "Fathers fund" / detriment to "Fathers fund/estate") i.e. If, during the life time of father, a child borrows a sum from the father as loan and repays it with interest at market rates. The sum borrowed is out of fathers own funds (self earned) and the understanding is that it is a commercial transaction.
1. Will such transaction be a (commercial) transaction goverened by contracts act (as debtor and creditor) or shall such transaction be amounting to use of "Fathers fund" / detriment to "Fathers fund/estate" and goverened by hindu law. In latter case, I suppose the property acquired would belong to the Joint Family.
2. What will be the status of properties acquired / business started with use of such loan ? Will it be self-acquired of the child or shall belong to Joint Family ?
3. What will be the status of properties acquired / business started if the loan given by father is interest free loan ?
4. What is meant by "Fathers Fund", "Joint family fund" and "fund of the individual member of a family" and what is the difference between them ?
5. What will be the case if the money borrowed is not from fathers own fund but from fathers Joint Family Fund. The interest is paid at market rate and the understanding is that father has treated the loan as investment for the purpose of earning interest i.e. the Joint family is earning interest on the amount invested ?
I understand that a father has full control over his self-acquired property. He can freely gift it or will it to anyone includig his own child. The child may also takes such property as absolute owner depeding upon the intention of the father. Further a father may also invest his own money and spend as he likes. So if there is a commercial transaction between him and his child where he is giving his money at no interest / a rate of interest which he likes to and get the return of investment, he dont have any further claim on property acquired nor would the family have a claim just because his (fathers) own money is involed. Further even if the joint family fund is involved, as far as the intention of the party (family and tthe individual) is clear (treating as interest earning investment) there should not be any claim.
But what does the law say about such transaction -
1. when the fathers own fund is involved and
2. when fathers joint family fund is involved.
And does such transaction between hindu come under contracts act or hindu law ?
A lawyer forwarded me some text on hindu law based on some cases. I think the same is based on use of Joint family fund and not fathers own fund. Please refer the following text of hindu law -
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Yajnavalkya, dealing with property not liable to partition laid down: Whatever else is acquired by the co-parcener himself, without detriment to the father's estate, as a present from a friend or a gift at nuptials, does not appertain to co-heirs. Nor shall he, who receives hereditary property which had been taken away, give it up to co-parceners; nor what has been gained by science (Yajnavalkya 2, verses 119-120).
The Mitakshara commentary on these verses is as follows:-- "Here, the phrase 'anything acquired by himself, without detriment to the father's estate', must be everywhere understood and it is thus connected with each member of the sentence; what is obtained from a friend, without detriment to the paternal estate; what is received in marriage, without waste of the patrimony; what is redeemed of the hereditary estate, without expenditure of ancestral property; what is gained by science, without use of the father's goods.
Consequently, what is obtained from a friend, as the return of an obligation conferred at the charge of the patrimony; what is received at a marriage concluded in the form termed 'Asura' or the like; what is recovered of the hereditary estate, by the expenditure of the father's goods; what is earned by science, acquired at the expense of the ancestral wealth; all that must be shared with the whole of the bretheren and with the father (Mitakshara I, IV, 6. Translation by Ghosh in his Principles of Hindu Law Commentaries, Vol. II, pp. 102 and 103).
Dealing with the same matter the commentator in the Smriti Chandrika says: "Whatever else is acquired by the co-parcener himself without detriment to the father's estate." the meaning of this passage is made clear by Manu thus: "What one (brother) may acquire by his labour without prejudice to the father's estate".
In both texts, the use of the word 'father' signifies jointness. 'By labour' means by agriculture and the like requiring labour, 'Without prejudice' means without detriment. Vyas also says: "Whatever property is acquired by one's own exertions without making use of the father's property shall not be given to the coheirs." 'Without making use' meaning without using for the purpose of acquiring. The use of the word father here also signifies jointness. (Smriti Chandrika, Ch. VII, Verse II, Ghosh's translation in the Principles of Hindu Law Commentary, Vol. I, p. 360).
Kautiliya in his Arthshashtra lays down: Acquisition with the expenditure of that property which is raised by means of paternal wealth is not partible (Ch. 62, p. 160, quoted by Jayaswal in his book 'Manu and Yajnavalkya', p. 268).
Manu lays down the same thing when he says: What one member acquires by his exertions without using paternal wealth, with acquisition, of his own effort, he shall not share unless by his own will. (Manu, Ch. IX, Versa 208).
Following these texts the modern writers on Hindu Law also consider it to be an essential feature of self-acquired property that it should not have been acquired with the aid of ancestral or joint family property. If it is so acquired it becomes joint family property. Thus Gupte in his 'Hindu Law in British India' dealing with joint family property at p. 70 includes in it:
"Property which is acquired
(1) with the aid or assistance of joint family property, or
(2) without the aid or assistance of joint family property provided it is acquired jointly by two or more co-parceners is joint family property."
At p. 72 he observes: "Property acquired with the aid of joint family property is necessarily joint family property whether
(1) it is a mere increment or accretion to it by way of income or profits; or
(2) it is acquired through the exertions of a single member or by joint labour of the whole family or of some of its members for the test of self-acquisition (separate property) is that it should be without detriment to the father's estate, that is, family property ..... Property acquired with the aid of joint family property is necessarily joint family property in all cases."
Dealing with separate property at p. 96 he observes: "Where the acquirer is a member of a joint family, one test of separate property is that it should not be ancestral. Another is that it should have been acquired without the aid of joint family property (ancestral or otherwise) or without detriment to the father's estate or patrimony as the texts put it."
Mulla in his 'Principles of Hindu Law', 10th Edn., observes at p. 241 : "Property jointly acquired by the members of a joint family with the aid of ancestral property is joint family property."
At p. 257, dealing with separate property, he states: "The income of a member of a joint family is his separate property if
(a) it has been obtained by his own exertions, and
(b) without any detriment to the father's estate, that is, without the aid of joint family property. But it is joint family property if it has been earned at the expense of the joint family property."
Mayne, in his book on 'Hindu Law and Usage', 10th Edn., on p. 352, after referring to the texts some of which have been referred to above, proceeds to state: "The test of self-acquisition is that it should be without detriment to the father's estate. Accordingly all acquisitions made by co-parcener or co-parceners with the aid of the joint estate becomes joint family property."
Ghosh, in his book on 'Hindu Law, 3rd Edn., Vol. I, at p. 404, says: "Property purchased with the income of the proceeds of the sale of ancestral property or with the ancestral moveables or with money borrowed on the security of ancestral property as well as any accretion to or improvement to an ancestral property by the efforts of one member have all the incidents of ancestral property attached to it."
Everyone thus appears to be agreed that before an acquisition can be claimed to be separate property it must be shown that it was made without any aid or assistance from the ancestral or family property. If the aid of the family property was employed for acquiring the property it must be shared by all the members of the family.
It will be noticed that in the original texts as well as in the various commentaries the expressions 'without detriment to the father's estate', 'without the use of father's goods', 'without prejudice to the ancestral property', 'by means of paternal wealth', 'without use of patrimony' and 'without the aid or assistance of ancestral or joint family property' are all unqualified by any word showing that the aid, use or detriment to the ancestral property was intended to be substantial before it could give to the acquired property the character of joint family property. In his 'Outlines of the History of the Hindu Law of Partition, Inheritance and Adoption' (Tagore's Law Lectures, 1883), Dr. Julius Jolly observes at p. 97:
"It follows from the very nature of the joint family system that every ordinary acquisition becomes joint, no matter how much or how little each individual member of the family may have contributed to its being made. Supposing one co-parcener to have exerted himself far more than the others in the cultivation of the family estate, still the oxen and the plough and the field would be joint and the produce of his labour must need be joint as well."
In his 'Joint Property and Partition in British India' (Tagore Law Lectures, 1895-96), Sri Ram Charan Mitra states on p. 43:
'What would amount to an expenditure of patrimony so as to make the acquisition ancestral property was considered in Purtab Bahadur v. Tilukdhario 1807-1 Select Rep. 236 (C), and the principles laid down were that 'of several brothers living together in family partnership should one acquire property by means of funds common to the whole, the property so acquired belongs jointly to ail the brothers. Should, however, the means of acquisition, drawn from the joint fund, be of little consideration, and the personal exertions considerable, two Shares belong to the acquirer and one to each of the other brothers."
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