Speaker: Dr. Chirashree Dasgupta, Associate Professor, CSLG, JNU
In the emerging literature on business groups in India, the entity of the 'business group' has found its place in institutional economics and the larger social science literature. But the familial basis of ownership and control remains an understudied area. While the organisation of the 'business house' was legally sanctioned through multiple legislations spanning corporate and tax laws and forms the object of studies in 'corporate governance', the institution of the 'family' has fallen in the ambit of codification of 'personal laws'. The first aspect is significant in establishing the institutional basis of concentration of capital combining the modalities of ownership and control. The second has implications for not only accumulation, investment and concentration of capital, but also tax avoidance and evasion. The relationship between these two aspects and the regimes of accumulation in independent India has been largely unexplored in the otherwise growing corpus of literature on the relation between the family owned business group and 'corporate governance' and public policy.
There are two channels through which family control over the organizational structure of business groups and the ownership of wealth generated through these structures are maintained. The first has to do with the legal provisions of 'corporate governance' structures which facilitate the optimum mix of various forms of registered companies like partnerships, private limited companies, unregistered and registered public limited companies, and limited liability partnerships under the umbrella business group through interlocking share-holdings and directorships.
The second was through the legal sanctity given to the category of the Hindu Undivided Family (HUF) by interweaving it into corporate governance structures, family laws and the tax codes. The HUF found legal recognition since the late 19th century, but it was the first Income Tax Act under colonial rule in the early 20th century that gave it the status of a separate and distinct tax entity based on the codification of the claims of Hindu 'traditional' family structure based on personal laws. However, it was in the first decade after independence that it was sanctified and integrated into the Indian legal system of corporate governance and taxation.
Social science has largely not engaged with this socio-legal entity. In corporate law, tax law and personal law - the three spaces it inhabits, it has been largely regarded as a 'loophole' that is incongruent with 'modern' corporate governance and taxation structures. It is often referred to as a remnant from the archaic which does not serve any purpose in contemporary modes of capital accumulation. The women's movement in India that has had the closest engagement with this structure has often associated it with feudal structures of land and property holdings. Its implications on capital accumulation in the 'modern' sectors have not been studied at all. This paper, based on analysis of macroeconomic data and a comprehensive primary research on 150 family owned business groups in India is an attempt to interrogate such propositions and to arrive at a comprehensive delineation of the role of the HUF in the capital accumulation regime in independent India.
The paper is divided into three sections. Section I elucidates the process through which the HUF was institutionally embedded into the state's codification of Hindu personal and family law. Section II analyses the institutional embedding of the HUF in corporate governance structures. Section III dwells on installation and use of the HUF in tax structures and the role it plays as a vital institution in tax avoidance processes. The three sections together show the critical role the HUF plays in the circuits of capital accumulation of business groups in India.