What a family settlement means
The term settlement means an action of reaching an agreement in a disputed issue, ending the arguments between contesting parties involved in the issue.
A family settlement is an agreement mutually worked out by a settler among his family or by family members among themselves as to how the common property should be distributed and hold separately in accordance with the agreement. It settles the division or distribution of common property that the family members already own as a common property. It can be used to dispose of a self-acquired property in consideration of marriage or for any charitable or religious purpose. Both moveable and immoveable property can be disposed of by family settlement.
The parties involved in such a settlement or arrangement should be related to each other or having some interest in the property. The settlement is usually initiated by a person acceptable to all the parties. A respectful third party, a lawyer or a senior family member can initiate the settlement process.
The settlement can be arrived at by a single document or a series of documents denoting the division or distribution of property. The document thus created is neither a gift deed nor a transfer deed. In addition to arriving at a family settlement agreement, separate transfer document will have to be prepared in the form of gift or sale deed when such a thing occurs.
The family settlement document must be signed by all the family members involved. The document should be attested by two witnesses, though it is not legally mandated.
The document should be registered at the registration office, if it intends to assign immoveable property. The stamp duty depending on the value to the property is applicable to such a document.
In short, a family settlement precisely is an arrangement or agreement entered into by the members of a family for division of property. It aims at the settlement of actual or apprehended family disputes, by compromising on some disputed rights by its members. It is done with an intention to preserve not only the family property but also peace of the family.
Family settlement presupposes antecedent title
In a family settlement there is an assumption of antecedent title to the parties involved in the settlement.
The SC in Sahu Madho Das and Others v Pandit Mukand Ram and Another (1955 AIR 481), held: “It is well settled that a compromise or family arrangement is based on the assumption that there is an antecedent title of some sort in the parties and the agreement acknowledges and defines what that title is, each party relinquishing all claims to property other than that falling to his share and recognizing the right of the others, as they had previously asserted it, to the portions allotted to them respectively. That explains why no conveyance is required in these cases to pass the title from the one in whom it resides to the person receiving it under the family arrangement. It is assumed that the title claimed by the person receiving the property under the arrangement had always resided in him or her so far as the property falling to his or her share is concerned and therefore no conveyance is necessary.”
This observation simply means that the parties to the arrangement had an antecedent title of some sort and that the agreement clinches and defines what that title is.
Mutuality of agreement is essential
A family agreement is essentially a mutual agreement. There must be mutuality in the agreement arrived at between the parties. Then the agreement must be binding on them. Family arrangement, in fact, is governed by the principles that apply to family members but not to strangers. All the parties of a settlement must be relatives or must have some sort of interest in the property to be distributed among them.
Actual dispute not essential
An actual family dispute is not an essential prerequisite for entering into a family arrangement but an apprehension of a dispute is good enough. The intention to preserve family peace and property is a genuine ground for preferring a family settlement. It is an earnest effort to solve an imminent dispute that may crop up later.
Settlement may take the shape of a gift
Family settlement may take the shape of a gift in favour of the claimants to the property or the parties to the agreement. It is just a settlement of claims and disputes. But it is not a gift in the real sense of the term.
The distinction between a gift and a settlement is stated in Deputy Collector v Shahul Hameed and another (1991(1) KLJ 530). Many settlement deeds may be gift deed but all the gift deeds not necessarily be settlement. Some documents may satisfy the requirements of both gift and settlement. When a transfer of property is required as a consequence of family settlment, a separate transfer document will also have to be drawn out to actually put the transfer into effect.
Family settlement is not a transfer of property
A family settlement is not a transfer of property. It is an arrangement of division of a specific property among members of the family based on a settlement where the members derive no new benefit except specific assignment of their already owned common property.
A family settlement deed cannot be used to transfer a property to a person who has no interest or share in the property. In such a case sale deed is the only mechanism to transfer the property.
However, a non-relative can also be included in the family settlement if the person is closely associated with the family in some ways.
Father can represent his minor children
In a family settlement a father can represent his minor children. If a father in a joint family enters into a settlement in good faith on behalf of a minor, the minor member of the family cannot disturb it later on the ground of inequity of the benefit unless there is some obvious fraud or such other ground.
The principle that governs such an issue is that the minor is properly represented by the father and therefore he was a deemed party to the compromise.
Why family settlement is an ideal option?
Dispute over common family property is quite a usual when there is a need to divide the common property. The unhappy beneficiary may challenge the negotiated settlement and take the matter to the court. The court proceeding is expensive and time consuming. Al least one third of the civil disputes in the court is related to immovable property. Therefore, an easy option to solve the dispute and divide the property is to opt for a family settlement.
The Supreme Court (SC) favours family arrangement that brings harmony and peace and avoids future disputes. The court, in Ramcharandas v Girjanandinidevi (AIR 1966 SC 323), held as follows: –
“Such family settlement between the members of the family bonafide to put an end to the dispute amongst themselves is not a transfer. It is also not a creation of an interest. In a family settlement, each party takes a share in the property by virtue of independent title which is admitted to that extent by the other parties. Every party who takes benefit under it need not necessarily be shown to have under the law claim to share in property. All that is necessary to show is that the parties are related to each other in some way and have a possible claim to the property or a claim or even a semblance of a claim on some other ground as, say, affection”.
In family settlement, the word family is to be understood in a wider sense but not restricted to those who have a claim on a share in the property in question.
Family arrangement can be arrived at orally
Family arrangement can be arrived at even orally. Its terms can be recorded in writing as a memorandum of what has been settled among the parties.
Such a memorandum is nothing but the minutes of what has already been agreed to by the parties. The memorandum thus drawn up does not create or extinguish any right to immovable property of its own.
In Tek Bahadur Bhujil v Debi Singh Bhujil and Ors (AIR 1966 SC 292), the SC holds:
“Family arrangement as such can be arrived at orally. Its terms may be recorded in writing as a memorandum of what had been agreed upon between the parties. The memorandum need not be prepared for the purpose of being used as a document on which future title of the parties be founded. It is usually prepared as a record of what had been agreed upon so that there be no hazy notions about it in future. It is only when the parties reduce the family arrangement in writing with the purpose of using that writing as proof of what they had arranged and, where the arrangement is brought about by the document as such, that the document would require registration as it is then that it would be a document of title declaring for future what rights in what properties the parties possess“.
Oral family settlement needs no registration
A family settlement made orally and acted upon based on the oral settlement in the past but recorded subsequently in the form of a Memorandum, needs no registration. In such a case, the memorandum of family settlement prepared on the basis of previous oral settlement which has already been acted upon, does not require compulsory registration under the Registration Act. Such an unregistered family settlement deed is admissible in evidence, as well (Munna Lal (Dead) By Lrs. And Ors. vs Suraj Bhan And Ors :AIR 1975 SC 1119).
There is a distinction between a document of family settlement containing the terms and recitals of a family arrangement and a mere memorandum prepared after the family arrangement had already been made either for the purpose of having a record of such division or for passing on information to the court or for making necessary mutation. In the former case, the document creates some rights to the parties involved, whereas in the latter case, the memorandum itself does not create or extinguish any rights in immovable properties. Therefore, such a memorandum in the latter case needs no compulsory registration under Section 17(2) of the Registration Act.
Oral settlement needs appropriate evidence
When a family settlement is oral it must be proved by oral evidence. If a party pleads that a family settlement is oral in form, it may be believed on the strength of circumstantial evidence adduced orally by persons who have some acquaintance with the matter.
Registration needed only when a deed creates rights
Registration is needed only when a document creates some rights. When any document of settlement which creates or extinguishes some rights or even enlarge or limit it, it cannot escape the process registration as per Section 17 of the Registration Act, 1908.
When a family settlement is oral it requires no registration. Making a memorandum of an already made family arrangement for future use also does not require registration. But when the parties reduce the settlement, which practically declares their title, into a written document at the time of the settlement itself, such a document requires registration.
A document purported to be a deed incorporating the exact terms of the arrangement for division of property needs to be registered. But a subsequently prepared memorandum, which has been made as a record of recitals of an already made and consequently acted upon oral family arrangement, for the purpose of mutation is a mere declaration of a pre-existing right, title or interest (See Kale and others v Deputy Director of Consolidation and others: (1976) 3 SCC 119).
Deed for transferring a property needs registration
When there is a settlement of surrender and conveyance of rights in property, then it is a transfer of property. Such a deed of family settlement requires registration.
In deciding the nature of the document, the court must read the document as a whole to find out its substantive purpose. The nomenclature given to the document is not the decisive factor in deciding the nature of a document. When a person with absolute title transfers his title to some others in an arrangement then the deed is for transfer of property. Then the deed must normally be registered. But if the parties set up competing titles and settling the differences through compromise as part of a family settlement, then no one is deriving any title from the other. Then the memorandum of such an arrangement does not require registration as no fresh interest is created or declared by the document.
Cancellation of family settlement
The right of the executor to cancel the family settlement deed would depend on the conditions specified in the document. A conditional settlement is permissible. Among the terms and conditions in a settlement deed, some restraints in the use of the property can also be included.
SC reaffirms its settled position on family settlment
The Supreme Court (SC), in its judgment in Ravinder Kaur Grewal v Manjit Kaur decided on 31st July 2020, says the settled legal position is that when by virtue of a family settlement or arrangement, members of a family descending from a common ancestor or a near relation seek to sink their differences and disputes, settle and resolve their conflicting claims or disputed titles once and for all in order to buy peace of mind and bring about complete harmony and goodwill in the family, such arrangement ought to be governed by a special equity peculiar to them and would be enforced if honestly made.
The courts are in favour of upholding a family arrangement instead of disturbing it on technical or trivial grounds.
Essential contours of a family settlement
The essential ingredients of a family settlement as observed in Kale & Ors v Deputy Director of Consolidation & Ors [(1976) 3 SCC 119], are as follows:
- The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family;
- The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence;
- The family arrangement may be even oral in which case no registration is necessary;
- It is well settled that registration would be necessary only if the terms of the family arrangement are reduced into writing.
- The members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property which is acknowledged by the parties to the settlement. Even if one of the parties to the settlement has no title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed and the family arrangement will be upheld and the courts will find no difficulty in giving assent to the same;
- Even if bona fide disputes, present or possible, which may not involve legal claims, are settled by a bona fide family arrangement which is fair and equitable the family arrangement is final and binding on the parties to the settlement.
The SC has also stated that a family arrangement binding on the parties, clearly operates as an estoppel, so as to preclude any of the parties who have taken advantage under the agreement from revoking or challenging it.
Conclusion
In essence, the family settlement must be a bona fide agreement or arrangement so as to resolve family disputes and rival claims by a fair and equitable division of properties among the members of the family. If bona fide claims of all the parties are settled by fair and equitable family arrangement the settlement is final and binding on them.
Family settlement is definitely a pocket friendly and time saving solution for devolution of property.
A simple Draft Deed of a Family Settlement
This Deed of Family Settlement is made at —– — on this….. day of ….. 2020 by Mr——and Mr ——– (hereinafter called the ‘First Party’ & the ‘Second Party’ respectively).
The expression First Party and Second Party shall mean and include their legal heirs, legal representatives, successors administrators, assigns, nominees etc.
WHEREAS the above said parties are the absolute joint owners and in possession of the property described in the Schedule & Site Plan annexed hereto;
AND WHEREAS the first party and the second party are the legal heirs/sons of the Late Sh……….. who died intestate and owned the schedule property;
AND WHEREAS the above-mentioned parties have agreed by mutual consent without any pressure/coercion to partition/divide the above-mentioned property by metes & bounds through this deed of family settlement by amicably settling all the claims and counter claims among them and in pursuance of the said amicable settlement all the above-mentioned parties have agreed to the following terms and conditions: –
NOW THIS DEED OF FAMILY SETTLEMENT WITNESSETH AS UNDER: –
- That all the above-mentioned property of which the above-mentioned parties are the joint owners till date is shown in the Schedule & Site Plan annexed to this Deed of Family Settlement.
a} That the above mentioned First Party shall hereinafter be the absolute owner of the portion of the property shown in Yellow Colour, shown as Mark”A” in the said site plan.
- b) That the above mentioned Second Party shall hereinafter be the absolute owner of the portion of the property shown in Green colour, shown as Mark “B” in the said site plan.
- That the above said parties have taken physical possession of their respective divided shares of the above said property on the spot as shown in the site plan.
- That hereafter the above-mentioned parties shall be the absolute owners of the above said portions of the above said property accordingly.
- That all the above said parties are entitled to mutate their respective share/portions in the said property accordingly in their respective names in the records of the Revenue Department/any other authority.
- That the above said parties hereby assure each other that the above said property is free from all the sorts of encumbrances, disputes and the parties obtained clear title in respect of their share/portions of the said property as mentioned above.
- That any correspondence, letters, documents etc. which may be found inconsistent and contrary to the contents of this document shall be deemed null and void. And this Deed of family settlement is irrevocable & cannot be challenged on any ground whatsoever.
IN WITNESS WHEREOF the above-mentioned parties have executed this deed of family settlement on the day, month and year first above mentioned at ………
The value of the property hereby settled is Rs………………………… (Rupees in words)
SCHEDULE & SITE PLAN
(Set out the particulars)
PLACE: –
DATE: –
FIRST PARTY………………
Witnesses: – 1……… 2………..
SECOND PARTY
Witnesses: – 1…………. 2……….
Additional Reading
- Kale & Ors v Deputy Director of Consolidation & Ors [(1976) 3 SCC 119], available at https://indiankanoon.org/doc/1412888/
- Ravinder Kaur Grewal v Manjit Kaur decided by SC on 31 July, 2020, available at https://indiankanoon.org/doc/132984268/
