All you need to know about Family settlement

Why family settlement is an ideal option?

The dispute over common family property is quite a usual thing occurring in every family. 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 are related to immovable property. Therefore an easy option to solve the dispute and divide the property is to opt for a family settlement.

What is a family settlement?

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 sold separately following the agreement. It settles the division or distribution of common property that the family members already own as common property. It can be used to dispose of even a self-acquired property in consideration of marriage or for any charitable or religious purpose. The parties involved in such a settlement or arrangement should be related to each other or having some interest in the property. Both moveable and immoveable property can be disposed of by family settlement.

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, a separate transfer document will have to be prepared in the form of a gift or sale deed.

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. A family settlement that intends to assign immoveable property requires registration. The stamp duty depending on the value of the property applies to such a document.

The oral family settlement needs no registration

Oral family settlement can also be made. It can later be reduced to writing in the form of a Memorandum subsequently. A family settlement made orally and acted upon based on the oral settlement but recorded later as a Memorandum need not be registered.

There is a distinction between a document 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 record or information of the court or for making necessary mutation.  In the former case, the document creates In the latter case the memorandum itself does not create or extinguish any rights in immovable properties and therefore does not fall within the mischief of Section 17(2) of the Registration Act and is, therefore, not compulsorily registrable.

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.

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 restraints can also be included.

Future property can be included in the settlement deed

Future property can also be included in the settlement deed. But the transfer of the property can only be enforced before the property comes into existence. However, when the property comes into existence it must be transferred.

The settled legal position regarding Family Settlement

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 under 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 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 object of such an arrangement is to protect the family from long drawn litigation which mars the unity and solidarity of the family and create hatred and bad blood between the various members of the family.

The courts have leaned in favor of upholding a family arrangement instead of disturbing it on technical or trivial grounds. Where the courts find that the family arrangement suffers from a legal lacuna or a formal defect, the rule of estoppel is pressed into service and is applied to shut out the plea of the person who is a party to family arrangement seeks to unsettle a settled dispute and claims to revoke the family arrangement under which he has himself enjoyed some material benefits.

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 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 maybe 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 favor 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 that 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, to preclude any of the parties who have taken advantage of the agreement from revoking or challenging it.

A draft Deed of 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 counterclaims 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

1. 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 color, shown as Mark "B" in the said site plan.

2. 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.

3. That hereafter the above-mentioned parties shall be the absolute owners of the above-said portions of the above-said property accordingly.

4. 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.

5. 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.

6. 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/