What a family settlement means
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 doubtful or disputed rights by its members. It is done with an intention to preserve not only the family property but also peace of the family.
Settlement means an action of reaching an agreement in a disputed issue, ending the arguments between contesting parties involved in the issue.
SC recognises family settlement
Courts always favour family arrangement which brings in not only peace and goodwill of the family members but also preserves the family property in tact as well. In family settlement each party relinquishes all claims to property other than that falling to his own share and recognises the rights of the other parties to the portion allotted to them.
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”.
The courts appreciate family settlement as its object is to settle existing or future disputes regarding the property amongst members of the family. 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 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 does not mean that some title must exist as a fact in the persons entering into a family arrangement. It 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 an agreement. It may take the shape of a gift in favour of the claimants to the property or the parties to the agreement. 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.
The family settlement deed is neither a gift nor a transfer document. It is just a settlement of claims and disputes. So a separate transfer document will also have to be drawn out to actually put the transfer into effect.
In order to make a family arrangement valid it is essential that 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 are applicable to family members but not those applicable to strangers. All the parties of a settlement must be relatives and 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.
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.
Family arrangement can be arrived at orally
Family arrangement can be arrived at even orally. Its term can be recorded in writing as a memorandum of what has been settled. Such a document is nothing but the minutes of what has already been agreed to between the parties. The document 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”.
In such a case the document does not require compulsory registration under the Registration Act. Such an unregistered document is admissible in evidence (AIR 1975 SC 1119).
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 by persons who have some acquaintance with the matter.
Registration needed when a deed creates rights
However when any document of settlement which creates or extinguishes the right 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 oral settlement, which practically declares their title, into a document for future use it requires registration.
A document purported to be a deed incorporating the exact terms of the arrangement for division of property needs to be registered. That means if there is an antecedent title of some sort in the parties and the deed of family settlement acknowledges and defines the title of each of them, the settlement need not be reduced to writing. Even if it is made into a document it need not be registered. A document made as a record of recitals of an already made 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
If there is a settlement of surrender and conveyance of rights in property, then it is a transfer of property. Such a deed requires registration. Registration is required only when there is actual declaration or transfer of title of a property to another person.
The court must read the document as a whole in its right spirit to discern its substantive purpose to arrive at a conclusion as to what kind of document it is. It is a well settled fact that the nomenclature given to the document is not the decisive factor in deciding the nature of a document. The court must arrive at a conclusion by examining the nature and substance of the transaction based on the recitals contained in that document.
In short, 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 the differences are solved by the compromise then no one is deriving title from the other. Then the deed of such an arrangement does not require registration as no interest is created or declared by the document.
Partition and family settlement differ
A deed purporting to be a deed of partition among the members of the family to settle the disputes is a deed of family arrangement. It cannot be treated a deed of partition per se.
Even a partition is not a transfer of property. It is only a surrender of a portion of a joint right in exchange of a similar right (see Mohan Singh v Davi Charan and others: 1988 (3) SCC 63 ).
But a document that declares the partition by mets and bounds between two brothers along with necessary maps drawn to scale requires registration for being admissible in evidence. Such one is more or less a partition deed.
Model of a family settlement deed
A family arrangement can be drawn up in the manner provided below:-
Out of our family property at present and future, the first party and his representatives shall take two shares and the second party will take three shares. We, the both parties, agree to the property according to the above mentioned proportion of shares and till such time the family shall continue to be joint subject to other conditions stipulated herein.
Such a document does not bring about a division by mets and bounds between the parties. It does not affect the interest of the parties in immoveable properties at present. In such a family agreement the terms relating to shares will come into effect only in a future date. So the document requires no registration.
A family settlement essentially is a record of pre-existing rights which may operate in future. The settlement deed acting as a mode of transfer of property is unknown to law. It must just be a settlement of rights of the concerned parties.
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 between the members of the family.
The deed should accommodate fair rights of each member. A family arrangement which is unfair, founded on false or misrepresented facts cannot bind upon the parties. 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.