A Family settlement is an accessible and amicable manner of settling a dispute without litigation within family members. The family members with the help of a third party, that is a litigator or a senior member of the family attempts to come to a peaceful settlement and divide the common property among themselves mutually to attain co-ownership of the said property. According to Halsbury’s Laws of England, an agreement between husband and wife, parent and child, legitimate or illegitimate, uncle and nephews or nieces, coheiresses and brothers have all been supported as family arrangements.[1]
The settlement is drafted similar to any other deed that may or may not be registered, further a family settlement may not even be reduced to writing and may just be an oral agreement among family members. The key essentials of a family settlement constitutes that the settlement agreement shall contain all the elements of a valid contract; it shall be signed by all the family members who are party to the property dispute without coercion, fraud and with full consent and shall be attested by two witnesses. The family settlement in writing prior to The Ravinder Kaur Grewal judgement had to be registered under Section 17 of the Indian Registration Act for the deed to be valid.
By way of a family settlement in a property matter the parties are enabled to furnish an agreement among themselves without entering into a suit and also via an informal yet a legal alternative. The issue of binding nature and validity of a memorandum of family settlement has often been challenged before the Hon’ble High Court and Supreme Court. In the matter of Ravinder Kaur Grewal vs. Manjit Kaur (2020)[2] the supreme court relied on the landmark judgement Kale & ors. vs. Deputy Director of Consolidation (1976) [3] where the Hon’ble court rationed that memorandum of family settlement are binding and need not be registered. In the Kale judgement the court opined that registration of memorandum is not necessary and that all parties shall execute the terms of the agreement and such memorandum will not be set aside on mere technical grounds. The apex court further stated that “a distinction should be made between the document containing the terms and recitals of a family arrangement made under the document and a mere memorandum prepared after the family.” [4]
The role of such a settlement is to reach a mutual ground to attain a win-win scenario. Once a settlement is reached, such settlement can be executed via a series of documents composing the conditions of the settlement as well as the property rights of each member. It is imperative to specify that under the Income Tax Act,1961 transfer by way of family arrangement does not constitute as a gift or exchange, hence not liable to capital gains. The family arrangement can only under Section 118 of TP Act come under the purview of transfer of property, as Exchange of the property with mutual agreement. However, a memorandum of settlement has to be accompanied with a transfer document or a deed.
As a result, resolving of a property dispute by way of family settlement saves time and resources of the party and ensures equitable division of the disputed property as well as maintains goodwill among the related members.
[1] Para 309 of Halsbury’s Law of England
[2] Civil Appeal no. 7764 of 2014
[3] (1976)3 SCC 119
[4] Kale supra
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