FAMILY SETTLEMENTS: OPENING UP NEW VISTAS

As families grow, new generations join the business, new lines of thinking emerge and disputes originate between family members regarding assets, properties, businesses, etc. Finally, these lead to a family settlement. Such a family arrangement is one of the oldest alternative dispute resolution mechanisms. The scope of a family arrangement is extremely wide and is recognised even in ancient English Law. This is because the world over, courts lean in favour of peace and amity within the family rather than on disputes. In the last 60 years or so, a good part of the law in India relating to family settlements is well settled through numerous court decisions. In recent years, both the Supreme Court and the High Courts have delivered some important judgments on this very vital issue. The key tenets from these decisions have been culled out and analysed in this month’s feature.

PRINCIPLES SETTLED SO FAR

From an analysis of the earlier judgments, such as Maturi Pullaiah vs. Maturi Narasimham, AIR 1966 SC 1836; Sahu Madho Das vs. Mukand Ram, AIR 1955 SC 481; Kale vs. Dy. Director of Consolidation, (1976) AIR SC 807; Hiran Bibi vs. Sohan Bibi, AIR 1914 PC 44; Hari Shankar Singhania vs. Gaur Hari Singhania, (2006) 4 SCC 658, etc., the settled principles that have emerged are summarised below:

(a) A family arrangement is an agreement between members of the same family intended to be generally and reasonably for the benefit of the family either by compromising doubtful or disputed rights, or by preserving the family property, or the peace and security of the family by avoiding litigation and saving its honour.

(b) An oral family settlement involving immovable property needs no registration. Registration (where immovable property is involved) is necessary only if the terms of the family arrangement are reduced to writing. Here, a distinction should be made between a document containing the terms and recitals of a family arrangement made under the document and a mere memorandum prepared after the family arrangement has already been made either for the purpose of the record, or for information of the court for making necessary mutation. In such a case the memorandum itself does not create or extinguish any rights in immovable properties and it is, therefore, not compulsory to register it.

(c) 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 recognising 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 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.

(d) By virtue of a family settlement or arrangement, the 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.

(e) A family settlement is different from an HUF partition. While an HUF partition must involve a joint Hindu family which has been partitioned in accordance with the Hindu Law, a family arrangement is a dispute resolution mechanism involving personal property of the members of a family who are parties to the arrangement. A partition does not require the existence of disputes which is the substratum for a valid family arrangement. An HUF partition must always be a full partition unlike in a family settlement.
    
DOCUMENT WHICH BRINGS ABOUT A FAMILY SETTLEMENT MUST BE REGISTERED AND STAMPED

The decision in the case of Sita Ram Bhama vs. Ramvatar Bhama, (2018) 15 SCC 130 is different from the scores of decisions which have held that family settlements do not require registration. However, this difference is on account of the facts of this case. Here, a father agreed to divide his self-acquired properties between his two sons. He died without doing so and also did not make a Will. Consequently, the two brothers, their two sisters and mother all became entitled to the properties under the Hindu Succession Act. The brothers executed a document titled ‘Memorandum of Family Settlement’ dividing the properties between the two of them as per their late father’s wishes. This document was also signed by their sisters and mother. The question was whether the instrument was to be registered or whether stamp duty was to be paid on the same? Distinguishing (on facts), the catena of decisions on the issue, the Supreme Court held that the document was to be registered and duly stamped. This was because it was not a memorandum of family settlement. The properties in question were the self-acquired properties of the father in which all his legal heirs had a right. The instrument took away the rights of the sisters and the mothers. It was a relinquishment of rights by them in favour of the brothers. It did not merely record the pre-existing rights of the brothers. Hence, it was held that the properties could not be transferred on the basis of such an instrument.

When on this subject, one must also consider the three-judge bench decision in the case of Vineeta Sharma vs. Rakesh Sharma, CA 32601/2018, order dated 11th August, 2020. Though not directly on the issue, it is equally relevant. It held that a daughter would not have a coparcenary right in her father’s HUF which was partitioned before 20th December, 2004. For this purpose, the partition should be by way of a registered partition deed / a partition brought about by a Court Decree. The Supreme Court held that the requirement of a registered deed was mandatory. The intent of the provisions was not to jeopardise the interest of the daughter but to take care of sham or frivolous transactions set up in defence unjustly to deprive the daughter of her right as coparcener. In view of the clear provisions of section 6(5), the intent of the Legislature was clear and a plea of oral partition was not to be readily accepted. However, in exceptional cases where the plea of oral partition was supported by public documents and partition was finally evinced in the same manner as if it had been effected by a decree of a Court, it may be accepted. A plea of partition based on oral evidence alone could not be accepted and had to be rejected outright.

Another relevant decision is that of the Delhi High Court in the case of Tripta Kaushik vs. Sub-Registrar, Delhi, WP(C) 9139/2019, order dated 20th May, 2020. In that case, a Hindu male died intestate and his wife and son inherited his property. The son renounced his share in favour of his mother by executing an instrument. The issue was one of stamp duty on such instrument. It was contended that the son had inherited half share in the property on the death of his father under the Will left by his father and, therefore, the Relinquishment Deed be considered as a family settlement not chargeable to Stamp Duty. It was held that the Relinquishment Deed did not make any reference to the Will of the late father of the petitioner, or to any purported family settlement. Accordingly, it was held that the instrument was a Release Deed liable to stamp duty and registration.

MEMORANDUM OF FAMILY SETTLEMENT NEEDS NO REGISTRATION

As opposed to the above case, the decision of the Supreme Court in Ravinder Kaur Grewal vs. Manjit Kaur, CA 7764/2014, order dated 31st July, 2020 is diametrically opposite. In this case, a family settlement was executed in relation to a dispute between three brothers and their families. There was a specific recital in the memorandum that the appellant was accepted as the owner in possession of the suit property. He had constructed 16 shops and service stations on the same. In other words, it proved that he was being considered as the owner in possession of the suit property. Prior to execution of the memorandum on that day the family compromised not to raise any dispute regarding his ownership. Accordingly, the Court held that the document in question was a writing with regard to a fact which was already being considered and admitted by the parties. Hence, it could not be said that the document itself created rights in immovable property for the first time. Further, the parties to the document were closely related and hence the instrument did not require any registration. It was only a memorandum of family settlement and not a document containing the terms and recitals of a family settlement. Accordingly, the Court concluded that the document was valid and all parties were bound to act in accordance with the same. This decision reiterates the principle laid down by the Supreme Court in Kale’s case (Supra). Further, the case held that once the memorandum is acted upon, the same is binding upon the parties even though it is unregistered.

VALIDITY OF UNSTAMPED, UNREGISTERED DOCUMENT FOR OTHER PURPOSES

In the above case of Sita Ram (Supra), the Supreme Court also examined whether such an instrument which was required to be registered and stamped could be used for any collateral purpose. It held that it was not possible to admit such an instrument even for any collateral purpose till such time as the defect in the instrument was cured. It relied on Yellapu Uma Maheswari and another vs. Buddha Jagadheeswararao and others, (2015) 16 SCC 787 for this purpose. The documents could be looked into for collateral purpose provided the parties paid the stamp duty together with penalty and got the document impounded.

However, the Supreme Court in the recent case of Thulasidhara vs. Narayanappa, (2019) 6 SCC 409 and also in the earlier case of Subraya M.N. vs. Vittala M.N. and Others, (2016) 8 SCC 705 has held that even without registration, a written document of family settlement / family arrangement can be used as corroborative evidence as explaining the arrangement made thereunder and the conduct of the parties.

PARTIES WITH WHOM A HINDU WOMAN CAN ENTER INTO A FAMILY SETTLEMENT

The decision in Khushi Ram vs. Nawal Singh, CA 5167/2010, order dated 22nd February, 2021 is a landmark decision. It has examined the scope of the term family when it comes to a Hindu woman. The issue here was whether a married woman could execute a valid family settlement with the heirs from her father’s side. The woman had executed a memorandum of family settlement with the sons of her late brother, i.e., her nephews. The Court referred to an old three-judge bench decision in Ram Charan Das vs. Girjanandini Devi, 1965 (3) SCR 841 which had analysed the concept of family with regard to which a family settlement could be entered. It was held that every party taking benefit under a family settlement must be related to one another in some way and have a possible claim to the property, or a claim, or even a semblance of a claim. In Kale’s case (Supra) it was held that ‘family’ has to be understood in a wider sense so as to include within its fold not only close relations or legal heirs, but even those persons who may have some sort of antecedent title. In the Kale case, a settlement between a person and the two sisters of his mother was upheld.

The Court looked at the heirs who could succeed to Hindu women. It held that the heirs of the father are covered in the heirs who could succeed. When the heirs of the father of a woman were included as persons who can possibly succeed, it could not be held that they were strangers and not members of the family qua the woman. Hence, the settlement between the aunt and her nephews was upheld.

This decision, along with the vital three-judge bench decision in the case of Vineeta Sharma vs. Rakesh Sharma, CA 32601/2018, order dated 11th August, 2020, has upheld the rights of Hindu daughters in their father’s family. While this case reiterates her right to enter into settlements with the heirs from her father’s side, the latter decision has explicitly laid down that a Hindu daughter, whenever born, has a right as a coparcener in her father’s HUF.

As an aside, a settlement from an aunt in favour of her nephews is covered by the exemption for relatives u/s 56(2)(x) of the Income-tax Act but a reverse case is not covered since a nephew is not a relative for an aunt. In such a case, reliance would have to be placed on the family settlement itself to show that the receipt of property is not without adequate consideration.

BENAMI LAW AND FAMILY ARRANGEMENTS

In the case of Narendra Prasad Singh vs. Ram Ashish Singh, SA No. 229/2002, order dated 4th July, 2018, the Patna High Court was faced with the question whether a property purchased in the name of one family member out of joint family funds would be hit by the provisions of the Benami Transaction (Prohibition) Act, 1988. The Court held that this proposition could not at all be accepted since acquisition of the land in the name of a member of a family from the joint family property was not regarded as a benami transaction within the meaning of section 2 of that Act. A benami transaction had been defined u/s 2(a) of the Act as any transaction in which property is transferred to one person and a consideration is paid or provided by another person. In the present case, the consideration had been found to have been provided by the joint family fund which could not be treated as the fund of another person. In any event, the owner claimed his title purely on the basis of a family arrangement and not as a benamidar and, therefore, the case was not said to be hit by the Act.

In this respect it should be noted that the Act requires that the property should be purchased out of ‘known sources of funds’. Earlier, the Bill contained the words ‘known sources of income’ which were replaced with the present wordings. The Finance Minister explained the reason for this change as follows:

‘…. The earlier phrase was that you have purchased this property so you must show money out of your known sources of income. So, the income had to be personal. Members of the Standing Committee felt that the family can contribute to it, ……which is not your income. Therefore, the word “income” has been deleted and now the word is only “known sources”. So, if a brother or sister or a son contributed to this, this itself would not make it benami, because we know that is how the structure of the family itself is….’

CAN MUSLIMS ENTER INTO A FAMILY SETTLEMENT?

This issue was dealt with by the Karnataka High Court in Smt. Chamanbi and Others vs. Batulabi and Others, RSA No. 100004/2015, order dated 15th March, 2018. An oral family settlement was executed between a Muslim family and pursuant to the same a Memorandum of Family Settlement was executed for mutation of rights in the land records. The plea was that the document was unenforceable since Muslims could not execute a family settlement. The Court held that it was true that there was no joint family under Mohammedan Law but family arrangement was not prohibited. The Court referred to the Supreme Court’s decision in Shehammal vs. Hasan Khani Rawther, (2011) 9 SCC 223 which had held that a family arrangement would necessarily mean a decision arrived at jointly by the members of a family. Accordingly, the memorandum was upheld.

CONCLUSION

From the above discussion it would be obvious that our present laws relating to family settlement, be it stamp duty, registration, income-tax, etc., are woefully inadequate. Rather than making possible a family settlement, they do all they can to hamper it! India is a land of joint families and family-owned assets and yet we have to run to the courts every time a family settlement is to be acted upon. Consider the precious time and money lost in litigations on this count. It is high time amendments are made to various laws to facilitate family settlements.