Memorandum of Family Settlement: A nostrum against property disputes between Indian families

Introduction:

“Family above all” is a popular notion, still the Indian Judiciary has been habitual to being presented with cases of family disputes regarding division of properties. Often relationships between members of a family, especially in case of a joint family, becomes complicated. As a result of which, they pursue to reside or exert ownership in a more separate and independent sense, yet maintaining a cordial bond. Taking such sensitive matters before the court may create an extremely hostile situation between the blood relations, thus shattering their association forever.

The concept of ‘Memorandum of Family Settlements’(MOFS)  acts as an instrument which enables the family members to mutually decide and record the terms of distribution of the property amongst themselves, while preserving harmony and at the same time avoiding strenuous litigation process

Concept of Memorandum of Family Settlements.

Irrespective of the fact that, ‘Family Settlements’ have not been defined under any Indian statute, the courts nonetheless recognises and upholds its validity. In simple terms, family settlements can be described as transaction between members of the same family for their mutual benefit, so as to maintain and preserve the property, peace and security, thus avoiding any future discourses and court cases and ultimately saving the honour of the family. Similarly, a MOFS refers to a written document which states the arrangement between family members and acts as a record of the mutual agreement regarding the terms of the division of property.

Difference between Memorandum of Family Settlement and Partition Deed.

Under a situation, where one of the co-owner of a jointly held property seeks to obtain his/her undivided share in the property, the need for partition arises. Such partition can be achieved either by way of a Deed of Partition, whereby the co-owners mutually consent to the partition, or in the case where they failed to arrive at a mutual consensus, partition can be instituted through the court process i.e. by filling a suit of partition.

It is a common misconception of most individuals to consider the MOFS and Partition Deed as one and the same thing, however both of these documents have a difference between them. Under a Partnership Deed, the terms of the document focuses on creating, assigning, limiting or extinguishing the rights or title in a property, as a result of which the same shall be compulsorily registered. However, a Memorandum records the terms of family arrangement that were already orally decided and agreed between the family members i.e. recording past transaction of division/ partition of property, thus rendering the same as not mandatory with subject to registration.

Nevertheless, it is pertinent to mention that if the Memorandum aims to alter any rights or title to the property, then registration shall be compulsory. 

Essential Conditions of a Valid Memorandum of Family Settlement

• Intention to resolve

This condition was laid down in the case of Kale v. Deputy Director of Consolidation according to which there should be a family dispute or rival claims which requires to be settled by an equitable division or allotment of property between the claimants who are necessarily family members belonging to the same family. The consideration for entering into family arrangement should be preservation of family property, peace & honour and avoidance of litigation.

• Free Consent

Under Kale v. Deputy Director of Consolidation , the Supreme Court also laid down the imperative perquisite that such settlement must be bona-fide, honest, voluntary and it should not be induced by fraud, coercion or under undue influence.

• Existing Antecedent title

In the case of Sahu Madho Das and ors. v. Pandit Mukand Ram and anr. , the court stated that the parties to the family arrangement must have antecedent title, claim or interest. Even a possible claim in the property which is acknowledged by the parties to the settlement shall prove to be sufficient for the same

Judicial Perspective:

With regard to Family settlements and MOFS, a number of judgements, including that of the apex court have uphold the validity of the same. The principle rulings and opinions of the judiciary is as follows:

• Minimization of Judicial interference

In the case of S. Shanmugam Pillai and ors. v. K. Shanmugam Pillai and ors., the courts have leaned strongly in favour of a family arrangements that bring about harmony, by way of amicable settlement of any property dispute arising between the close relations. Further, the court shall be reluctant to disturb any peaceful settlement that may arise through mutual consensus of the parties involved.

• Duty to uphold

The court in its judgement of Khunni Lal and ors. v. Kunwar Gobind Krishna Narain and anr  ruled that if the true character of the transaction appears to the courts to be a settlement between the several members of the family of their disputes with each one relinquishing all claim in respect of all property in dispute other than that falling to his share, and recognizing the right of the others as they had previously asserted it to the portion allotted to them respectively, the court will effectuate it as a family settlement. It will confer a new distinct title on each other, that the parties themselves seem to have regarded in the arrangement, and it shall be held that it is the duty of the courts to uphold and give full effect to such an arrangement.

• Validity of an Oral Settlement

In the case of Tek Bahadur Bhujil v. Debi Singh Bhujil, the bench while upholding oral family arrangement, held that registration would be necessary only if the terms of the family arrangements are reduced into writing.

Similarly in Ramgopal v. Tulshi Ram the court had taken the view that a family arrangement could be oral and if it is followed by a petition in Court containing a reference to the arrangement and if the purpose was merely to inform the Court regarding the arrangement, no registration was necessary.

• Registration not mandatory

In the case of Maturi Pullaiah and anr. v. Maturi Narasimham and ors, the court held that the family arrangement will need registration only if it creates any interest in immovable property in present time in favour of the parties mentioned therein. In case where no such interest is created, the document would be valid, despite it being non-registered.

When a document materially alters legal rights of other heirs of the properties by way of creating new rights or extinguishing existing rights, it shall be compulsorily registrable under Section 17 of the Registration Act, 1908.  The Memorandum merely records the mutually agreed upon family arrangements for avoiding ambiguity and hence, it is fairly distinct from a document which modifies the terms and recitals of an arrangement. In such a case, the Memorandum would not fall within the ambit of Section 17 of the Registration Act, 1908 and thus shall be valid even in unregistered. The same view was reiterated by the court in Tek BahadurBhujil v. Debi Singh Bhujil.

• Binding upon parties

By taking reference from the existing judicial pronouncements, a document in the nature of a memorandum of an earlier family arrangement and presents a bona-fide settlement which is  fair & equitable shall be  final and is binding on the parties.

• Excludes any transfer of property

The Memorandum of Family Settlements only assigns the rights to the signatory family members and does not govern the transfer of property. In order to facilitate any transfers, a separate instrument demonstrating their intention to transfer such property shall be executed.

• Not Taxable

In the case of The Commissioner of Gift Tax (CGT) v. K N Madhusudan , the court observed that family arrangements shall not be considered as transfers under the scope of Section 45 of the Income Tax Act 1961. Family members under the scheme of arrangement have an anterior title to the property which is a subject matter of partition or a family arrangement. Thus, under family settlement there is an adjustment of shares, crystallization of respective rights in the family properties and therefore it cannot be construed as a transfer in under the Taxing statutes. Thus, as there is no transfer in the eyes of law, there is no capital gain and therefore no capital gain tax can be levied on such transfer.

Recent Developments

In the recent Supreme Court case of Ravinder Kaur Grewal & Ors. Vs Manjit Kaur & Ors  dated July 31, 2020,  a family settlement was arrived between closely related parties at with the intervention of respectable persons and family members, where under ownership and possession in respect of the land including constructions thereon was decided, accepted and acknowledged. Under the Settlement, the plaintiff was accepted and acknowledged to be the exclusive owner. The said memorandum was executed by all parties. However, after execution of the memorandum of family settlement, new issues were raised by few parties from the existing family arrangement.

Both parties then filed a plea in the court claiming that they were the owner of the property according to the terms of the Memorandum of Settlement. The first Appellate court (District court) in its judgment declared the original plaintiff as owner of the suit land along with constructions. However, in a second appeal filled by the defendant, the High Court of Punjab and Haryana reversed the decree of the Appellate court stating that registration shall be mandatory for a document that creates a right in favour of the plaintiff for an immovable property in which he had no pre-existing rights. Aggrieved by this judgment of the High Court, the petitioner approached the Supreme Court. 

The main question of law which arose was as to whether the Memorandum of Family Settlement was required to be registered as interest in immovable property worth   more   than   Rs.100/­   was   transferred.

The Supreme Court in its observations concluded that the High Court did not deal with the factual aspects of the matter properly. The apex court further observed that between the parties, not only an univocal family arrangement had been established but also the same had been actively performed by them. In its ruling, the Supreme Court reiterated that a Memorandum of family settlement is just a recording of the terms of settlement between the parties which was previously agreed between them and in such a case, the registration of such document is not compulsory yet valid before the law as it in itself does not create or extinguish any right or title.

Conclusion:

The idea behind upholding the concept of Memorandum of Family Settlements is to promote an amicable arrangement between close relations seeking to resolve their conflicting claims and disputed titles in a harmonious manner, eliminating any bad blood which may arise due to the strenuous nature of litigation process, and thus mutually sustaining the honour of the family.

Regarding the question of registration of the Memorandum, the same shall depend upon the subject matter of the terms and recitals incorporated in the deed.  MOFS which records earlier agreed terms of oral partition between family members shall not be compulsorily registered and on the on the hand, if a MOFS alters/modifies any rights or titles of the parties, the registration of the same shall be mandatory.

_____________________________________________________________________________________

ABOUT THE AUTHOR

Snigdha Ganguly is an advocate enrolled under the Bar Council of Delhi. 

In Content Picture: Vakilno1.com

Kindly note that the views and opinions expressed are of the author and not of the Indian Journal of Law and Public Policy.