Primacy of family settlements upheld

Family settlements and ensuing documentation have been a subject matter of litigation for various reasons. One such litigious issue is whether the documents pertaining to family settlements are required to be registered under the Registration Act, 1908 (“Act”). If a document, which was otherwise required to be compulsorily registered, has not been registered, then as per Section 49 of the Act, such document would not affect any immovable property comprised therein, or confer any power to adopt, or be received as an admissible evidence of any transaction recorded in the document. The consequential issue that has evolved is whether the documents recording family arrangements are required to be registered. Recently, the Supreme Court (“SC”), in the case of Ravinder Kaur Grewal & Others. v. Manjit Kaur & Ors.,[1] has held that a memorandum of family settlement, which merely records the terms of a family settlement already acted upon by the concerned parties, is not required to be registered.

Factual background

The dispute in the present case arose within the members of a joint family with respect to a land (“Disputed Land”). In 1970, soon after the purchase of the said Disputed Land, discord arose between Harbans Singh[2] (“Appellant”) and his brothers Mohan Singh and Sohan Singh (collectively referred to as “Defendants”)[3] with regard to the ownership of the Disputed Land. Pursuant to the dispute, a family settlement was arrived at, wherein it was agreed that the Appellant would be the owner of the Disputed Land and the constructions thereon, and the Defendants would continue to exist in the revenue record as owners to the extent of half of the share of the Disputed Land. The Appellant constructed around 16 shops and a samadhi for his wife on the Disputed Land. Similarly, both the Defendants were given some properties that were registered in the name of the Appellant and his immediate family members. However, subsequently disputes arose, wherein the Defendants claimed ownership of the portion of the Disputed Land where the Appellant was accepted as the owner in the family settlement. As a result, a memorandum of family settlement (“MOU”) was executed by the parties on March 10, 1988, to record the above discussed terms, already settled between the parties in the family settlement. After the execution of MOU, the Defendants again raised new issues to resile from the family arrangement, pursuant to which the Appellant filed a suit before the Trial Court praying for a decree that he was the owner of the Disputed Land.

The Trial Court vide its judgment dated January 19, 2000, granted partial relief to the Appellant, and declared him to be the owner of a portion of the Disputed Land. On first appeal to the District Judge by the Appellant, the District Judge ruled entirely in favor of the Appellant and declared him as the owner of the Disputed Land and the constructions thereon. Thereafter, the Defendants filed an appeal before the Punjab and Haryana High Court (“HC”). The HC allowed the appeal of the Defendants and restored the order of the Trial Court. The HC held that the MOU, which created rights in favor of the Appellant in the Disputed Land in which he had no pre-existing right, was required to be registered. The Appellant appealed against the order of the HC before the SC. The substantial question of law that arose before the SC was whether the MOU, which recorded the terms of the family settlement, was required to be registered under the laws in force?

Before the SC, the primary argument of the Appellant was that the MOU, executed in 1988, merely recorded the terms of the family settlement, which was agreed upon in 1970. The Appellant pleaded that as the parties to the family arrangement had already acted on the terms agreed in 1970, the MOU did not create any new rights and it was not necessary to be registered. However, the Defendants challenged the evidentiary value of the unregistered family settlement and the MOU, which merely contained terms and recitals of a family arrangement.

Decision

The SC referred to the facts recorded by the District Judge during first appeal and observed that there was a family arrangement, which was also acted upon by both the parties. The SC agreed with the decision of the District Judge that the family settlement could not be considered as a mere document containing terms and recitals of a family arrangement, but was, in fact, a memorandum of family settlement, which recorded the terms of the family arrangement. Accordingly, the SC held that such MOU was not required to be registered. The SC also held that as the Defendants had benefitted from the family settlement, they were estopped from resiling from the said arrangement.

Analysis

The SC, in the landmark case of Kale and Ors. v. Deputy Director of Consolidation and Ors.[4], had set out the essentials of a family arrangement, which included, inter alia, that oral family arrangements were not required to be registered. With respect to written family arrangements, the SC distinguished between a document containing the terms and recitals of a family arrangement and a memorandum merely for recording or mutation purposes, and held that, while the former required registration, the latter did not. The present judgment reiterates the same principle. In a separate case, the SC has also ruled that irrespective of registration, a written document of family settlement/ arrangement can be used as a corroborative evidence to explain the arrangement and also the conduct of the parties.[5]

Often, in order to sink their disputes, members of a family seek to resolve their conflicting claims or disputed titles once and for all, through family settlements, in order to buy peace of mind and bring in complete harmony in the family. It is a settled principle that such settlements ought to be governed by a special equity peculiar to them, which should be enforced if honestly made. The decision of the SC, in the present case, reinforces this principle. By placing reliance on Kale & ors. [supra], the SC ensures that once the family members have agreed to certain terms and acted on them, they cannot approach the court to unsettle a settled dispute.

Historically, family settlements have served as useful tool for settling family disputes and estate planning. To ensure that such objectives are achieved and any litigation with regard to the validity of family settlements is avoided, it is imperative that family settlement arrangements are appropriately documented. A careful analysis of the terms and conditions of the arrangement is crucial to determine if the concerned document, pertaining to family arrangement, is required to be registered.


[1] Civil Appeal No. 7764 of 2014.

[2] Subsequently represented by his legal heir Ravinder Kaur.

[3] Subsequently represented by their legal heirs.

[4] AIR 1976 SC 807.

[5] Thulasidhara and Ors. v. Narayanappa and Ors., (2019) 6 SCC 409; and Subraya M.N. v. Vittala M.N. and Ors., AIR 2016 SC 3236.

This article was first published on our Private Client Practice blog here.

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Photo of S.R. Patnaik S.R. Patnaik

Head and Partner in the Tax Practice at the Delhi office of Cyril Amarchand Mangaldas. Mr. Patnaik specialises in various aspects of direct tax, such as international tax, transfer pricing, corporate tax etc. He can be reached at sr.patnaik@cyrilshroff.com

Photo of Akshara Shukla Akshara Shukla

Associate in the Tax Practice at the New Delhi office of Cyril Amarchand Mangaldas. Akshara specializes in providing advisory services on various aspects of direct tax viz. international taxation and corporate taxation. She can be reached at akshara.shukla@cyrilshroff.com

Photo of Nikhil Agarwal Nikhil Agarwal

Associate in the Tax Practice at the Delhi office of Cyril Amarchand Mangaldas. Nikhil specializes in various aspects of direct tax, such as international tax and corporate tax. He can be reached at nikhil.agarwal@cyrilshroff.com