All About Family Settlement Agreement In India

About 66 per cent of all cases that seek judicial intervention are property related disputes, revealed a study by a non-governmental organisation, Daksh. Another 10 per cent are related to family matters. Problems may arise owing to absence of a registered will or someone may be trying to challenge the will. Some also try amicably resolving issues through a family settlement agreement which shows how the family members have agreed upon the property’s distribution among the heirs or beneficiaries.

What is a family settlement agreement?

Some families may want to settle property related disputes out of court. To this effect, they may go in for a family settlement agreement which needs to be signed by all the members acknowledging that this agreement wasn’t made through fraudulent means, force and coercion from any family member. Not just property or immovable assets, shares, claims, family feuds, are also areas where a family settlement agreement is useful.

Format and requirements of a family settlement agreement

The agreement is similar to a partition deed and you can see an example here. The agreement must mention names of all the family members whose decision matters in this regard, details of ownership of the property and the specific terms of this distribution of the said property. It is recommended that you include all the details of the property with house number, area and even a site map if possible.

The members need to declare that they agree with each other and convene to the terms and conditions and that this agreement is a final word and would end the ongoing dispute within the family with respect to the property.

Those who sign the deed must also keep in mind that the settlement deed also has a legal force and all the parties agreeing to the terms and conditions need to abide by it. It would also be forwarded to the concerned authorities who will facilitate the transfer of property and distribution as per the terms and conditions laid out in the agreement. The parties are also bound to execute a No Objection Certificate and other documents with regard to the mutation of a property.

There are also other details that need to be mentioned such as payment of dues whether from the past or that which may arise in future. Previous owners usually do not need to bear these costs in future but this must be borne by the beneficiary/transferee and no claims can be raised at a later stage.

It is also advisable to seal this agreement with thumb impressions as well.

Does the family settlement agreement require registration?

A family settlement agreement can be orally conveyed or in a written format but documentation is recommended because it helps avoid any confusion.

As for registration and stamping, you need to determine whether it is required. For a collateral purpose, the agreement may be stamped and not registered. A settlement doesn’t require registration if it is oral. But for the written word to be considered legal, registration is a good option because it is accepted in a court of law.

Do note that if there are amendments to what has already been accepted, another document should be created but it need not be registered because it doesn’t fall under the purview of the Registration Act 1908 (Section 17 (2)).

Suppose your family settlement agreement is not registered, it can still act as an estoppel. Estoppel is that which prevents a person from asserting something that is contrary to what he/she had implied previously orally or in written. However, you will need to register an agreement if it causes change in legal rights of the family members. In the Tek Bahadur versus Debi Singh and Others case, the court had considered the validity of a family settlement deed. It upheld the validity of an oral family settlement and ruled that registration is required only when it is written. 

A family settlement agreement is useful given that it an amicable resolution among parties and does not take as much time as a court of law. Do note that transfer of property or assets under this agreement is not to be considered as a gift and is neither a transfer of right. Therefore, there is no question of capital gains tax. The Madras High Court ruled to this effect in the case of Commissioner of Income Tax vs AL Ramanathan in 1998.