family Arrangements



When it comes to Division of Property amongst family members the law pertaining to Will and Family Partition is quite settled. But time and again we come across the term “family settlement”. Family settlement under the laws in India has not been extensively dealt with, neither is the same taught in most law schools. Under the circumstances, there is some confusion and ambiguity between lawyers as well as lawmen in understanding the term.


Black’s Law Dictionary defines a Family Settlement as “An informal agreement among family members usually to distribute property in a manner other than what the law provides for.”
As Per Halsbury’s Laws of England (3rd Ed. Vol 17) 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 or by saving its honour.


The preliminary object behind a Family Arrangement is to uphold and maintain the unity and harmony amongst the family members and to protect them from any current and future disputes internal conflicts which are the most common cause of marred family relations in the Country. It further aims to circumvent long drawn battles of litigation which families ultimately resort to for reaching a settlement. This unfortunately takes ages to resolve and further diminishes the scope for reconciliation.


The line of difference between a Partition and a Family Arrangement is essentially thin. While Partition is a formal and legal step taken towards division of family property followed by compulsory registration of the Partnership Deed, a Family Arrangement is a rather informal and amicable agreement amongst the family members wherein no compulsory registration is required. A registration gives the said document legal validity to be used in case of any future disputes but the compulsion of the same in limited to a partition deed here.


An uncertainty with regard to Family arrangement is whether it pertains to transfer of property. The same has been answered by the Hon’ble Apex Court in Ramcharandas V/s. Girjanandinidevi, AIR 1966 SC 323, wherein it observed;
“Such family settlement between the members of the family bonafide to put an end to the dispute amongst. themselves is not a transfer. It is also not a creation of an interest. In a family settlement, each party takes a share in the property by virtue of independent title which is admitted to that extent by the other parties. Every party who takes benefit under it need not necessarily be shown to have under the law claim to share in property. All that is necessary to show is that the parties are related to each other in some way and have a possible claim to the property or a claim or even a semblance of a claim on some other ground as, say, affection”.


A family settlement requires some prerequisites to be applicable. First and foremost is the requirement that there is/ are assets that are a part of common pool. The second is that there is an antecedent title and right over the said assets. Third is that the agreement enumerates the assets, the rights and title of the parties to the arrangement and acknowledge the same. Fourthly Family arrangement must be voluntary and should not be induced by fraud, coercion or undue influence.The settlement thereafter requires that each party to the agreement relinquishing all claim to assets/property other than that falling to his share. Also is a requirement that each party to the agreement recognizes the right of the other members, as they had previously asserted it, to the portions allotted to them respectively.


The law recognizes the rights of the parties to the common pool properties as enumerated in the agreement and assumes that each member already had right over the share of the property that has come to him/ her in terms of the agreement. This presumption of ownership, right and title is important as this allows the parties to segregate and divide the sharers and thereafter assert exclusive right over the properties to the exclusion of others without having to enter into conveyance deeds. Conveyance deed has been defined as a legal way of transferring legal rights of ownership of immovable property from one person to another. They include but are not limited to sale deed. Conveyance Deeds also includes Gift Deed, Mortgage, Exchange and Lease Deeds. If the law mandated conveyance deeds, it would have entailed huge financial outflow on the part of the parties to the agreement by way of stamp duties and transfer duty which can be upward of 1% plus Rs 100 of the total value of the Conveyance Deed.
What is to essentially Considered is the recognition of a claim or a right and not the transfer of the same even though there could be relinquishment by one or more members or acknowledgement of rights of others by one or more members.
But then the question arises, as to what happens when one party abandons all his rights in favour of the other/s without anything in return? What happens when there is no reciprocal arrangement in the agreement? Unless fraud is shown by a party or is writ at large, even the Hon’ble Supreme court has gone ahead and upheld such family arrangements where one or more party to the arrangement have given up all their claims or title with no reciprocal arrangement in favor of the other/s parties to the family arrangement. Of course, as discussed earlier, the party benefiting from such an arrangement has to assert his/ her title to the said property/es. It is another matter, that the other party/ies may thereafter or concurrently take a share of the said properties from the benefiting party by way of Gift or by Conveyance. The purpose is simply this: the courts lean strongly towards bringing harmony between family members and end litigation. The courts look at ways to end future disputes as may arise between the family members and find ways to mitigate such eventuality. And thus, family arrangements help in crystallizing rights and title over properties in present to avoid future disputes.

The Process of Family Settlement involves a Conciliation by a third person, usually the senior most member of the family or a lawyer that assists the family in reaching an amicable settlement with regard to their shares in the property. A Family Arrangement when reached verbally amongst the family members does not require registration. It is usually advocated to reduce the terms and recitals of the Family Arrangement into a Memorandum of Settlement, accompanied by the signatures of every family member that is party to the said arrangement along with two witnesses and to get the same registered under Section 17 of the Registration Act 1908. This binds every family member to the terms of the said document and renders it legally valid as evidence in case of an unforeseen dispute.


Family Arrangement is not treated as Conveyance but is rather re- alignment of pre existing rights. Under the Income tax Act Family Arrangements are not considered as transfers. Therefore, even though properties and assets are settled among the family members, it is not subject to taxation under capital gains in respect of profits derived by the members who are parties to the arrangement. On the other hand, in case the properties are sold and bought among the family members, it would amount to transfer and result in capital gains tax. Where the properties consist of immovable assets like land etc, the amount of capital gains subject to tax would be enormous, considering the value they would have gained.


There is no precise and specific law governing Family Settlement/Family Arrangement in India. All the principles are arrived on the basis of pronouncements laid down by various High Courts and the Supreme Court. Family Arrangements are the most amicable, binding and inexpensive modes of reaching a settlement without having to bare the registration costs and neither does one have to resort to settlement through Court orders. It is thus the most harmonious way to resolve disputes.