Family Settlement Agreements require mandatory registration if they create/relinquish a right of a bona fide party in the family assets. But oral family settlement later put into writing for the purpose of information doesn’t require registration & stamp duty.
Family Settlement Agreement (FSA) refers to an informal agreement between the members of a family to distribute property and assets besides a will or a partition suit. It may be considered as an alternative to resolve disputes or potential disputes related to asset distribution amongst family members. An FSA shall only be valid and legally binding if all parties have entered the agreement out of their own will.
FSAs confirms that all parties agree that a potential dispute/difference will be resolved in a mutually agreed manner. An out of court settlement, it is quick, simple, cost-efficient, and includes both movable and immovable assets.
The Registration Act, 1908 (“Registration Act”) mandates that documents mentioned in Section 17(1) of the Registration Act are required to be compulsorily registered, which include:
Registration of a document means that the persons executing such a document appear before the Registering Officer with the document to be registered and the officer must satisfy themselves that the document sought to be registered was in fact executed by the persons appearing before them.
The Indian Stamp Act, 1899 (“Stamp Act”) contains various provisions which mandates the stamping of instruments:
The courts have also laid down that family arrangements, being binding on the parties to the arrangement, operate as an estoppel to prevent any of the parties who have taken advantage under the agreement from revoking or challenging the same.
From a reading of the above description of Family Settlement Agreements it appears that the same may fall within the scope of Section 17(1) of the Registration Act thereby making it mandatory for such agreements to be registered as per law.
However, it is to be noted that not all such Family Settlement Agreements are required to be compulsorily registered.
| Family Settlement Agreement (FSA) does not stand in conflict with any personal law. Any family may register an FSA, provided the basic criteria is met. |
A Family Settlement Agreement may primarily be of 3 forms –
| An oral family arrangement will not require any registration. |
In case, the document is merely a memorandum which simply records the family arrangement which has already been made, then the same would also not require registration since the said document does not by itself create or extinguish any rights.
However, If the document contains specific terms and recitals of a family arrangement or the document itself creates or extinguishes the rights of the parties, then such a document must be registered.
In the matter of Sita Ram Bhama v Ramvatar Bhama, the Supreme Court reviewed a document that claimed to only be a memorandum of family settlement for recording a partition already taken place.
On examining the document, the court concluded that since neither of the parties had a right to the property at the time of partition, coupled with the fact that rights were relinquished by some family members, held that the document though styled in the name of a memorandum of family settlement was in fact required to be compulsorily registered.
The Supreme Court in the case of Yellapu Uma Maheshwari v Buddha Jagadheeswararao held that while considering the requirement of registration and stamping, the nomenclature given to a document was not the decisive factor. It is far more important for the nature and substance of the transaction to align with the document.
The admissibility of a document entirely depends on the recitals contained in the said document. The court held that the documents in question discussed relinquishment of a right in respect of an immovable property. Hence, the FSA was required to be compulsorily registered.
The Delhi HC in the case of Himani Walia v Hemant Walia was concerned with a case where in a suit for partition, the parties had arrived at a settlement with the assistance of their Counsels and the terms of settlement were incorporated into a Memorandum of Family Settlement and Arrangement (MoFS). The Memo of Settlement was approved by the Court and a decree in terms thereof was passed. On the question whether such Memo of Settlement was required to be registered and stamped, the Delhi HC held that since the Memo was only a recordation of the oral agreement as to the mode and manner of partition, the same was not required to be compulsorily registered and no stamp duty was payable.
Family settlement agreements have the potential to supersede inheritance rights of the parties involved. Technicalities such as registration and stamp duty on a written documents arise only in specific circumstances. Cases where the family settlement arrangements do not require stamp duty or registration occur:
