Memorandum of Family Settlement: All you need to know

Often an individual invests his hard-earned money to purchase immovable property for his enjoyment during his lifetime. Post the demise of the owner, the property left behind by him is inherited by his legal heirs either as per his wishes as spelled out in his Will or in case he dies without leaving a Will, then in accordance with the provisions of the Succession Act applicable to such individuals.

It is common to find such cases where upon the demise of the owner, the properties left behind by him devolve jointly on his legal heirs and such legal heirs are entitled to enjoy the rights, title and interest in such properties jointly.

The joint enjoyment of such properties continues until one or more of the legal heir (being the co-owner) desires to separate and seeks the partition of his undivided share in such property(ies). The need of partition arises as soon as one of the co-owners seeks the partition of his undivided share. By virtue of a partition, a property is divided amongst co-owners by clear identification and demarcation of their respective ownership share of such property.

Partition can be achieved by the co-owners either by the mutual consent of all co-owners or in case the co-owners fail to arrive at a mutual consent then the only option left is to seek partition through court of law by filing a suit for partition.

In case where the co-owners mutually consent to the partition of their undivided share in the property(ies), it can be carried out:

• By a written instrument; or
• A Deed of Partition or Family Settlement Deed are the written instruments that may be executed to effectuate partition of property(ies) between co-owners. It is pertinent to mention here that a Deed of Partition is required to be compulsorily registered under the provisions of Registration Act, 1908 and stamp duty at applicable rates is required to be paid on it as per the provisions of the Indian Stamp Act, 1899.

In cases where a partition is effectuated orally among family members, no written document is required to be executed.

Consequently, there are no stamping or registration requirements for such an oral partition under the Registration Act, 1908 and Indian Stamp Act, 1899.

However, an oral partition may be subsequently recorded in an written instrument/ deed namely, Memorandum of Family Settlement for the purposes of keeping a record of the terms orally agreed in respect of the partition of the property(ies) between the co-owners.

A Memorandum of Family Settlement is a preferred mode adopted by the families to record the terms of the division/ partition of family property(ies) in comparison to a partition deed as it is not a compulsorily registrable instrument and the stamp duty implications on MOFS are considerably lesser than in case of a partition deed. MOFS in simple words is a document/ arrangement between the family members that records the orally agreed terms of division of property(ies) inter-se between them.

According to Halsbury’s Laws of England, “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 agreement may be implied from a long course of dealing. But it is more useful to embody or to effectuate the agreement in a deed to which the term family agreement is applied.”

The essentials of a family arrangement were laid down by the Supreme Court in the case titled as Kale & Ors vs. Deputy Director of Consolidation which are as follows:

• The family arrangement should be bonafide in order to resolve present or possible future disputes among family members and to ensure equitable distribution of property among the family members;
• The family arrangement needs to be honest, voluntary and should not be induced by fraud, coercion and undue influence;
• Family arrangement can either be oral or written;
• The memorandum recording the family arrangement itself does not create or extinguish any rights in the immovable properties, therefore, not compulsorily registrable.
• The members of a family who are parties to a family arrangement must have an antecedent title, claim or interest in the property. If the rights of a property are relinquished in favour of a member in a family arrangement who has no antecedent title in the property than it shall be presumed that such person has an antecedent in the property.
• The family arrangement which is fair and equitable is final and binding on the parties to the settlement.

MOFS and partition deeds are often confused to mean one and the same thing. The primary difference between the two is that under a partition deed the terms and recitals of a family arrangement are made whereas a MOFS just 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. Another important difference between the two is that a partition deed requires compulsory registration as it creates, assigns, limits or extinguishes rights or title in a property whereas MOFS is not a compulsorily registrable deed.

The Supreme Court in the category of judgments has held that registration of MOFS is not compulsory. The SC in its recent judgement dated 31^st July, 2020 in the matter of ‘Ravinder Kaur Grewal & Ors vs. Manjit Kaur & Ors’ addressed the question regarding the registration of MOFS.

In this case, the SC held that in case a memorandum of family settlement is just recording the terms of settlement between the parties that was previously agreed between them then registration of such document is not compulsory as it in itself is not creating or extinguishing any right or title.

On the contrary, if the memorandum contains the terms and recitals of family arrangement made under that document then registration of MOFS would be compulsory. In the said judgment, SC reiterated the observations of its earlier judgement that a MOFS prepared after family arrangement was already made for the purpose of recording the information or for the information of the court, is not required to be registered.

In view of the above it is clear that the registration requirements of the MOFS would depend on the terms of the MOFS. MOFS which records earlier agreed terms of oral partition between family members needs to be carefully drafted to convey this intent. In case such document/ deed is ambiguous then it is open to various interpretations and may be construed to be a partition deed which shall be required to be registered and attract payment of stamp duty.

The author is Senior Partner, ZEUS Law, a corporate commercial law firm. One of its areas of specialization is real estate advisory and litigation practice