My uncle had a business and both his sons joined it later. As the business expanded, all the interests in the business and the assets came to be jointly owned by my uncle and his two sons. However, after almost 20 years, certain disputes have arisen among the two sons. For now, my uncle, his sons and their families still maintain cordial relations, but my uncle is afraid that this may worsen over time. To avoid any bitterness and legal disputes, my uncle wishes to retire and divide all interests in the business and related assets equally between the two sons. Is this a valid arrangement?
Yes, this is a valid arrangement and would be considered a “family settlement” or a “family arrangement”. In India there is no specific law governing family arrangements and principles have evolved from judgements passed by various courts, including the Supreme Court (SC). Here are some principles:
•All the parties to the arrangement must be related to one another and must have a claim or a semblance of a claim to the property that is being sought to be divided.
• There must be a dispute or a claim (actual or anticipated) by such persons to the property that is the subject matter of the settlement.
• The settlement must be voluntary and not induced by fraud, coercion or undue influence.
•The arrangement must be generally and reasonably for the benefit of the family with an intent of settling disputed rights or claims or preserving family property or relationships and security by avoiding legal proceedings.
•The actual settlement must be a bona fide one with the division or allocation of property being fair and equitable.
•There need not be monetary consideration.
•A family arrangement can be oral.
•If effected by a document, the requirement to pay stamp duty and to have the same registered will depend on the nature of the document. For example, if the document merely records the past transaction of the division and no rights are being created by the document, then the same need not be registered.
In your case, the arrangement will be valid. As was observed by SC in one matter, “The basis of all compromises and family settlement is the existence of doubtful claims or semblance of claim of the parties concerned in respect of the properties in dispute. The motive for settlement is to settle the existing disputes or anticipated disputes, which are likely to arise in future and to secure peace to the family so that the properties in dispute and the family concerned may not be ruined. The anticipated dispute must be real and not imaginary. The end is secured by settlement among the parties by resolving the conflicting claims by the process of giving and taking, which is the consideration of the compromise or family settlement.” Several judicial pronouncements have upheld family settlements.
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