Understanding Settlement Deed In India

A Brief on Settlement Deed

Settlement deed in terms of immovable property like land/building, is a legal document wherein parties settle their differences or disputes. Legal Definition states Settlement is a disposition of property/properties – whether movable or immovable, as per the choice of the owner of the said property/properties. A settlement deed for it to be valid has to be brought down in writing and has to be registered. Usually the nature of disputes settled through a settlement deed are court cases, property division, payments settlement. A settlement deed between members of a family is a family settlement deed, and most often it is related to the division of property. Settlement deed is a legally enforceable document and has to be registered. Only those properties can be settled which have been self-acquired (properties inherited and received through family partition are also considered self-acquired properties).

Parties to a Settlement Deed and what is conditional or absolute settlement?

The party executing the settlement(executants) is called the Settlor and the claimant (beneficiary) is called the Settlee. A settlement deed can be conditional or unconditional (absolute). In case of conditional – the settlor can impose certain conditions which the Settlee has to observe/follow such as pay certain amount of money to the Settlor every month / every year and non-abiding of such a clause will invalidate the Settlement and The Settlor has option to Void(Revoke) the Settlement due to non-fulfilment of said condition. So a Settlor can insert a clause to this effect and enjoy the benefits and life interest for his/her lifetime along with their spouse. In case of unconditional/absolute settlement, the property gets transferred to the Settlee without any conditions and the Settlor cannot revoke the same.

Consideration

In case of sale, there is monetary exchange involved which is basically the consideration for the property bought. In case of gift, it is imperative that there is no consideration (no monetary exchange for the property) so gifted (only out of love and affection).

In case of settlements, consideration is not as direct as in the case of sale. Love and affection can be considered as Consideration for property settled by a Settlor to a Settlee (Settlee may be a family member or even non-relative). Settlee can even be for Charitable or Religious Trust – wherein mental satisfaction is the Consideration, even marriage is consideration for a settlement.

Difference between gift and settlement?

Gift and Settlement are often used interchangeably – however they are not the same.

For gift there is no consideration however for settlement love and affection, mental satisfaction and marriage may be consideration.

Gift has to be accepted by the receiver but in case of settlement there is no need for acceptance needed.

Registration of Settlement Deed

In case of immovable asset like land/building for a settlement deed to be valid it has to registered. Along with the settlement deed the following have to be presented at the Concerned Sub-Registrar’s office – a few of the other documents required are the title document (parent document and Patta) in original, Encumbrance certificate of the property (till the date of the registration), ID proof, Aadhaar proof of the parties – this list is not exhaustive and varies on a case-to-case basis depending on the property settled and the conditions contained therein the settlement deed.

Registration Fees to be paid in case of Settlement:

As on date of writing this article, in Tamilnadu,  (For current rates kindly refer the website – (www.tnreginet.gov.in)

The settlement fee is as follows:

1. If Settlement is in favour of family member then the Stamp duty is 1% of the market value of the property subject to a maximum of Rs. 25000/- and the registration fee is also 1% of the market value of the property subject to a maximum of Rs.4000/-
2. However Settlement for other cases - then the Stamp duty is 7% of the market value of the property and the registration fee is 4% of the market value of the property.

Note: The definition of family member varies from state to state in India – but usually – family member consists of mother, spouse, son, daughter, grand children, wife of pre-deceased son. In Tamilnadu – family member includes includes father, mother, husband, wife, son, daughter,brother,sister and grand child.  The relationship should be traced from the owner of the property prior to transaction. (source: http://www.tnreginet.net/english/faq.asp)