Settlement Deed: what is it

Settlement is one of the recognized modes of transfer of moveable and immovable properties under Hindu law.

The Courts have accepted such mode as legal and valid mode of transfer of properties. Courts have emphasized that in order to find out the correct intent of the settlor the settlement deed has to be read as a whole and draw their inference of its content.

Therefore, it has always been emphasized that the terms of the settlement should be closely examined and the intention of the settlor should be given effect to. Sometimes there is absolute vesting and sometimes there is Contingent vesting as contemplated in Sections 19 and 21 of the Transfer of Property Act, 1882. In order to ascertain the true intention of the settlor one has to closely scrutinize the settlement deed, whether the intention of the settlor was to divest the property in his life time or to divest the property Contingently on the happening of certain event. In this connection, reference may be made to a decision of the Supreme Court in the case of Rajesh Kanta Roy vs. Santi Debi reported in (1957) SCR 77. Their Lordships observed that the determination of the question as to whether an interest created is Vested or Contingent has to be guided generally by the principles recognized under Sections 19 and 21 of the Transfer of Property Act, 1882 and Sections 119 and 120 of the Indian Succession Act, 1925. Their Lordships quoted a passage from Jarman on Wills (8th Ed., Vol II at page 1390) which states as follows :

“So, where a testator clearly expressed his intention that the benefits given by his will should not vest till his debts were paid, *** the intention was carried into execution, and the vesting as well as payment was held to be postponed.”

Their Lordships in the case of Rajesh Kanta Roy (supra) have observed as follows:

“Apart from any seemingly technical rules which may be gathered from English decisions and text-books on this subject, there can be no doubt that the question is really one of intention to be gathered from a comprehensive view of all the terms of a document.”

Their Lordships have clearly observed that in order to decide the issue one has to closely go through the terms of settlement and the intention of the settlor.

In this connection, we put our attention  to a decision of supreme Court in the case of Usha Subbarao vs. B. N. Vishveswaraiah and Ors. reported in (1996) 5 SCC 201 wherein it was observed as follows :

“An interest is said to be a Vested interest when there is immediate right of present enjoyment or a present right for future enjoyment. An interest is said to be Contingent if the right of enjoyment is made dependent upon some event or condition which may or may not happen. On the happening of the event or condition a Contingent interest becomes a Vested interest.”

Their Lordships also relied upon an observation made in Halsbury’s Laws of England 4th Edn., Vol. 50, paras 591, 592 which read as under:

“Although the question whether the interest created is a Vested or a Contingent interest is dependent upon the intention to be gathered from a comprehensive view of all the terms of the document creating the interest, the court while construing the document has to approach the task of construction in such cases with a bias in favour of Vested interest unless the intention to the contrary is definite and clear. As regards Wills the rule is that “where there is a doubt as to the time of vesting, the presumption is in favour of the early vesting of the gift and, accordingly, it vests at the testator’s death or at the earliest moment after that date which is possible in the context.”

Their Lordships also relied upon Halsbury’s Laws of England, 4th Edn., Vol.50, Para 589 at page 395 which reads as under:

“It is necessary to construe the Will to find out the intention of the testator. With regard to construction of Wills the law is well settled that intention has to be ascertained from the words used keeping in view the surrounding circumstances, the position of the testator, his family relationship and that the Will must be read as a whole”

Our attention was also put in a decision of supreme Court in the case of Namburi Basava Subrahmanyam vs. Alapati Hymavathi and Ors. reported in (1996) 9 SCC 388. In this case also the question was whether the document is a will or settlement. Their Lordships held that the nomenclature of the document is not conclusive one. It was observed as follows:

“The nomenclature of the document is not conclusive. The recitals in the document as a whole and the intention of the executant and acknowledgment thereof by the parties are conclusive. The Court has to find whether the document confers any interest in the property in praesenti so as to take effect intra vivos and whether an irrevocable interest thereby, is created in favour of the recipient under the document, or whether the executant intended to transfer the interest in the property only on the demise of the settlor. Those could be gathered from the recitals in the document as a whole.

The document in this case, described as ‘settlement deed’ was to take effect on the date on which it was executed. The settlor created rights thereunder intended to take effect from that date, the extent of the lands mentioned in the Schedule with the boundaries mentioned thereunder. A combined reading of the recitals in the document and also the Schedule would clearly indicate that on the date when the document was executed she had created right, title and interest in the property in favour of her second daughter but only on her demise she was to acquire absolute right to enjoyment, alienation etc. In other words, she had created in herself a life interest in the property in praesenti and Vested the remainder in favour of her second daughter. It is settled law that the executant while divesting herself of the title to the property could create a life estate for her enjoyment and the property would devolve on the settlee with absolute rights on the settlor’s demise. Thus the document in question could be construed rightly as a settlement deed but not as a Will. The settlor, having diVested herself of the right and title thereunder, had, thereafter, no right to bequeath the same property in favour of her first daughter.”[AIR 2005 SC 2468 : (2005) 3 SCR 839 : (2005) 11 SCC 234 : JT 2005 (4) SC 618 : (2005) 4 SCALE 328]