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The sibling dispute between the Shroff brothers - Shardul and Cyril - who together run the country's largest law firm, Amarchand & Mangaldas & Suresh A Shroff & Co, has put the spotlight on the legal status of a will vis-à-vis a "family settlement agreement". The two brothers are fighting over the ownership of the company, of which their late mother Bharti Shroff's will bequeaths 22 per cent to Shardul. However, a family agreement singed in 2001 entailed equal distribution of Bharti Shroff's interest in the firm between the brothers.
Without going into the merit of the case which is sub-judice, Business Standard explains the legal position that a will and a family settlement agreement enjoy, along with the limits and obligations that come with them.
Legally enforceable
A will and a family agreement are legally enforceable documents provided that the requirements under law for their execution are met. A will has been statutorily defined under Section 2 (h) of the Indian Succession Act, 1925, to mean the legal declaration of the intention of a testator, or the person making the will, on how he or she wants his or her property to be treated after his or her death. A person can only will away a property that he or she owns or has the power to dispose of at the time of death.
"A will has to stand the test of law," says Anupam Srivastava of The Chambers of Law, a Delhi-based law firm. While a court generally does not get into the merits of a will, the document could get nullified if it is proved in a court of law to have been made under suspicious circumstances, adds Srivastava. In the absence of a will, the legal heirs are governed by the personal laws of the faith that the deceased professed.
A family agreement or arrangement has not been defined statutorily under Indian laws, points out Aakanksha Joshi, associate partner at law firm Economic Laws Practice. However, Joshi says that Halsbury's Laws of England defines it as an agreement among 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.
In other words, it is an arrangement - whether written or verbal - by which members of a family settle their inter se ("among themselves") rights in relation to a property to avoid disputes. As Jeevesh Nagrath, a lawyer in law firm Nagrath & Nagrath, says, "The purpose of a family agreement is to resolve a dispute or avert a future dispute, and to maintain peace and harmony in the family."
Legal experts explain that a family agreement is a valid, legally-binding and enforceable contract, applicable to all the signatories of the agreement. "Since consideration for a promise is essential, hence an agreement, unlike a will, is found on some consideration," points out senior advocate Ashwini Kumar Mata. While a will relates to a bequest of an estate, a family agreement provides for an arrangement by which some rights are created or declared (or assigned/ extinguished) whether in present or in future, he adds.
Equal rights
On its own, neither a family agreement nor a will is superior or of greater legal character than the other, says Mata. However, legal experts point out that it is the cast and terms of the family agreement that will determine if there are any bequeathable assets or titles that can become the subject of a will.
"Since both a family agreement and a will operate on different time planes, no occasion arises for conflict or preponderance of one over the other," says Mata. But legal opinion appears divided on this point. "Even if there is a family agreement, a portion to be transferred on a future date is not a valid contract for reasons of uncertainty, and at best should be seen as a desire, which one is entitled to change whenever one wants to," contends Srivastav.
Indian courts seem to give greater legal sanctity to a family agreement. Courts have upheld family arrangements that also include those who are not members of a joint family, or those whose entitlement to inheriting a property is doubtful. "Courts lean in favour of upholding a family arrangement instead of disturbing the same on technical or trivial grounds even if they suffer from a legal lacunae or a formal defect," says Joshi of Economic Laws Practice. Experts point out that the courts have applied the rule of estoppel - a legal bar to alleging or denying a fact because of one's own previous actions or words to the contrary - to prevent the unsettling of a family agreement. "The Supreme Court has held that there are special equities attached to such agreements, and courts should always lean in favour of giving full effect to them," says Nagrath.
In sharp contrast, there are strict requirements under law for the making of a will and for its subsequent execution.
Safeguards for a family agreement
According to Kavil Ramachandran, Thomas Schmidheiny Chair Professor of Family Business and Wealth Management, Indian School of Business, there are two dimensions to any family agreement. One, a legally binding shareholders agreement, and second, a set of policies, rules and restrictions that provide clarity on what is acceptable and what is not. The trouble is that most families have piecemeal awareness about a family agreement, shareholder agreement, family constitution or a will, says Ramachandran. To ensure the preponderance of a family agreement, the makers should specifically mention that it is superior to a will, says Ramachandran. His contention is that in the normal course, a legally signed family agreement should supersede a will, irrespective of whether the will was written prior to or after the family agreement.
Legal experts also say that any family agreement must clearly state how the asset or title is to be divided and that each person to the settlement is absolutely entitled to the same. "If it is intended that the property is to be held jointly, the family arrangement should clearly specify this and mention that the property is held as joint property and whether it is intended for the heirs of any members to succeed to their share or not," says Joshi.
Mata adds that it is important to appropriately structure a family agreement so as not to leave any disposable residuary bequeathable title or asset with the transferor that can become the subject matter of a will. At the end of the day, it is, of course, harmony among family members that is perhaps the best safeguard for the proper execution of a family agreement.
