M J Antony: Family ties

OUT OF COURT

Only when a settlement is not possible do Indian courts want to settle family disputes by way of arbitration.

Disputes among members of business families have been the stuff of several novels and films, apart from providing headlines in daily newspapers. Some families have ruined themselves fighting until the end, the last scene of which is usually enacted in the court. The judiciary is generally reluctant to enter into the row because the law should come last in family relations. This was the view of the Indian courts, starting from the Privy Council days. This stance was reiterated last week by the Supreme Court in yet another family conflict in Hari Shankar Singhania vs Gaur Hari Singhania.

In this case, three brothers in the family started a partnership in 1987, but it was soon wound up through a dissolution deed. Then the partners disagreed on the division of assets of the firm. The dispute has not been solved for nearly two decades and the Supreme Court has appointed a retired judge as arbitrator.

The court remarked: "It is a well-settled policy of law in the first instance always to promote a settlement between the parties wherever possible and particularly in family disputes." Only when a settlement or conciliation is not possible comes the stage of adjudication by way of arbitration.

A family settlement is treated differently from any other formal commercial settlement as such settlement in the eye of the law ensures peace and goodwill among the family members. Such family settlements, bona fide and without fraud, meet with the approval of the courts. Such settlements are governed by a special equity principle, said the Supreme Court.

One of the earliest cases where such view was taken was in Lala Khunni Lal vs Kunwar Gobind, when the Privy Council stressed that it was the duty of the courts to uphold and give full effect to a family arrangement. In Sadhu Madho Das vs Pandit Mukand Ram (1955), the Supreme Court held that a family arrangement can, as a matter of law, be implied from a long course of dealings between the parties. It then said: "So strong do the courts lean in favour of family arrangements that bring about harmony in a family and do justice to its various members and avoid, in anticipation, future disputes which might ruin them all, that we have no hesitation in taking the next step (fraud apart) and upholding an arrangement."

In Ram Charan Das vs Girjanandini Devi (1966), the Supreme Court observed: "Courts give effect to a family arrangement upon the broad and general ground that its object is to settle existing or future disputes regarding property amongst members of a family. The consideration for such a settlement will result in establishing or ensuring amity and goodwill amongst persons bearing relationship with one another."

There is no need to wait for a conflict to arise before making a family arrangement. In Maturi Pullaiah vs Maturi Narasimham (1966), the Supreme Court said that though conflict of legal claims is generally a condition for the validity of family arrangements, it is not necessarily so. Even bona fide disputes, present or possible, which may not involve legal claims, would be sufficient. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such family arrangement. If it is bona fide and fair, "Courts will more readily give assent to such an arrangement than to avoid it."

The Supreme Court examined the effect and value of family arrangements in Kale vs Deputy Director (1976). It explained: "Family arrangements are governed by a special equity peculiar to themselves and would be enforced if honestly made. The object of the arrangement is to protect the family from long drawn litigation or perpetual strife which mar the unity and solidarity of the family and create hatred and bad blood between the various members of the family. Today we are striving to build an egalitarian society and are trying for a complete reconstruction of society to maintain and uphold the unity and homogeneity of the family which ultimately results in the unification of society and therefore of the entire country. The courts have, therefore, leaned in favour of upholding a family arrangement instead of disturbing the same on technical or trivial grounds. Where the courts find that the arrangement suffers from a legal lacuna or formal defect, the rule of estoppel is pressed into service and is applied to shut out the plea of the person who being a party to the family arrangement, seeks to unsettle a settled dispute and claims to revoke the family arrangement."

In a more recent case, K K Modi vs K N Modi (1998), the Supreme Court again emphasised that a family settlement should not be lightly interfered with, especially when the settlement has already been acted upon by some members of the family. Technical considerations should give way to peace and harmony. In the Singhania case, the judgement concluded with the sage advice that the parties should "concentrate on their business instead of litigating in the court."