Cancellation of Settlement Deeds in Indian Law

The Law on Cancellation of Settlement Deeds in India: Irrevocability, Exceptions, and Procedural Aspects

Introduction

A settlement deed is an instrument by which property is disposed of by the settlor, typically for the benefit of family members or other chosen beneficiaries, often motivated by love and affection or for family arrangements. Unlike a testamentary disposition (will), a settlement deed operates inter vivos, meaning it takes effect during the lifetime of the settlor. A fundamental characteristic of a duly executed and accepted settlement deed in Indian law is its general irrevocability. Once title vests in the settlee, the settlor cannot unilaterally rescind the transfer. However, this principle is not absolute and is subject to specific statutory provisions and judicial interpretations. This article critically analyzes the legal framework governing the cancellation of settlement deeds in India, drawing upon statutory law and judicial precedents, particularly the reference materials provided.

Nature and Characteristics of a Settlement Deed

A settlement deed, to be valid, must clearly evince the intention of the settlor to divest themselves of the property and vest it in the settlee. The Supreme Court in P.K Mohan Ram v. B.N Ananthachary And Others (2010 SCC 4 161) emphasized the distinction between a settlement deed and a will. A settlement deed creates a vested interest in the property in praesenti (at the present time) for the beneficiaries, even if the enjoyment of the property is postponed. The Court noted that the title of the document as a "settlement deed" and language demonstrating an immediate transfer of rights, coupled with clauses prohibiting revocation by the settlor, are indicative of a settlement rather than a will, which is inherently revocable.

Acceptance by the donee (settlee) is crucial for the completion of a gift or settlement. As established in Asokan v. Lakshmikutty And Others (2007 SCC 13 210), acceptance can be express or implied. For beneficial gifts, acceptance is often presumed, especially when the donee is a minor and the gift is non-onerous (K. Balakrishnan v. K. Kamalam And Others, 2004 SCC 1 581). The recitals in the deed regarding handing over of possession can raise a presumption of acceptance, shifting the burden to the donor/settlor to prove otherwise (Asokan v. Lakshmikutty).

General Rule: Irrevocability of Settlement Deeds

The cornerstone of the law concerning settlement deeds is that once a settlement is complete – i.e., validly executed, registered (if required by law, such as for immovable property under Section 17 of the Registration Act, 1908 and Section 123 of the Transfer of Property Act, 1882), and accepted by the settlee – it becomes irrevocable at the instance of the settlor. The settlor cannot unilaterally cancel or revoke a completed settlement deed (Asokan v. Lakshmikutty; K. Balakrishnan v. K. Kamalam). The Trial Court in S. Ganesan v. Bharathirajan (2009 SCC ONLINE MAD 992) also observed that an executor of an irrevocable settlement deed has no right to change or cancel it.

This principle is deeply rooted in public policy, which aims to provide certainty and security to property rights. Several High Court judgments have reiterated that unilateral cancellation of a duly executed settlement deed is against public policy (D.V. Loganathan v. Sub-Registrar, Madras High Court, 2014; C.Jayaraj v. The Inspector General of Registration, Madras High Court, 2024; Dr.Makudamudi v. The Secretary to Government, Madras High Court, 2023). Once the title has passed to the settlee, the settlor is divested of that title and cannot unilaterally reclaim it by executing a cancellation deed.

Statutory Grounds for Revocation/Cancellation under Section 126, Transfer of Property Act, 1882

While the general rule is irrevocability, Section 126 of the Transfer of Property Act, 1882 (TPA) provides specific circumstances under which a gift (and by extension, a settlement deed, which is often in the nature of a gift) may be suspended or revoked:

  1. Agreement between Donor and Donee: The donor and donee may agree that on the happening of any specified event, which does not depend on the will of the donor, a gift shall be suspended or revoked.
  2. Grounds for Rescission of Contract: A gift may also be revoked in any of the cases (save want or failure of consideration) in which, if it were a contract, it might be rescinded. These grounds typically include fraud, coercion, undue influence, misrepresentation, or mistake, as per the Indian Contract Act, 1872 (e.g., Sections 19, 19A, 20).

It is crucial to note that Section 126 explicitly excludes want or failure of consideration as a ground for revoking a gift, as gifts are inherently gratuitous. The power to revoke based on a specified event must be part of the original terms of the gift and cannot be an arbitrary power retained by the donor. The Supreme Court in Naramadaben Maganlal Thakker v. Pranjivandas Maganlal Thakker And Others (Supreme Court Of India, 1996) dealt with a "conditional gift deed." The cancellation deed in that case stated that the donee had promised to fulfill oral conditions but denied doing so after the gift, possession was not handed over, and the donee had not accepted the conditional gift. The Court took note of these factors in the context of the cancellation. This highlights that if a settlement is genuinely conditional and the conditions precedent to its operation or vesting are not fulfilled, or if there is no acceptance, the settlement may not take full effect or could be susceptible to challenge.

The Madras High Court in V. Devika Rani And Others v. R. Varadarajulu And Others (Madras High Court, 2019), citing Asokan v. Lakshmikutty, reiterated that once a gift is complete, it cannot be rescinded for any reason whatsoever based on the subsequent conduct of a donee, unless the power of revocation is contractually reserved or it falls under the vitiating factors applicable to contracts.

Judicial Scrutiny and the Role of Civil Courts

When a settlor wishes to cancel a settlement deed on grounds permissible under Section 126 TPA or other legal vitiating factors, the appropriate remedy is to approach a competent Civil Court. Section 31 of the Specific Relief Act, 1963, allows any person against whom a written instrument is void or voidable, and who has reasonable apprehension that such instrument, if left outstanding, may cause serious injury, to sue to have it adjudged void or voidable. The court may then, in its discretion, so adjudge it and order it to be delivered up and cancelled (Dr.Makudamudi v. The Secretary to Government, Madras High Court, 2023, citing Muppudathi Pillai v. Krishnaswami Pillai, AIR 1960 Madras 1; RAMESH KUMAR DARDA v. G.KRISHNAVENI, Madras High Court, 2022).

The burden of proving the existence of grounds such as fraud, undue influence, misrepresentation, or mistake lies heavily on the party alleging them and seeking cancellation. In R. Manikandan v. Arulmighu Koodamudayar Ayyanar Koil (2017 SCC ONLINE MAD 33016), the Madras High Court observed that unilateral cancellation of a settlement deed after 19 years by the settlor, who had explicitly stated the deed was irrevocable, was invalid. The Court emphasized that cancellation, if permissible, must be sought through a Civil Court on established grounds like fraud, mistake, or undue influence, and within the stipulated time.

The Role of the Sub-Registrar in Registering Cancellation Deeds

A significant area of litigation has been the power of the Sub-Registrar under the Registration Act, 1908, to register deeds of cancellation, particularly those executed unilaterally by the settlor. While traditionally the Registrar's role was seen as largely ministerial (i.e., to register documents that comply with formal requirements), a strong line of judicial precedent, especially from the Madras High Court, has established that Sub-Registrars should not register deeds that unilaterally cancel previously registered absolute conveyances like sale deeds or settlement deeds.

The Madras High Court in D.V. Loganathan v. Sub-Registrar (2014) held that the registration of a cancellation of an unconditional and irrevocable settlement deed is against public policy and without jurisdiction. The aggrieved party must approach the Civil Court. This view has been consistently upheld in numerous cases (K. Sudhakaran v. The Sub-Registrar, Madras High Court, 2015; K.Raman v. Inspector General of Registr, Madras High Court, 2021; D. Mohan v. Sub Registrar, 2012 SCC ONLINE MAD 1964). These decisions often rely on the Full Bench judgment of the Madras High Court in Latif Estate Line India Ltd. v. Hadeeja Ammal (2011 (2) CTC 1).

The Supreme Court in Satya Pal Anand v. State Of Madhya Pradesh And Others (2015), while dealing with a sale deed, observed that a vendor cannot unilaterally execute or register a cancellation deed and must file a civil suit or request the vendee to re-convey the property. The Court referred to Andhra Pradesh Registration Rules under Section 69 of the Registration Act, 1908, which supported this view by requiring consent of all parties for cancellation deeds of conveyances.

Another Full Bench of the Madras High Court in Sasikala v. Revenue Divisional Officer (2022 (7) SCC 1, also reported as 2022 SCC ONLINE MAD 4343) extensively dealt with this issue and held:

  • A deed of cancellation of a sale unilaterally executed by the transferor does not create, assign, limit, or extinguish any right, title, or interest and is of no effect. Such a document cannot be accepted for registration.
  • Once title is vested by sale, it cannot be divested by a cancellation deed even with consent; re-conveyance is the proper course.
  • However, if a sale is conditional (e.g., title passes on payment of consideration) and such intention is clear, the instrument can be cancelled by consent if consideration is not paid, as title remained with the transferor.
  • In other cases of complete and absolute sale, cancellation by the transferor is only through a Civil Court decree.
  • Specifically regarding gift/settlement deeds not revocable under Section 126 TPA, the Registrar has no power to accept a deed of cancellation to nullify the registered settlement deed (MRS.V.PREETHA v. THE INSPECTOR GENERAL OF, Madras High Court, 2023, citing Sasikala).

Thus, the prevailing judicial consensus, particularly in Tamil Nadu, is that a Sub-Registrar is not empowered to register a unilateral cancellation of an irrevocable settlement deed. The settlor's remedy lies in approaching a Civil Court (C.Jayaraj v. The Inspector General of Registration, 2024).

Specific Scenarios and Considerations

Certain specific situations merit attention:

  • Conditional Settlements: As discussed with Naramadaben Maganlal Thakker, if a settlement is genuinely conditional, the non-fulfillment of such conditions (especially conditions precedent) or lack of acceptance can impact its validity and enforceability. The intention for title to pass conditionally must be clear from the deed itself, analogous to the principle in Kaliaperumal v. Rajagopal And Another (2009 SCC 4 193) regarding conditional sale deeds.
  • Non-Acceptance: If it can be proven that the settlee never accepted the settlement, the transfer remains incomplete. However, for beneficial settlements, particularly to minors, acceptance is often presumed (Asokan v. Lakshmikutty; K. Balakrishnan v. K. Kamalam).
  • Settlements Allegedly for Consideration: The case of K. Sudhakaran (Madras High Court, 2015) mentioned a settlement deed purportedly made "not out of love and affection but on payment of consideration and value." Even in such cases, if a valid transfer has occurred and title has passed, the principle against unilateral cancellation by the transferor would generally apply, and recourse would be to a Civil Court to set it aside on valid contractual grounds (other than mere failure of consideration if it was a gift).
  • Effect of Settlor's Death: Once a settlement deed is validly executed and rights are vested in the settlee, the subsequent death of the settlor does not automatically enable third parties to seek its cancellation without valid legal grounds actionable in a court of law. In L.NELLORE AANDI v. THE CHIEF SECRETARY (Madras High Court, 2023), it was noted that the mother of the fourth respondent (beneficiary) could not seek cancellation of a settlement deed after the executant's death, citing Sudesh Chhikara v. Ramti Devi and Another (2022 SCC OnLine SC 1684). While Sudesh Chhikara primarily dealt with wills and gifts under wills, the underlying principle is that completed inter vivos transfers vest rights that are not easily disturbed post the settlor's demise by third parties without strong legal cause.

Conclusion

The law in India strongly upholds the principle of irrevocability of completed settlement deeds. A settlor, having voluntarily transferred property and vested title in a settlee through a duly executed, registered, and accepted settlement deed, generally cannot unilaterally revoke or cancel such a deed. The primary exceptions are those outlined in Section 126 of the Transfer of Property Act, 1882, which permit revocation by mutual agreement on a specified contingency (not dependent on the settlor's will) or on grounds that would allow rescission of a contract, such as fraud, undue influence, misrepresentation, or mistake.

The appropriate forum for seeking cancellation of a settlement deed on such permissible grounds is a competent Civil Court, typically by invoking Section 31 of the Specific Relief Act, 1963. There is a significant and growing body of judicial opinion, particularly from the Madras High Court, fortified by observations from the Supreme Court in analogous contexts, that Sub-Registrars lack the authority to register deeds of unilateral cancellation of absolute conveyances like settlement deeds, as such registration is considered against public policy. The preferred course, even with mutual consent for undoing an absolute settlement, is often re-conveyance by the settlee back to the settlor. This legal framework underscores the sanctity of property transfers and aims to prevent arbitrary deprivation of vested rights, thereby promoting legal certainty and fairness in property dealings.