Settlement Deed Creates Charge, Not Inheritance Right: Madras High Court Rejects Partition, Upholds Charge Enforcement for Unpaid Dues

Madras High Court delivered a significant verdict clarifying the scope of rights under conditional settlement deeds. Justice C. Saravanan emphatically ruled that “an irrevocable settlement deed does not grant inheritance or partition rights merely because beneficiaries fail to pay stipulated amounts,” declaring instead that the plaintiff’s only enforceable remedy is through a charge akin to a simple mortgage.

In the case of D. S. Kumari v. Legal Heirs of Lakshmi Narasimhalu @ Kannan, the plaintiff sought partition of immovable and movable properties, asserting her entitlement to a one-third share after the defendants, as recipients under conditional settlement deeds, failed to make payments mandated by their mother, late G. Subbarathinamma. However, the High Court rejected her claim for partition, stating, “The properties remain outside the pool of inheritance and are not subject to partition merely due to non-payment.”

Justice Saravanan ruled that the plaintiff’s rights are limited to enforcing a monetary charge over the properties, citing the binding nature of the irrevocable settlement deeds (Exhibits P1, P2, P3), under which the plaintiff had a ‘first charge’ for unpaid sums. The Court observed, “Where an instrument creates a charge, it crystallizes a creditor’s right similar to a simple mortgage; it cannot revive inheritance rights extinguished by a valid transfer.”

The Court elaborated on this legal framework:
“The settlement deeds having created a first charge are governed by Sections 58(b) and 100 of the Transfer of Property Act. The only remedy available to the plaintiff is to enforce the charge, akin to a simple mortgage, but not to claim inheritance or partition.”

On the movable properties, however, the Court granted relief. With 200 sovereigns of gold and diamond jewels admitted to be in custody of the third defendant, the Court allowed their partition among the plaintiff and defendants, observing: “Movable properties, being outside the scope of the conditional charge, are liable for equal division, subject to existing charges of third-party creditors.”

Rebuking the plaintiff’s attempt to convert a monetary charge into a succession right, Justice Saravanan stated,
“The plaintiff’s claim of inheritance collapses in the face of an irrevocable deed; her legal recourse lies in the execution of charge, not a fresh claim of succession.”

Additionally, recognizing the delay in payments by the defendants, the Court awarded interest at 12.5% per annum on the sums due, allowing the plaintiff to initiate execution proceedings for recovery through sale of charged properties. Importantly, the judgment preserved the defendants’ redemption rights under Section 60 of the Transfer of Property Act, maintaining a fair balance between the parties’ interests.

The Court also directed that any sums recovered through sale would first be appropriated towards liabilities pending with the Mysore Silk Cloth Merchants Co-operative Bank Limited, reflecting judicial priority towards prior secured creditors.

In conclusion, the High Court decisively affirmed the sanctity of settlement deeds while preventing misuse of partition claims. As Justice Saravanan summed up:
“The plaintiff cannot assert partition where the donor herself ruled out revocation. Law enforces a charge, not succession, when an heir fails to meet monetary obligations.”

Date of Decision: 02/07/2025