This Article is written by Sreejit Nair pursuing Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution as part of his coursework. He discusses the Validity of a Settlement Agreement.
Settlement Agreement is a document which evidences the agreement between the parties therein binding the parties to a settlement to adhere to the terms and conditions agreed as a result of negotiation between the parties.
Same like other contracts, the agreement need not always be in written format but however, it is preferable to make the agreement in written mode and sometimes it is compulsory to enforce it in a written format.
The validity of a Settlement Agreement
A settlement agreement is like any other contract is of no use to a party intending to enforce it unless it is valid. Settlement Agreement shall include the basic elements of a contract along with that it shall also include various other requirements in order to be valid as Settlement Agreement is a special kind of Contract.
The important elements for a valid contract shall include an offer, acceptance, consideration, the capacity of parties, the legality of subject matter, etc. Local laws, including a Statute of Frauds, may be an additional element based on the contract and subject matter. Hence while drafting a settlement agreement, since settlement agreement is a different type of contract as it involves disputes which are already pending in the court of law, hence court also takes interest in the settlement and has an eye on the settlement agreement. Parties require the approval of a judge before finalization of a settlement agreement if in case parties are incapable or have an incapacity to entering into an agreement. In the Criminal and Anti-trust matters, requirements of a valid contract shall be met as it affects the large public. The real understanding of the parties shall be covered in the settlement agreement. The provisions shall be clear and definite and it shall also include the subject matter of the dispute/settlement.
Traditional contract defences apply to settlement agreements, and these must be considered during the negotiation and drafting of the agreement. The settlement agreement shall be considered invalid if a settlement is made through fraud or coercion. If in case of a settlement agreement is extreme one-sided then it may be considered as unconscionable.
Merely reaching an understanding or settlement is not enough. Legal formalities need to be checked to ensure the validity of the agreement. The Settlement agreement shall be signed by all the parties involved in it. A missing signature can easily become ground for challenging the document in court at a later date. A settlement agreement may also be signed by 2 witnesses although not necessary.
After the signing of the agreement by the parties, the parties shall register the agreement if the subject matter of settlement is immovable property. According to Section 17 of the Indian Registration Act, a family settlement that purports to assign immovable property must be mandatorily registered or the deed would be invalid. Stamp duty shall be levied on the agreement based on the value of the property.
A settlement agreement can also be challenged in a court of law although it cannot be revoked except with a court decree. A settlement agreement can be challenged if it involves fraud or coercion, misrepresentation or improper execution.
Family Settlement Deed
The family members mutually work out and distribute the property among themselves by agreeing to a Family Settlement Deed. It is an out of court settlement to which the court agrees. There is always a discretionary power available with the court. Using this discretionary power the Court can anytime declare the agreement null and void if there is presumptive essence of fraud or coercion.
Only disputes relating to common property or joint family property can be settled with a Family Settlement Deed.
Indian court does not accept out of court settlement in divorce matters. Mediation is a way to settle the dispute but if the couple wishes to simply call off the marriage without letting the court know of their intention, this is not an intelligent way to separate. If you are legally married, you can apply for and avail a decree of divorce dissolving your marriage, out of court divorce is not accepted by the courts in our country.
The couple cannot enter into a compromise deed wherein the wife forgoes her maintenance rights and settle for a divorce out of court via an agreement. The same goes with prenuptial agreements. The couple cannot get a prenuptial agreement as it is not valid in India. Prenuptial agreements have no binding value in the Indian Courts.
Settlement of Industrial Disputes
Collective bargaining agreement is enforced under Section 18 of the Industrial Disputes Act, 1947, as a settlement arrived between the workers and the employers. Under Section 18 (1) of Industrial Dispute Act, 1947, a settlement arrived at by an agreement between the employer and workmen otherwise than in the course of conciliation proceedings are binding only on the parties to the agreement.
The arbitral tribunal shall rely on a valid settlement agreement to render the consent award. Consent award cannot be passed through an invalid settlement agreement. A settlement agreement that sets out the obligations of both parties will usually specify the conditions for its entry into effect. The parties shall fulfil the conditions set out and submit the relevant proof to arbitral tribunal specifying the enforcement of the settlement.
Both counsel and the arbitral tribunal shall carefully examine documents to determine whether a settlement agreement can be smoothly converted into an effective consent award and protect the rights and interests of the parties at the extreme.
Settlement Agreement between Employer-Employee
Settlement Agreement is formerly known as a Compromise Agreement as per the employment law. In the Settlement agreement, an employee agrees not to pursue certain statutory employment tribunal claims against a respondent or potential respondent to a claim. It is used when Employee leaves the organization and payment of the employees are settled including all claims. Certain conditions have to be fulfilled by the parties for a proper settlement agreement.
- The agreement must be in writing.
- The agreement must relate to a certain subject matter.
- The employee shall have been advised on the agreement.
- The adviser must be identified in the agreement.
- The adviser must have insurance in relation to the advice.
- The agreement must state that the conditions to the settlement agreement shall be fulfilled.
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