Supreme Court of India
ASHA JOHN DIVIANATHANversusVIKRAM MALHOTRA & ORS.
- Citation
- 2021 INSC 121
- Decided
- 26 February 2021
- Disposal
- Appeal(s) allowed
- Bench
- A M KHANWILKAR
Holding
Section 31 of the Foreign Exchange Regulation Act, 1973 makes prior RBI permission a mandatory condition for any transfer of immovable property by a non‑citizen, and any such transfer made without that permission is void and unenforceable.
Summary
Mrs. F.L. Raitt, a foreign national, sold a portion of her Indian immovable property to the predecessor of the appellant after obtaining prior RBI permission, but gifted another portion to respondent No.1 without such permission. The appellant and respondent No.4 sued to declare the gift deeds void; the trial court dismissed the suit, the High Court affirmed, and the appellant appealed. The Supreme Court examined the object of the Foreign Exchange Regulation Act, 1973 and held that Section 31 imposes a mandatory requirement of prior RBI permission for any transfer of immovable property by a non‑citizen, and that failure to obtain it makes the transfer unenforceable and void. Sections 47, 50 and 63 were read together to reinforce the prohibition and the attendant penalty and confiscation consequences. Earlier High Court decisions treating the requirement as directory were overruled, and the Court declared the gift deeds void, setting aside the lower courts' judgments. The appeal was allowed, the suit decreed in favour of the plaintiff, and the appellant was awarded possession and mesne profits.
Issues considered
- The requirement of prior RBI permission under Section 31 of the Foreign Exchange Regulation Act, 1973 for a foreigner to transfer immovable property by sale or gift.
- Whether a transfer made without such permission is void, voidable, or merely illegal but enforceable.
- The effect of Sections 47, 50 and 63 of the Act on the enforceability of the prohibited transaction.
- The correctness of the High Court's interpretation that lack of permission does not render the transaction void.
- The appropriateness of overruling earlier High Court judgments on the same provision.
- The appropriate relief and whether the trial court's decree should be set aside.
Legislation cited
- Code of Civil Procedure, 1908s. Order 20, Rule 12
- Constitution of Indias. Article 142
- Foreign Exchange Regulation Act, 1973s. 31, s. 47, s. 50, s. 63
- Indian Contract Act, 1872s. 23
Subjects
Foreign Exchange Regulation ActSection 31RBI permissionTransfer of immovable property by foreignerVoid contractPenalty under Section 50Confiscation under Section 63Statutory interpretationPublic policyArticle 142
Judgment
[2021] 1 S.C.R. 953 953
ASHA JOHN DIVIANATHAN A
v.
VIKRAM MALHOTRA & ORS.
(Civil Appeal No. 9546 of 2010)
FEBRUARY 26, 2021 B
[A. M. KHANWILKAR, INDU MALHOTRA
AND AJAY RASTOGI, JJ.]
Foreign Exchange Regulation Act, 1973 – ss.31, 47, 50, 63 –
A foreigner who was the owner of property in question, executed
an agreement of sale in favour of predecessor of the appellant and C
respondent no.4 after previous permission of the RBI – However,
around the same time she gifted portion of the property to respondent
no.1 though without any previous permission of the RBI – Suit filed
by appellant and respondent no.4’s predecessor against the
respondent no.1 inter alia for declaring the gift deeds in his favour D
as null and void and not binding – Dismissed by Trial Court – First
appeal filed by the appellant and respondent no.4, dismissed by
High Court – On appeal, held:The condition predicated in
s.31ofobtaining previous general or special permission of the RBI
for transfer/disposal of immovable property situated in India by a
personwho is not a citizen of India is mandatory– Resultantly, any E
sale or gift of property situated in India by a foreigner in
contravention thereof would be unenforceable in law– Gift deeds
in favour of respondent no.1being unenforceable in law, he had no
clear title to further transfer the same – Impugned judgment and
decree of the Trial Court as confirmed by the High Court, set aside F
– Suit filed by predecessor of the appellant and respondent no.4
decreed in toto – Appellant being the legal representative of the
plaintiff is entitled for possession of the suit property being the
owner thereof and also for mesne profits for the relevant period –
Interpretation of Statutes –Contract Act, 1872 – s.23 – Code of
Civil Procedure, 1908 – Or.20, r.12 – Constitution of India – Article G
142.
Foreign Exchange Regulation Act, 1973:
Object and purpose of – s.31 – Discussed.
H
953
954 SUPREME COURT REPORTS [2021] 1 S.C.R.
A s.47 – Application of – Held: s.47 applies to all the contracts
or agreements covered under the 1973 Act, which require previous
permission of the RBI.
Proviso to s.31 – Exception under – Discussed.
ss.29, 31 – Held: There is no possibility of ex post facto
B permission being granted by the RBI u/s.31 unlike in the
case of s.29.
ss.31, 63 – “property” in s.63 – Held: Expression “property”
in s.63 takes within its sweep immovable property referred to in
s.31.
C
Interpretation of Statutes – Prohibition; negative words – Held:
A contract is void if prohibited by a statute under a penalty, even
without express declaration that the contract is void, because such
a penalty impliesa prohibition – Prohibition and negative words
can rarely be directory – Foreign Exchange Regulation Act, 1973 –
D ss.31, 47, 50, 63.
Words & Phrases – void, voidable – Purport of – Discussed.
Allowing the appeal, the Court
HELD: 1.1 The object and purpose for which the Foreign
E Exchange Regulation Act, 1973 was brought into force was to
consolidate and amend the law relating to certain payments,
dealings in foreign exchange and securities, transactions indirectly
affecting foreign exchange and the import and export of currency,
for the conservation of the foreign exchange resources of the
country and the proper utilisation thereof in the interests of the
F
economic development of the country. The avowed object of
Section 31 of the 1973 Act was to minimise the drainage of foreign
exchange by way of repatriation of income from immovable
property and sale proceeds in case of disposal of property by a
person, who is not a citizen of India. As is noticed from the title of
G Section 31, it is to put restriction on acquisition, holding and
disposal of immovable property in India by foreigners-non citizens.
On a bare reading of sub-Section (1), it is crystal clear that a
person, who is not a citizen of India, is not competent to dispose
of by sale or gift, as in this case, any immovable property situated
in India without previous general or special permission of the
H
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 955
RBI. The only exception provided in the proviso is that of A
acquisition or transfer of immovable property by way of lease for
a period not exceeding five years. This provision applies to
foreign citizens and foreign and FERA companies only. A non--
resident Indian citizen is not covered thereunder. Sub-Section
(2) mandated such person, who is not a citizen of India, to make
B
an application to the RBI in the prescribed form making necessary
disclosures. Sub- Section (3) postulates that on receipt of such
an application, the RBI after due inquiry as it deems fit, either
may grant or refuse to grant the permission applied for. The
second proviso to sub- Section (3) provides for a default
permission, if no response is received to the application within C
the specified period. What is significant to notice is that as per
sub-Section (4), every person, who is not a citizen of India, holding
immovable property situated in India at the time of
commencement of the 1973 Act, is obliged to make declaration
within ninety days from the commencement of the 1973 Act or
D
such further period as may be allowed by the RBI. A person, who
is not a citizen of India, holding immovable property situated in
India was obliged to make disclosure and declaration in that behalf
to the RBI; and in any case, if he/she intended to dispose of such
property by sale, mortgage, lease, gift, settlement or otherwise,
was expected to obtain previous general or special permission E
from the RBI. Only then, transfer so intended could be given
effect to. It is true that the consequences of failure to seek such
previous permission has not been explicitly specified in the same
provision or elsewhere in the Act, but then the purport of Section
31 must be understood in the context of intent with which it has
F
been enacted, the general policy not to allow foreign investment
in landed property/buildings constructed by foreigners or to allow
them to enter into real estate business to eschew capital
repatriation, including the purport of other provisions of the
Act, such as Sections 47, 50 and 63. [Paras 13- 15][969-E-F;
970-B-C; 971-D-H; 972-A-C] G
1.2 Section 47, sub--Section (1) clearly envisages that no
person shall enter into any contract or agreement which would
directly or indirectly evade or avoid in any way the operation of
any provision of the 1973 Act or of any rule, direction or order
made thereunder. What is significant to notice is that sub-Section H
956 SUPREME COURT REPORTS [2021] 1 S.C.R.
A (2) declares that the agreement shall not be invalid if it provides
that thing shall not be done without the permission of the Central
Government or the RBI. That would be the implied requirement
of the agreement in terms of this provision. In other words, though
ostensibly the agreement would be a conditional one made subject
to permission of the Central Government or the RBI, as the case
B
may be and if such term is not expressly mentioned in the
agreement, it shall be an implied term of every contract governed
by the law - of obtaining permission of the Central Government or
the RBI before doing the thing provided for in the agreement. In
that sense, such a term partakes the colour of a statutory contract.
C Notably, Section 47 of the 1973 Act applies to all the contracts or
agreements covered under the 1973 Act, which require previous
permission of the RBI. Section 50 reinforces the position that
transfer of land situated in India by a person, who is not a citizen
of India, would visit with penalty. Section 63 of the 1973 Act
empowers the court trying a contravention under Section 56 which
D
includes one under Section 51 of the 1973 Act, to confiscate the
currency, security or any other money or property in respect of
which the contravention has taken place. The expression
“property” in Section 63, takes within its sweep immovable
property referred to in Section 31 of the 1973 Act. To put it
E differently, the requirement specified in Section 31 is mandatory
and, therefore, contract or agreement including the gift pertaining
to transfer of immovable property of a foreign national without
previous general or special permission of the RBI, would be
unenforceable in law. [Paras 16-18][974-E-H; 975-B-C]
F Dhurandhar Prasad Singh v. Jai Prakash University
& Ors. (2001) 6 SCC 534 : 2001 (3) SCR 1129 – relied
on.
R. v. Paddington Valuation Officer, ex p Peachey
Property Corpn. Ltd. (1965) 2 All ER 836 – referred
G to.
1.3 A contract is void if prohibited by a statute under a
penalty, even without express declaration that the contract is void,
because such a penalty implies a prohibition. Further, it is settled
that prohibition and negative words can rarely be directory. In
H
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 957
the present dispensation provided under Section 31 of the 1973 A
Act read with Sections 47, 50 and 63 of the same Act, although it
may be a case of seeking previous permission it is in the nature
of prohibition. In every case where a statute imposes a penalty
for doing an act, though, the act not prohibited, yet the thing is
unlawful because it is not intended that a statute would impose a
B
penalty for a lawful act. When penalty is imposed by statute for
the purpose of preventing something from being done on some
ground of public policy, the thing prohibited, if done, will be treated
as void, even though the penalty if imposed is not enforceable.
[Para 20][977-D-G]
Mannalal Khetan & Ors. v. Kedar Nath Khetan & Ors. C
(1977) 2 SCC 424: 1977 (2) SCR 190 – relied on.
1.4 From the analysis of Section 31 of the 1973 Act and
upon conjoint reading with Sections 47, 50 and 63 of the same
Act, it is held that the requirement of taking “previous”
permission of the RBI before executing the sale deed or gift D
deed is the quintessence; and failure to do so must render the
transfer unenforceable in law. The dispensation under Section
31 mandates “previous” or “prior” permission of the RBI before
the transfer takes effect. For, the RBI is competent to refuse to
grant permission in a given case. The sale or gift could be given E
effect and taken forward only after such permission is accorded
by the RBI. There is no possibility of ex post facto permission
being granted by the RBI under Section 31 of the 1973 Act
unlike in the case of Section 29. Before grant of such permission,
if the sale deed or gift deed is challenged by a person affected by
the same directly or indirectly and the court declares it to be F
invalid, despite the document being registered, no clear title
would pass on to the recipient or beneficiary under such deed.
The clear title would pass on and the deed can be given effect to
only if permission is accorded by the RBI under Section 31 of the
1973 Act to such transaction. In light of the general policy that G
foreigners should not be permitted/allowed to deal with real estate
in India; the peremptory condition of seeking previous permission
of the RBI before engaging in transactions specified in Section
31 of the 1973 Act and the consequences of penalty in case of
contravention, the transfer of immovable property situated in India
H
958 SUPREME COURT REPORTS [2021] 1 S.C.R.
A by a person, who is not a citizen of India, without previous
permission of the RBI must be regarded as unenforceable and
by implication a prohibited act. That can be avoided by the RBI
and also by anyone who is affected directly or indirectly by such a
transaction. There is no reason to deny remedy to a person, who
is directly or indirectly affected by such a transaction. He can set
B
up challenge thereto by direct action or even by way of collateral
or indirect challenge. Thus, until permission is accorded by the
RBI, it would not be a lawful contract or agreement within the
meaning of Section 10 read with Section 23 of the Contract Act.
For, it remains a forbidden transaction unless permission is
C obtained from the RBI. The fact that the transaction can be taken
forward after grant of permission by the RBI does not make the
transaction any less forbidden at the time it is entered into. It
would nevertheless be a case of transaction opposed to public
policy and, thus, unlawful. [Paras 25-27][982-B-H; 983-A]
D Life Insurance Corporation of India v. Escorts Ltd. &
Ors. (1986) 1 SCC 264 : 1985 (3) Suppl. SCR 909
– followed.
1.5 Provision for penalty under Section 50 for contravention
referred to in Section 31, does not mean that the requirement of
previous permission of RBI is directory or a mere formality. It is
E open to the legislature to provide two different consequences
for the violation. Further, Section 63 of the 1973 Act clearly refers
to property in respect of which contravention has taken place for
being confiscated to the Central Government. The expression
“property” therein would certainly take within its sweep an
F immovable property referred to in Section 31 of the Act. The
expression “property” in Section 63 is an inclusive term and,
therefore, there is no reason to assume that consequence of
confiscation may not apply to immovable property in respect of
which contravention of the provisions of sub-Section (1) of Section
31 had taken place. The transaction of gift deed without previous
G permission of the RBI may not be nullity, but certainly not
enforceable in law until such permission is granted.
[Paras 29, 30][983-G-H; 984-C-E]
1.6 The requirement of seeking previous general or special
permission of the RBI in respect of transaction covered by Section
H 31 of the 1973 Act is mandatory. Resultantly, any sale or gift of
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 959
property situated in India by a foreigner in contravention thereof A
would be unenforceable in law. The stated gift deeds dated
11.03.1977 and 19.04.1980 in favour of respondent no.1 being
unenforceable in law, respondent no.1 had no clear title to transfer
the same to Dr. ‘TC’ vide purported sale deed dated 15.09.2005.
The condition predicated in Section 31 of the 1973 Act of obtaining
B
“previous” general or special permission of the RBI for transfer
or disposal of immovable property situated in India by sale or
mortgage by a person, who is not a citizen of India, is mandatory.
Until such permission is accorded, in law, the transfer cannot be
given effect to; and for contravening with that requirement, the
concerned person may be visited with penalty under Section 50 C
and other consequences provided for in the 1973 Act. [Paras 35,
36, 38][987-D-E; 988-A-C]
1.7 A priori, the decisions of concerned High Courts taking
the view that Section 31 of the 1973 Act is not mandatory and the
transaction in contravention thereof is not void or unenforceable, D
is not a good law. However, transactions which have already
become final including by virtue of the decision of the court of
competent jurisdiction, need not be reopened or disturbed in
any manner because of this pronouncement. This declaration/
direction is being issued in exercise of the plenary power under
Article 142 of the Constitution of India. For, there has been a E
paradigm shift in the general policy of investment by foreigners
in India and more particularly, the 1973 Act itself stands repealed.
The decisions of the High Courts taking contrary view, are
overruled, albeit, prospectively. The impugned judgment and
decree of the Trial Court, as confirmed by the High Court, is set F
aside. O.S.No.10079 of 1984 filed by predecessor of the appellant
and respondent no.4 stands decreed in toto in favour of the
plaintiff. The appellant (being the legal representative of the
plaintiff) is entitled for possession of the suit property being the
owner thereof and also for mesne profits for the relevant period
for which a separate inquiry be conducted under Order 20 G
Rule 12 of the Code of Civil Procedure, 1908. [Paras 39, 40]
[988-D-G]
Piara Singh v. Jagtar Singh and Anr. AIR 1987 Punjab
and Haryana 93; R. Sambasivam v. Thangavelu
H
960 SUPREME COURT REPORTS [2021] 1 S.C.R.
A Dhanabagyam 2001-1-L.W. 161; Ajit Prashad Jain v.
N.K. Widhani & Ors. AIR 1990 Del 42; Tufanu
Chouhan & Ors. v. Md. Abdur Rahman & Ors. (1993)
1 Gau LR 306; Geeta Reinboth v. Mrs. J. Clairs Brohier
through LRs. Mrs. Cheryl Brohier Gosens & Ors.
(2005) 1 MP LJ 122; Sivaprakasam v. Ilangovan &
B
Ors. (2010) 3 MWN (Civil) 525; Mathu Sree Akkabai
Ammani Charitable Trust & Ors. v. Samikannu (2013)
1 LW 136 – overruled.
Renusagar Power Co. Ltd. v. General Electric Co. 1994
Supp (1) SCC 644: 1993 (3) Suppl. SCR 22; Vijay
C Karia & Ors. v. Prysmian Cavi E Sistemi SRL & Ors.
(2020) 11 SCC 1; Dhurandhar Prasad Singh v. Jai
Prakash University & Ors. (2001) 6 SCC 534: 2001
(3) SCR 1129 – relied on.
Janki Bai v. Ratan Melu AIR 1962 MP 117
D – distinguished.
Joaquim MascarenhasFiuza v. Jaime Rebello & Anr.
1986 SCC OnLine Bom 234; Mrs. Shoba Viswanatha
v. D.P. Kingsley 1996 (I) CTC 620 – approved.
E Union of India & Ors. v. A.K. Pandey (2009) 10 SCC
552: 2009 (14) SCR 528; Union of India v. Colonel
L.S.N. Murthy & Anr. (2012) 1 SCC 718: 2011 (13)
SCR 295; Shri Lachoo Mal v. Shri RadheyShyam (1971)
1 SCC 619; Waman Rao & Ors. v. Union of India &
Ors. (1981) 2 SCC 362 : 1981 (2) SCR 1; Gherulal
F Parakh v. Mahadeodas Maiya & Ors. AIR 1959 SC
781 : 1959 Suppl. SCR 406; Rattan Chand Hira Chand
v. Askar Nawaz (Dead) by L.Rs. & Ors. 1991 (3) SCC
67: 1991 (1) SCR 327 – referred to.
Sahruvan Nachair & Anr. v. V.S. Mohammed Hussain
G Maracair (2001) 1 Mad LJ 188; William Babu &Anr.
v. Helma Roy Alias Emily Carmel (2018) 1 KLJ 525;
Beharilal Maudgi v. The Secretary to Govt. of A.P. Home
Department, Hyderabad & Ors. 1986 (2) ALT 241
– referred to.
H
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 961
Herbert Wagg & Co. Ltd., Re (1956) 1 Ch 323 A
– referred to.
Case Law Reference
[1985] 3 Suppl. SCR 909 followed Para 7
[1993] 3 Suppl. SCR 22 relied on Para 7 B
(2020) 11 SCC 1 relied on Para 7
[1981] 2 SCR 1 referred to Para 9
[2001] 3 SCR 1129 relied on Para 19
[1977] 2 SCR 190 relied on Para 20 C
[2009] 14 SCR 528 referred to Para 21
[2011] 13 SCR 295 referred to Para 21
(1971) 1 SCC 619 referred to Para 21
[1959] Suppl. SCR 406 referred to Para 34 D
[1991] 1 SCR 327 referred to Para 34
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9546
of 2010.
From the Judgment and Order dated 01.10.2009 of the High Court E
of Karnataka at Bangalore in RFA No. 1001 of 2001.
C. Aryama Sundaram, Sr.Adv., Navkesh Batra, Sandeep Narain,
B.R. Dhanlaxmi, M/S. S. Narain & Co., Yatish Mohan, Subhash Chandra
Sagar, E. C. Vidya Sagar, Advs. for the appearing parties.
The Judgment of the Court was delivered by F
A. M. KHANWILKAR, J.
1. The central issue in this appeal is in reference to Section 31 of
the Foreign Exchange Regulation Act, 19731. To wit, transaction (specified
in Section 31 of the 1973 Act) entered into in contravention of that provision G
is void or is only voidable and it can be voided at whose instance?
2. The undisputed facts are that one Mrs. F.L. Raitt, widow of
late Mr. Charles Raitt, a foreigner and the owner of the property in
question, gifted it to respondent No.1 (Vikram Malhotra) without obtaining
1
For short, “the 1973 Act” H
962 SUPREME COURT REPORTS [2021] 1 S.C.R.
A previous permission of the Reserve Bank of India2 under Section 31 of
the 1973 Act. Further, before executing the gift deed, she had executed
an agreement of sale in favour of one Mr. R.P. David, father of appellant
(Asha John Divianathan) and husband of respondent No.4 (Mrs. R.P.
David, wife of Mr. R.P. David). That agreement was executed on
05.04.1976 whereunder the title deed of the schedule property was
B
delivered by Mrs. F.L. Raitt to late Mr. R.P. David. However, Mrs. F.L.
Raitt gifted the portion of schedule property admeasuring 12,306 square
feet, vide gift deed dated 11.03.1977, in favour of respondent No.1 without
seeking previous permission of the RBI under Section 31 of the 1973
Act. She then executed a supplementary gift deed in favour of respondent
C No.1 on 19.04.1980. Even this deed was executed by Mrs. F.L. Raitt
without seeking previous permission of the RBI. The respondent claimed
that a power of attorney was executed in his favour by Mrs. F.L. Raitt
on 09.01.1982, which it appears, was revoked by Mrs. F.L. Raitt on
03.06.1982. Thereafter, Mrs. F.L. Raitt executed a ratificatory agreement
to sell the schedule property in favour of Mr. R.P. David (predecessor
D
of the appellant and respondent no.4) on 04.12.1982, followed by a power
of attorney in favour of Mr. Peter J. Philip dated 26.01.1983. That a
formal permission of RBI under Section 31 of the 1973 Act was then
sought for completing the transaction in favour of Mr. R.P. David
(predecessor of the appellant and respondent no.4). The RBI granted
E that permission on 02.04.1983, permitting transfer of the immovable
property No.12 (old No.10A), Magrath Road, admeasuring 35,470 square
feet in favour of Mr. R.P. David (predecessor of the appellant and
respondent no.4). Consequent to the said permission of the RBI, a
registered sale deed came to be executed by Mrs. F.L. Raitt in favour of
Mr. R.P. David (predecessor of the appellant and respondent no.4) on
F
09.04.1983. However, Mrs. F.L. Raitt filed a suit being O.S. No.10328
of 1983, on 30.07.1983, to declare the power of attorney dated 26.01.1983
given to Mr. Peter J. Philip as null and void and for cancellation and
setting aside of the registered sale deed dated 09.04.1983 executed in
favour of Mr. R.P. David (predecessor of the appellant and respondent
G no.4) - pertaining to the entire property admeasuring 35,470 square feet.
The said Mrs. F.L. Raitt, however, expired on 08.01.1984 and after her
death, Mrs. Ingrid L. Greenwood was substituted as her legal
representative in the pending suit. Mr. R.P. David (predecessor of the
appellant and respondent no.4) and others then filed O.S. No.10079 of
2
H For short, “the RBI”
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 963
[A. M. KHANWILKAR, J.]
1984 on 10.02.1984 against respondent No.1 (Vikram Malhotra) praying A
that the gift deed and the supplementary deed allegedly executed in his
favour in respect of portion of the larger property to the extent of 12,306
square feet bearing No.12 (Old No.10A) be declared as null and void
and not binding and consequentially for relief of possession, permanent
injunction and mesne profits. Mr. R.P. David (predecessor of the appellant
B
and respondent no.4) also filed O.S. No.10155 of 1984 against Mrs.
Ingrid L. Greenwood and Mr. Clive Greenwood, who were claiming to
be successor in title of Mrs. F.L. Raitt, for declaration and possession of
entire property No.12 (Old No.10) admeasuring 35,470 square feet. All
the three suits were tried and decided by the City Civil & Sessions Judge,
Mayo, Bangalore3. C
3. As regards the suit filed by Mrs. F.L. Raitt and Mrs. Ingrid L.
Greenwood bearing suit No.10328 of 1983, the Trial Court had framed
as many as 11 issues, which read thus:
“1) Whether the plaintiffs prove that the power of attorney dated
26.1.83 executed by the first plaintiff in favour of the 2nd defendant D
was procured by fraud, mis-representation and undue influence
and the same was taken without her knowledge?
2) Whether the plaintiff proves that the power of attorney dated
26.1.83 executed by the first plaintiff in favour of the second
defendant is null and void and not binding on the first plaintiff? E
3) Whether the plaintiffs are entitled for permanent injunction
restraining the defendant – 2 from acting in any way on the strength
of the alleged power of attorney dated 26.1.1983?
4) Whether the plaintiff proves that the 2nd defendant fraudulently F
and without any legal authority of the first plaintiff executed the
sale deed dated 9.4.1983 in favour of the 1st defendant in respect
of the suit schedule property?
5) Whether the plaintiff further proves that the said sale deed
was never intended to be registered by the first plaintiff nor the
G
second defendant was authorized or empowered to act as her
General Power of attorney holder for that purpose?
6) Whether the plaintiffs are entitled for declaration for the
cancellation of the sale deed dt. 9.4.1983?
3
For short, “the Trial Court” H
964 SUPREME COURT REPORTS [2021] 1 S.C.R.
A 7) Whether the plaintiffs further prove that they are in actual and
lawful possession of the suit schedule property?
8) Whether the defendants prove that the sale deed is a genuine
document and the same is binding on the plaintiff?
9) Whether the plaintiffs are entitled for permanent injunction as
B prayed for?
10) To what reliefs are the parties entitled?
11) What order or decree?”
After analysing the pleadings and evidence on record, the Trial
C Court vide judgment and decree dated 31.08.2001 proceeded to dismiss
this suit. This judgment is not the subject matter of the present appeal.
4. In the suit filed by Mr. R.P. David (predecessor of the appellant
and respondent no.4) being O.S.No.10079 of 1984, the Trial Court framed
9 issues as follows:
D
“1. Do Plaintiffs prove that the late Florence L. Raitt agreed to
sell the entire suit property in favour of deceased R.P. David?
2. Do they next prove that Florence L. Raitt executed a ratified
agreement dated 04.12.1982 after receiving Rs.One lakh as
contended?
E
3. Are the gift deed dated 11.03.1977 and the supplementary deed
dated 19.04.1980 in favour of the defendant void being hit by the
provisions of the Foreign Exchange Regulation Act, 1973, as
alleged?
F 4. Does defendant prove that the said documents and transactions
are not hit by the Foreign Exchange Regulation Act, 1973 and
they are valid in law?
5. Does defendant prove the General Power of Attorney executed
by Florence L. Raitt in favour of Mr. Peter Philip is not true and
G genuine?
6. Do plaintiffs prove that deceased David purchased the entire
suit property as contended and the same is binding on the
defendant?
7. Do plaintiffs prove that they are entitled to recover past mesne
H profits at the rate of Rs.200/- per month?
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 965
[A. M. KHANWILKAR, J.]
8. Are plaintiffs entitled to declaration, possession and injunction? A
9. What relief or decree?”
After analysing the pleadings and evidence on record, the Trial
Court vide separate judgment and decree dated 31.08.2001 was pleased
to dismiss even this suit.
B
5. While dealing with the third suit filed by Mr. R.P. David
(predecessor of the appellant and respondent no.4), the Trial Court framed
10 issues, which read thus:
“1) Whether the plaintiff proves that they are the owner of the
suit schedule property under the terms of the sale deed dated C
9.4.83?
2) Whether the plaintiff further proves that Mrs. Florence L. Raitt
executed the General Power of Attorney dated 26.1.83 in favour
of Mr. Peter Philip on her own free will?
3) Whether the defendant proves that General Power of Attorney D
dt. 26.1.1983 was procured by fraud, misrepresentation, coercion,
undue influence and in breach of trust?
4) Whether the defendants further prove that the suit schedule
property was bequeathed to defendant – 1 under the will executed
by Mrs. Florence Raitt absolutely and unconditionally? E
5) Whether the defendants further prove that defendant 1 is the
absolute owner in actual possession of the suit schedule property?
6) Whether the second defendant is a necessary party to the suit?
7) Whether the plaintiff is entitled for a declaration as prayed for? F
8) Whether the plaintiff is entitled for mesne profits? If so, at
what rate?
9) Whether the plaintiff is entitled to the possession of the suit
schedule property?
G
10) What order or decree?”
After analysing the pleadings and evidence on record, the Trial
Court vide separate judgment and decree dated 31.08.2001 was pleased
to allow the suit in the following terms:
H
966 SUPREME COURT REPORTS [2021] 1 S.C.R.
A “ORDER
The suit of the plaintiff is decreed. The plaintiff is hereby declared
that he is the absolute owner of the suit property and he is entitled
to mesne profits from 9.1.84 till the end of 1990. Separate enquiry
shall be initiated under Order 20 Rule 12 CPC for its determination.
B Having regard to the circumstances of the case, no order as to
costs.
Draw the decree accordingly.”
Even this judgment is not the subject matter of the present appeal.
C 6. The appellant along with respondent No.4, however, had filed
first appeal before the High Court of Karnataka at Bangalore being
R.F.A. No.1001 of 2001 against the judgment and decree dated
31.08.2001 passed by the Trial Court in O.S. No.10079 of 1984. In this
appeal, therefore, the limited issue is about the validity of the gift deed
D dated 11.03.1977 and the supplementary deed dated 19.04.1980 both
executed in favour of respondent No.1 by Mrs. F.L. Raitt in respect of
portion of the larger property admeasuring 12,306 square feet. As regards
the finding of fact recorded by the Trial Court in reference to the said
challenge, the High Court concurred with the same, but proceeded to
examine the solitary legal point raised by the appellant before the High
E Court regarding validity of the stated gift deeds being in violation of
Section 31 of the 1973 Act and, therefore, void and unenforceable in
law. The learned Single Judge of the High Court essentially relying on
the decision of the Punjab & Haryana High Court in the case of Piara
Singh v. Jagtar Singh and Anr. 4, proceeded to negative the said
F challenge and held that lack of permission under Section 31 of the 1973
Act does not render the subject gift deeds as void much less illegal and
unenforceable. Accordingly, the first appeal jointly filed by the appellant
and respondent No.4 herein came to be dismissed vide impugned
judgment and decree dated 01.10.2009.
7. In the present appeal, the sole point urged by the appellant is
G
that the stated gift deeds dated 11.03.1977 and 19.04.1980 in favour of
respondent No.1 are null and void and not binding on the appellant and
respondent no.4; and in any case are unenforceable in law, in light of the
mandate of Section 31 of the 1973 Act. According to the appellant, the
4
H AIR 1987 Punjab and Haryana 93
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 967
[A. M. KHANWILKAR, J.]
dispensation specified in the said provision is mandatory and no A
transaction in contravention thereof would be enforceable in law. That
position is reinforced by Section 47 of the same Act. Further, violation of
Section 31 has also been made punishable under Section 50 of the 1973
Act. In support of this submission, reliance is placed on the dictum of
Constitution Bench of this Court in Life Insurance Corporation of India
B
v. Escorts Ltd. & Ors. 5. Reliance has also been placed on the
observations made by three-Judge Bench of this Court in Renusagar
Power Co. Ltd. v. General Electric Co.6andVijay Karia & Ors. v.
Prysmian Cavi E Sistemi SRL & Ors.7. According to the appellant,
the reasons weighed with the Punjab & Haryana High Court in Piara
Singh (supra) are manifestly wrong. That decision has not analysed the C
true scope and purport of Section 31 of the 1973 Act in correct
perspective. Similar view taken by the Madras High Court in R.
Sambasivam v. Thangavelu Dhanabagyam 8, following the decision
in Piara Singh (supra), suffers from the same error. On the same lines
different High Courts have construed Section 31 to mean that the
D
transaction in contravention thereof is not void. (see Ajit Prashad Jain
v. N.K. Widhani & Ors.9, Tufanu Chouhan & Ors. v. Md. Abdur
Rahman & Ors.10, Geeta Reinboth v. Mrs. J. Clairs Brohier through
LRs. Mrs. Cheryl Brohier Gosens & Ors. 11 , Sivaprakasam v.
Ilangovan & Ors.12and Mathu Sree Akkabai Ammani Charitable
Trust & Ors. v. Samikannu13). None of the decisions of the different E
High Courts dealing with the purport of Section 31 of the 1973 Act have
invoked principle that would stand the test of judicial scrutiny. It is urged
that any transaction, which is in violation of Section 31 of the 1973 Act,
would be unenforceable in law until such permission is accorded by the
RBI and for that reason, the gift deeds in question cannot be given effect
F
to or will be of any avail to respondent No.1. Instead, the entire property
No.12 (old No.10A), Magrath Road, admeasuring 35,470 square feet
stood validly transferred in favour of Mr. R.P. David (predecessor of
the appellant and respondent No.4 herein). It is then urged that despite
5
(1986)1 SCC 264
6
1994 Supp (1) SCC 644 G
7
(2020) 11 SCC 1
8
2001 – 1 – L.W. 161
9
AIR 1990 Del 42 (para 26)
10
(1993) 1 Gau LR 306 (paras 5 and 6)
11
(2005) 1 MP LJ 122 (paras 12 to 16)
12
(2010) 3 MWN (Civil) 525 (paras 15 and 16) : 2010 SCC OnLine Mad 4245
13
(2013) 1 LW 136 (para 16) : 2012 SCC OnLine Mad 2769 H
968 SUPREME COURT REPORTS [2021] 1 S.C.R.
A the above, respondent no.1 sought to transfer the stated property to one
Dr. Thomas Chandy under sale deed dated 15.09.2005 (which has not
seen the light of day) by wilfully disobeying the High Court’s interim
order dated 07.04.2005. Hence, this transaction in any case is nullity.
8. Per contra, respondent No.1 would urge that Section 31 is a
B directory provision; and not obtaining previous permission of the RBI
would not render the gift deeds in question invalid. It is urged that since
no consequence is provided in Section 31 or any other provision in the
1973 Act to treat the transaction in violation of Section 31 as void, the
transfer in favour of respondent No.1 cannot be regarded as ineffective
or invalid. Such a transfer would at best be voidable that too only at the
C instance of the RBI and none else. The stipulation under Section 31 is
only a regulatory measure and not one of prohibiting transfer by way of
gift as such. The consequence of such violation is provided for as penalty
under Section 50, for which the concerned parties can be proceeded
against. However, no action has been taken in that regard including by
D the RBI. The decision of the RBI to grant or refuse permission for
transfer is made final. The RBI is exclusively entrusted with the task of
determining the permissibility of the transaction, being repository of
management of foreign exchange of the country.
9. Our attention was invited to the provisions of the Indian Contract
E Act, 187214 and the Transfer of Property Act, 1882, to contend that
there is marked distinction between void and voidable transaction. At
best, the transfer in favour of respondent No.1 may come within the
latter category. It is further urged that different High Courts have
consistently opined that transaction in contravention of Section 31 cannot
be regarded as void and that view needs no interference. Relying on
F Waman Rao & Ors. v. Union of India & Ors.15, the argument is that
following the principle of stare decisis, this Court ought not to
countermand the consistent view of the High Courts prevailing since
1987. It is further urged that the 1973 Act has since been repealed and
therefore, it would be in the fitness of things not to disturb the consistent
G view taken by different High Courts in that regard.
10. We have heard Mr. Navkesh Batra, learned counsel for the
appellant and Mr. C.A. Sundram, learned senior counsel for the
respondent No.1.
14
For short, “the Contract Act”
15
H (1981) 2 SCC 362 (paras 36 to 40)
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 969
[A. M. KHANWILKAR, J.]
11. It is not in dispute that Mrs. F.L. Raitt was not a citizen of A
India. She transferred right, title and interest in the larger property (35,470
square feet) by way of sale to Mr. R.P. David (predecessor of the
appellant and respondent No.4). Around the same time, however, portion
of the larger property (12,306 square feet) was given by her by way of
gift deeds to respondent No.1. As regards sale deed in favour of Mr.
B
R.P. David, that was executed only after previous permission was given
by the RBI for such transfer. However, gift deeds in favour of respondent
No.1 in respect of portion of the larger property are not backed by such
previous permission of the RBI either general or special. Admittedly, no
permission has been taken from the RBI in that regard thus far.
12. It is in this backdrop, the appellant is questioning the validity of C
the transaction or stated transfer in favour of respondent No.1 of property
admeasuring 12,306 square feet, being in contravention of Section 31 of
the 1973 Act. And if that contention succeeds, it must follow that the gift
deeds, though executed in favour of respondent No.1, would be
unenforceable in law. Resultantly, Mr. R.P. David (predecessor of the D
appellant and respondent No.4), had acquired clear title of the larger
property admeasuring 35,470 square feet transferred to him vide registered
sale deed dated 09.04.1983 being backed by previous permission by the
RBI in that regard.
13. Before we analyse Section 31 of the 1973 Act, it is essential E
to understand the object and purpose for which the 1973 Act was brought
into force. It was to consolidate and amend the law relating to certain
payments, dealings in foreign exchange and securities, transactions
indirectly affecting foreign exchange and the import and export of
currency, for the conservation of the foreign exchange resources of the
country and the proper utilisation thereof in the interests of the economic F
development of the country. While introducing the Bill in the Lok Sabha
and explaining the object of Section 31 of the 1973 Act, Mr. Y.B. Chavan,
the then Minister of Finance rose to state as follows:
“As a matter of general policy it has been felt that we should
not allow foreign investment in landed property/buildings G
constructed by foreigners and foreign controlled companies
as such investments offer scope for considerable amount
of capital liability by way of capital repatriation. While we
may still require foreign investments in certain
H
970 SUPREME COURT REPORTS [2021] 1 S.C.R.
A sophisticated branches of industry, there is no reason why
we should allow foreigners and foreign companies to enter
real estate business.”
(emphasis supplied)
14. The avowed object of Section 31 of the 1973 Act was thus to
B minimise the drainage of foreign exchange by way of repatriation of
income from immovable property and sale proceeds in case of disposal
of property by a person, who is not a citizen of India. As is noticed from
the title of Section 31, it is to put restriction on acquisition, holding and
disposal of immovable property in India by foreigners – non citizens. We
C deem it apposite to reproduce Section 31 of the 1973 Act as applicable
at the relevant time, the same reads thus:
“31. Restriction on acquisition, holding, etc., of immovable property
in India.— (1) No person who is not a citizen of India and no
company (other than a banking company) which is not incorporated
D under any law in force in India or in which the non-resident interest
is more than forty per cent shall, except with the previous general
or special permission of the Reserve Bank, acquire or hold or
transfer or dispose of by sale, mortgage, lease, gift, settlement or
otherwise any immovable property situate in India:
E Provided that nothing in this sub-section shall apply to the acquisition
or transfer of any such immovable property by way of lease for a
period not exceeding five years.
(2) Any person or company referred to in sub-section (1) and
requiring a special permission under that sub-section for acquiring,
F or holding, or transferring, or disposing of, by sale, mortgage, lease,
gift, settlement or otherwise any immovable property situate in
India may make an application to the Reserve Bank in such form
and containing such particulars as may be specified by the Reserve
Bank.
(3) On receipt of an application under sub-section (2), the Reserve
G
Bank may, after making such inquiry as it deems fit, either grant
or refuse to grant the permission applied for:
Provided that no permission shall be refused unless the applicant
has been given a reasonable opportunity for making a
representation in the matter:
H
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 971
[A. M. KHANWILKAR, J.]
Provided further that if before the expiry of a period of ninety A
days from the date on which the application was received by the
Reserve Bank, the Reserve Bank does not communicate to the
applicant that the permission applied for has been refused, it shall
be presumed that the Reserve Bank has granted such permission.
Explanation.— In computing the period of ninety days for the B
purposes of the second proviso, the period, if any, taken by the
Reserve Bank for giving an opportunity to the applicant for making
a representation under the first proviso shall be excluded.
(4) Every person and company referred to in sub-section (1) holding
at the commencement of this Act any immovable property situate C
in India shall, before the expiry of a period of ninety days from
such commencement or such further period as the Reserve Bank
may allow in this behalf, make a declaration in such form as may
be specified by the Reserve Bank regarding the immovable
property or properties held by such person or company.”
D
On a bare reading of sub-Section (1), it is crystal clear that a
person, who is not a citizen of India, is not competent to dispose of by
sale or gift, as in this case, any immovable property situated in India
without previous general or special permission of the RBI. The only
exception provided in the proviso is that of acquisition or transfer of
immovable property by way of lease for a period not exceeding five E
years. This provision applies to foreign citizens and foreign and FERA
companies only. A non-resident Indian citizen is not covered thereunder.
Sub-Section (2) mandated such person, who is not a citizen of India, to
make an application to the RBI in the prescribed form making necessary
disclosures. Sub-Section (3) postulates that on receipt of such an F
application, the RBI after due inquiry as it deems fit, either may grant or
refuse to grant the permission applied for. The second proviso to sub-
Section (3) provides for a default permission, if no response is received
to the application within the specified period. What is significant to notice
is that as per sub-Section (4), every person, who is not a citizen of India,
holding immovable property situated in India at the time of G
commencement of the 1973 Act, is obliged to make declaration within
ninety days from the commencement of the 1973 Act or such further
period as may be allowed by the RBI.
15. In other words, a person, who is not a citizen of India, holding
immovable property situated in India was obliged to make disclosure H
972 SUPREME COURT REPORTS [2021] 1 S.C.R.
A and declaration in that behalf to the RBI; and in any case, if he/she
intended to dispose of such property by sale, mortgage, lease, gift,
settlement or otherwise, was expected to obtain previous general or
special permission from the RBI. Only then, transfer so intended could
be given effect to. It is true that the consequences of failure to seek
such previous permission has not been explicitly specified in the same
B
provision or elsewhere in the Act, but then the purport of Section 31
must be understood in the context of intent with which it has been enacted,
the general policy not to allow foreign investment in landed property/
buildings constructed by foreigners or to allow them to enter into real
estate business to eschew capital repatriation, including the purport ofother
C provisions of the Act, such as Sections 47, 50 and 63. Here, we deem it
apposite to reproduce Sections 47, 50 and 63 as applicable at the relevant
time, the same read thus:
“47. Contracts in evasion of the Act.— (1) No person shall enter
into any contract or agreement which would directly or indirectly
D evade or avoid in any way the operation of any provision of this
Act or of any rule, direction or order made thereunder.
(2) Any provision of, or having effect under, this Act that a thing
shall not be done without the permission of the Central Government
or the Reserve Bank, shall not render invalid any agreement by
E any person to do that thing, if it is a term of the agreement that
that thing shall not be done unless permission is granted by the
Central Government or the Reserve Bank, as the case may be;
and it shall be an implied term of every contract governed by the
law of any part of India that anything agreed to be done by any
term of that contract which is prohibited to be done by or under
F any of the provisions of this Act except with the permission of the
Central Government or the Reserve Bank, shall not be done unless
such permission is granted.
(3) Neither the provisions of this Act nor any term (whether express
or implied) contained in any contract that anything for which the
G permission of the Central Government or the Reserve Bank is
required by the said provisions shall not be done without that
permission, shall prevent legal proceedings being brought in India
to recover any sum which, apart from the said provisions and any
such term, would be due, whether as debt, damages or otherwise,
H but—
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 973
[A. M. KHANWILKAR, J.]
(a) the said provisions shall apply to sums required to be paid A
by any judgment or order of any court as they apply in relation
to other sums;
(b) no steps shall be taken for the purpose of enforcing any
judgment or order for the payment of any sum to which the
said provisions apply except as respects so much thereof as B
the Central Government or the Reserve Bank, as the case
may be, may permit to be paid; and
(c) for the purpose of considering whether or not to grant such
permission, the Central Government or the Reserve Bank, as
the case may be, may require the person entitled to the benefit C
of the judgment or order and the debtor under the judgment or
order, to produce such documents and to give such information
as may be specified in the requisition.
(4) Notwithstanding anything contained in the Negotiable
Instruments Act, 1881, neither the provisions of this Act or of any D
rule, direction or order made thereunder, nor any condition, whether
expressed or to be implied having regard to those provisions, that
any payment shall not be made without permission under this Act,
shall be deemed to prevent any instrument being a bill of exchange
or promissory note.
E
***
50. Penalty.— If any person contravenes any of the provisions of
this Act [other than section 13, cl. (a) of sub-section (1) of section
18 and cl. (a) of sub-section (1) of section 19] or of any rule,
direction or order made thereunder, he shall be liable to such penalty F
not exceeding five times the amount or value involved in any such
contravention or five thousand rupees, whichever is more, as may
be adjudged by the Director of Enforcement or any other officer
of Enforcement not below the rank of an Assistant Director of
Enforcement specially empowered in this behalf by order of the
Central Government (in either case hereinafter referred to as the G
adjudicating officer).
***
63. Confiscation of currency, security, etc.— Any court trying a
contravention under section 56 and the adjudicating officer
H
974 SUPREME COURT REPORTS [2021] 1 S.C.R.
A adjudging any contravention under section 51 may, if it or he thinks
fit and in addition to any sentence or penalty which it or he may
impose for such contravention, direct that any currency, security
or any other money or property in respect of which the
contravention has taken place shall be confiscated to the Central
Government and further direct that the foreign exchange holdings,
B
if any, of the person committing the contravention or any part
thereof, shall be brought back into India or shall be retained outside
India in accordance with the directions made in this behalf.
Explanation.— For the purposes of this section, property in respect
of which contravention has taken place shall include—
C
(a) deposits in a bank, where the said property is converted
into such deposits;
(b) Indian currency, where the said property is converted into
that currency;
D (c) any other property which has resulted out of the conversion
of that property.”
16. Reverting to Section 47, sub-Section (1) clearly envisages
that no person shall enter into any contract or agreement which would
directly or indirectly evade or avoid in any way the operation of any
E provision of the 1973 Act or of any rule, direction or order made
thereunder. What is significant to notice is that sub-Section (2) declares
that the agreement shall not be invalid if it provides that thing shall not be
done without the permission of the Central Government or the RBI.
That would be the implied requirement of the agreement in terms of this
F provision. In other words, though ostensibly the agreement would be a
conditional one made subject to permission of the Central Government
or the RBI, as the case may be and if such term is not expressly
mentioned in the agreement, it shall be an implied term of every contract
governed by the law — of obtaining permission of the Central Government
or the RBI before doing the thing provided for in the agreement. In that
G sense, such a term partakes the colour of a statutory contract.Notably,
Section 47 of the 1973 Act applies to all the contracts or agreements
covered under the 1973 Act, which require previous permission of the
RBI.
17. Section 50 reinforces the position that transfer of land situated
H in India by a person, who is not a citizen of India, would visit with penalty.
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 975
[A. M. KHANWILKAR, J.]
Indeed, inserting such a provision does not mean that the 1973 Act is a A
penal statute, but is to provide for penal consequence for contravention
of provisions, such as Section 31 of the 1973 Act.
18. Section 63 of the 1973 Act empowers the court trying a
contravention under Section 56 which includes one under Section 51 of
the 1973 Act, to confiscate the currency, security or any other money or B
property in respect of which the contravention has taken place. The
expression “property” in Section 63, takes within its sweep immovable
property referred to in Section 31 of the 1973 Act. To put it differently,
the requirement specified in Section 31 is mandatory and, therefore,
contract or agreement including the gift pertaining to transfer of immovable
property of a foreign national without previous general or special C
permission of the RBI, would be unenforceable in law.
19. At this stage, it may be useful to keep in mind the purport of
expression “void” and “voidable”. For that, we may advert to the
exposition in the case of Dhurandhar Prasad Singh v. Jai Prakash
University & Ors.16, which had noted the dictum of Lord Denning in R. D
v. Paddington Valuation Officer, ex p Peachey Property Corpn. Ltd. 17
and also in Judicial Review of Administrative Action by de Smith,
Woolf and Jowell and in Judicial Remedies in Public Law by Clive
Lewis, the same read thus:
“19. This question was examined by the Court of Appeal in the E
case of R. v. Paddington Valuation Officer, ex p Peachey
Property Corpn. Ltd. [(1965) 2 All ER 836 : (1966) 1 QB 380 :
(1965) 3 WLR 426 (CA)] where the valuation list was challenged
on the ground that the same was void altogether. On these facts,
Lord Denning, M.R. laid down the law, observing at p. 841 thus: F
“It is necessary to distinguish between two kinds of invalidity.
The one kind is where the invalidity is so grave that the list is a
nullity altogether. In which case there is no need for an order
to quash it. It is automatically null and void without more ado.
The other kind is when the invalidity does not make the list G
void altogether, but only voidable. In that case it stands unless
and until it is set aside. In the present case the valuation list is
not, and never has been, a nullity. At most the first respondent
16
(2001) 6 SCC 534
17
(1965) 2 All ER 836 H
976 SUPREME COURT REPORTS [2021] 1 S.C.R.
A — acting within his jurisdiction — exercised that jurisdiction
erroneously. That makes the list voidable and not void. It
remains good until it is set aside.”
20. de Smith, Woolf and Jowell in their treatise Judicial Review
of Administrative Action, 5th Edn., para 5-044, have summarised
B the concept of void and voidable as follows:
“Behind the simple dichotomy of void and voidable acts (invalid
and valid until declared to be invalid) lurk terminological and
conceptual problems of excruciating complexity. The problems
arose from the premise that if an act, order or decision is ultra
C vires in the sense of outside jurisdiction, it was said to be invalid,
or null and void. If it is intra vires it was, of course, valid. If it
is flawed by an error perpetrated within the area of authority
or jurisdiction, it was usually said to be voidable; that is, valid
till set aside on appeal or in the past quashed by certiorari for
error of law on the face of the record.”
D
21. Clive Lewis in his work Judicial Remedies in Public Law at
p. 131 has explained the expressions “void and voidable” as
follows:
“A challenge to the validity of an act may be by direct action
E or by way of collateral or indirect challenge. A direct action is
one where the principal purpose of the action is to establish
the invalidity. This will usually be by way of an application for
judicial review or by use of any statutory mechanism for appeal
or review. Collateral challenges arise when the invalidity is
raised in the course of some other proceedings, the purpose of
F which is not to establish invalidity but where questions of validity
become relevant.”
22. Thus the expressions “void and voidable” have been the
subject-matter of consideration on innumerable occasions by
courts. The expression “void” has several facets. One type of
G void acts, transactions, decrees are those which are wholly without
jurisdiction, ab initio void and for avoiding the same no declaration
is necessary, law does not take any notice of the same and it can
be disregarded in collateral proceeding or otherwise. The other
type of void act, e.g., may be transaction against a minor without
H being represented by a next friend. Such a transaction is a good
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 977
[A. M. KHANWILKAR, J.]
transaction against the whole world. So far as the minor is A
concerned, if he decides to avoid the same and succeeds in avoiding
it by taking recourse to appropriate proceeding the transaction
becomes void from the very beginning. Another type of void act
may be which is not a nullity but for avoiding the same a declaration
has to be made. Voidable act is that which is a good act unless
B
avoided, e.g., if a suit is filed for a declaration that a document is
fraudulent and/or forged and fabricated, it is voidable as the
apparent state of affairs is the real state of affairs and a party
who alleges otherwise is obliged to prove it. If it is proved that the
document is forged and fabricated and a declaration to that effect
is given, a transaction becomes void from the very beginning. C
There may be a voidable transaction which is required to be set
aside and the same is avoided from the day it is so set aside and
not any day prior to it. In cases where legal effect of a document
cannot be taken away without setting aside the same, it cannot be
treated to be void but would be obviously voidable.”
D
20. It is well established that a contract is void if prohibited by a
statute under a penalty, even without express declaration that the contract
is void, because such a penalty implies a prohibition. Further, it is settled
that prohibition and negative words can rarely be directory. In the present
dispensation provided under Section 31 of the 1973 Act read with Sections
47, 50 and 63 of the same Act, although it may be a case of seeking E
previous permission it is in the nature of prohibition as observed by a
three-Judge Bench of this Court in Mannalal Khetan & Ors. v. Kedar
Nath Khetan & Ors.18. In every case where a statute imposes a penalty
for doing an act, though, the act not prohibited, yet the thing is unlawful
because it is not intended that a statute would impose a penalty for a F
lawful act. When penalty is imposed by statute for the purpose of
preventing something from being done on some ground of public policy,
the thing prohibited, if done, will be treated as void, even though the
penalty if imposed is not enforceable. We may usefully reproduce
paragraphs 18 to 22 of the said reported decision, which
G
read thus:
“18. The High Court said that the provisions contained in Section
108 of the Act are directory because non-compliance with Section
108 of the Act is not declared an offence. The reason given by
18
(1977) 2 SCC 424 H
978 SUPREME COURT REPORTS [2021] 1 S.C.R.
A the High Court is that when the law does not prescribe the
consequences or does not lay down penalty for non-
compliance with the provision contained in Section 108 of
the Act the provision is to be considered as directory. The
High Court failed to consider the provision contained in Section
629(a) of the Act. Section 629(a) of the Act prescribes the penalty
B
where no specific penalty is provided elsewhere in the Act. It is
a question of construction in each case whether the
legislature intended to prohibit the doing of the act
altogether, or merely to make the person who did it liable
to pay the penalty.
C 19. Where a contract, express or implied, is expressly or
by implication forbidden by statute, no court will lend its
assistance to give it effect. (See Mellis v. Shirley L.B. [(1885)
16 QBD 446 : 55 LJQB 143 : 2 TLR 360] ) A contract is void if
prohibited by a statute under a penalty, even without express
D declaration that the contract is void, because such a penalty
implies a prohibition. The penalty may be imposed with intent
merely to deter persons from entering into the contract or for the
purposes of revenue or that the contract shall not be entered into
so as to be valid at law. A distinction is sometimes made
between contracts entered into with the object of
E committing an illegal act and contracts expressly or
impliedly prohibited by statute. The distinction is that in the
former class one has only to look and see what acts the statute
prohibits; it does not matter whether or not it prohibits a contract:
if a contract is made to do a prohibited act, that contract
F will be unenforceable. In the latter class, one has to consider
not what act the statute prohibits, but what contracts it prohibits.
One is not concerned at all with the intent of the parties, if the
parties enter into a prohibited contract, that contract is
unenforceable. (See St. John Shipping Corporation v. Joseph
Rank [(1957) 1 QB 267].) (See also Halsbury’s Laws of England,
G 3rd Edn., Vol. 8, p. 141.)
20. It is well established that a contract which involves in
its fulfilment the doing of an act prohibited by statute is
void. The legal maxim A pactis privatorum publico juri non
derogatur means that private agreements cannot alter the general
H
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 979
[A. M. KHANWILKAR, J.]
law. Where a contract, express or implied, is expressly or by A
implication forbidden by statute, no court can lend its assistance
to give it effect. (See Mellis v. Shirley L.B.) What is done in
contravention of the provisions of an Act of the legislature
cannot be made the subject of an action.
21. If anything is against law though it is not prohibited in B
the statute but only a penalty is annexed the agreement is
void. In every case where a statute inflicts a penalty for doing an
act, though the act be not prohibited, yet the thing is unlawful,
because it is not intended that a statute would inflict a penalty for
a lawful act.
C
22. Penalties are imposed by statute for two distinct purposes:
(1) for the protection of the public against fraud, or for some
other object of public policy; (2) for the purpose of securing certain
sources of revenue either to the State or to certain public bodies.
If it is clear that a penalty is imposed by statute for the
D
purpose of preventing something from being done on some
ground of public policy, the thing prohibited, if done, will
be treated as void, even though the penalty if imposed is
not enforceable.”
(emphasis supplied)
The principle underlying in this decision must apply on all fours E
while analysing the purport of Section 31 of the 1973 Act.
21. The appellant has invited our attention to the dictum in Union
of India & Ors. v. A.K. Pandey19, that where a contract, express or
implied, is expressly or by implication forbidden by statute, no court will
lend its assistance to give it effect. Further, a contract is void if prohibited F
by a statute under a penalty, even without express declaration that the
contract is void, because such a penalty implies a prohibition. Similarly,
in the case of Union of India v. Colonel L.S.N. Murthy & Anr.20, the
Court opined that the contract would be lawful, unless the consideration
and object thereof is of such a nature that, if permitted, it would defeat G
the provisions of law and in such a case the consideration or object is
unlawful and would become void and that unless the effect of an
agreement results in performance of an unlawful act, an agreement which
19
(2009) 10 SCC 552 (paras 14 and 15)
20
(2012) 1 SCC 718 (paras 16 to 19 and 21) H
980 SUPREME COURT REPORTS [2021] 1 S.C.R.
A is otherwise legal cannot be held to be void and if the effect of an
agreement did not result in performance of an unlawful act, as a matter
of public policy, the court should refuse to declare the contract void with
a view to save the bargain entered into by the parties and the solemn
promises made thereunder. The Court adverted to the exposition in the
earlier decision in Shri Lachoo Mal v. Shri Radhey Shyam 21 as to
B
what makes an agreement, which is otherwise legal, void is that its
performance is impossible except by disobedience of law.
22. Notably, the Constitution Bench of this Court in Life Insurance
Corporation of India (supra) had an occasion to examine the objects
and reasons for enacting the 1973 Act. The Court was called upon to
C consider the purport of Section 29 of the 1973 Act, which does not qualify
the words “general or special permission of the Reserve Bank of India”
with word “previous” or “prior” unlike in the case of Section 31 of the
same Act. In paragraph 63, this distinction has been noticed and reference
has been specifically made to Section 31 of the 1973 Act. That makes it
D amply clear that the dispensations provided in Sections 29 and 31, must
be regarded as distinct and violation whereof would visit with different
consequences. As regards Section 29, this Court opined that the
permission can be sought from the RBI at some stage for the purchase
of shares by non-resident companies and not necessarily prior permission.
The Court, therefore, opined that even ex post facto permission can be
E accorded by the RBI in reference to transaction covered by Section 29
of the Act.
23. Significantly, the consequence of contravention of Section 31
of the Act as being rendering the transfer void, is also taken notice of in
the recent decision of a three-Judge Bench of this Court in Vijay Karia
F (supra). It has been so noted in paragraph 88 while distinguishing the
dispensation provided in the Foreign Exchange Management Act, 1999
(FEMA). The Court has noted that FEMA unlike FERA — refers to the
nation’s policy of managing foreign exchange instead of policing foreign
exchange, the policeman being RBI under FERA. Indeed, it is not a
G decision dealing directly with the question involved in the present appeal.
Nevertheless, it does take notice of the strict dispensation under Section
31, as it obtained under the 1973 Act, particularly requiring “previous”
general or special permission of the RBI.
21
(1971) 1 SCC 619
H
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 981
[A. M. KHANWILKAR, J.]
24. Another three-Judge Bench in the case Renusagar Power A
Co. Ltd. (supra) while dealing with the question of enforceability of an
arbitral award, adverted to violation of FERA in reference to Section 47
of the 1973 Act as can be discerned from paragraphs 68 to 84. We need
not dilate on this judgment except to notice the dictum in Herbert Wagg
& Co. Ltd., Re22 reproduced in paragraph 68, which reads thus:
B
“68. … In Herbert Wagg & Co. Ltd., Re [(1956) 1 Ch 323],
Upjohn J., has said:
“It cannot be doubted that legislation intended to protect the
economy of the nation and the general welfare of its inhabitants
regardless of their nationality by various measures of foreign C
exchange control or by altering the value of its currency, is
recognised by foreign courts although its effect is usually partially
confiscatory. Probably there is no civilized country in the world
which has not at some stage in its history altered its currency or
restricted the rights of its inhabitants to purchase the currency of
another country. (p. 349) D
In my judgment these courts must recognize the right of every
foreign State to protect its economy by measures of foreign
exchange control and by altering the value of its currency. Effect
must be given to those measures where the law of the foreign
State is the proper law of the contract or where the movable is E
situate within the territorial jurisdiction of the State.” (p. 351)”
It may be useful to also reproduce paragraph 69 of the judgment,
which reads thus:
“69. The following principle of Private International Law is F
applicable in relation to such legislation:
“212. (1) A contractual obligation may be invalidated or
discharged by exchange control legislation if—
(a) such legislation is part of the proper law of the contract; or
(b) it is part of the law of the place of performance; or G
(c) it is part of English law and the relevant statute or statutory
instrument is applicable to the contract:
22
(1956) 1 Ch 323
H
982 SUPREME COURT REPORTS [2021] 1 S.C.R.
A Provided that foreign exchange legislation will not be applied if it
is used not with the object of protecting the economy of the foreign
State, but as an instrument of oppression or discrimination.” (See :
Dicey & Morris, The Conflict of Laws, 11th Edn., Vol. II, 1466.)”
25. From the analysis of Section 31 of the 1973 Act and upon
B conjoint reading with Sections 47, 50 and 63 of the same Act, we must
hold that the requirement of taking “previous” permission of the RBI
before executing the sale deed or gift deed is the quintessence; and
failure to do so must render the transfer unenforceable in law. The
dispensation under Section 31 mandates “previous” or “prior” permission
of the RBI before the transfer takes effect. For, the RBI is competent to
C refuse to grant permission in a given case. The sale or gift could be
given effect and taken forward only after such permission is accorded
by the RBI. There is no possibility of ex post facto permission being
granted by the RBI under Section 31 of the 1973 Act, unlike in the case
of Section 29 as noted in Life Insurance Corporation of India (supra).
D Before grant of such permission, if the sale deed or gift deed is challenged
by a person affected by the same directly or indirectly and the court
declares it to be invalid, despite the document being registered, no clear
title would pass on to the recipient or beneficiary under such deed. The
clear title would pass on and the deed can be given effect to only if
permission is accorded by the RBI under Section 31 of the 1973 Act to
E such transaction.
26. In light of the general policy that foreigners should not be
permitted/allowed to deal with real estate in India; the peremptory
condition of seeking previous permission of the RBI before engaging in
transactions specified in Section 31 of the 1973 Act and the consequences
F of penalty in case of contravention, the transfer of immovable property
situated in India by a person, who is not a citizen of India, without previous
permission of the RBI must be regarded as unenforceable and by
implication a prohibited act. That can be avoided by the RBI and also by
anyone who is affected directly or indirectly by such a transaction. There
G is no reason to deny remedy to a person, who is directly or indirectly
affected by such a transaction. He can set up challenge thereto by direct
action or even by way of collateral or indirect challenge.
27. In other words, until permission is accorded by the RBI, it
would not be a lawful contract or agreement within the meaning of Section
H 10 read with Section 23 of the Contract Act. For, it remains a forbidden
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 983
[A. M. KHANWILKAR, J.]
transaction unless permission is obtained from the RBI. The fact that A
the transaction can be taken forward after grant of permission by the
RBI does not make the transaction any less forbidden at the time it is
entered into. It would nevertheless be a case of transaction opposed to
public policy and, thus, unlawful. In this view of the matter, the appellant
must succeed and would be entitled for the reliefs claimed in O.S. No.
B
10079 of 1984 for declaration that the gift deed dated 11.03.1977 and
supplementary deed dated 19.04.1980 in favour of respondent No.1 are
invalid, unenforceable and not binding on the plaintiff. A fortiori, the
plaintiff is entitled for possession of the suit property from respondent
no.1 and persons claiming through him, admeasuring 12,306 square feet
and also mesne profits for the relevant period for which a separate inquiry C
needs to be initiated under Order 20 Rule 12 of the Code of Civil
Procedure, 1908.
28. Reverting to the judgment of Punjab & Haryana High Court
in Piara Singh (supra) relied upon in the impugned judgment, it was
held as follows: D
“11. It is true that the section provides that without the previous
permission of the Reserve Bank, a person who is not a citizen of
India, cannot acquire property, but it does not provide that if
someone purchases any property the title therein does not pass to
him. What the Act provides is that if a person contravenes S.31 E
and some other sections, he can be penalized under S.50 and can
also be prosecuted under S.56. However, there is no provision in
the Act which makes transaction void or says that no title in the
property passes to the purchaser in case there is contravention of
the provisions of sub-sec.(1) of S.31. Section 63 contains a
provision regarding confiscation of certain properties but it does F
not contain any provision for confiscation if there is breach of the
provisions of sub-sec.(1) of S.31. Therefore, the property purchased
in contravention of sub-sec.(1) of S.31 is also not liable to
confiscation. In the circumstances, it cannot be held that the
plaintiffs are not entitled to obtain possession of the property or G
recover damages for its use and occupation.”
29. In the first place, provision for penalty under Section 50 for
contravention referred to in Section 31, does not mean that the requirement
of previous permission of RBI is directory or a mere formality. It is open
to the legislature to provide two different consequences for the violation. H
984 SUPREME COURT REPORTS [2021] 1 S.C.R.
A As already noted hitherto, despite the absence of express provision
declaring the transfer void, the intent behind enacting Section 31 and its
purport renders the transfer in contravention thereof unenforceable until
permission for such transaction is granted by the RBI.
30. Suffice it to observe that merely because no provision in the
B Act makes the transaction void or says that no title in the property passes
to the purchaser in case there is contravention of the provisions of Section
31, will be of no avail. That does not validate the transfer referred to in
Section 31, which is not backed by “previous” permission of the RBI.
Further, the Punjab & Haryana High Court erroneously assumed that
there was no provision regarding confiscation of the immovable property
C referred to in Section 31. Section 63 of the 1973 Act clearly refers to
property in respect of which contravention has taken place for being
confiscated to the Central Government. The expression “property” therein
would certainly take within its sweep an immovable property referred to
in Section 31 of the Act. The expression “property” in Section 63 is an
D inclusive term and, therefore, there is no reason to assume that
consequence of confiscation may not apply to immovable property in
respect of which contravention of the provisions of sub-Section (1) of
Section 31 had taken place. The basis of that judgment is tenuous and is
palpably wrong. For the same reason, the decision in R. Sambasivam
(supra) of the Madras High Court is erroneous as it has merely followed
E the dictum of the Punjab & Haryana High Court. Suffice it to observe
that the transaction of gift deed without previous permission of the RBI
may not be nullity, but certainly not enforceable in law until such
permission is granted.
31. In the case of Ajit Prashad Jain (supra) discussion regarding
F consequences of contravention of Section 31 of the 1973 Act is found in
paragraph 26 of the reported decision. Although, this decision is
independent of the view expressed in Piara Singh (supra) by the Punjab
& Haryana High Court, there is no clear analysis of the aspects which
are germane for giving correct interpretation to Section 31 of the 1973
G Act and the effect of consequences for its contravention. For the view
taken by us hitherto, it is unnecessary to dilate on this judgment any
further. Similarly, the Gauhati High Court in the case of Tufanu Chouhan
(supra) essentially relied upon the decision in Piara Singh (supra) of
the Punjab & Haryana High Court. For the reasons already stated while
dealing with Piara Singh (supra), even this judgment will be of no avail
H
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 985
[A. M. KHANWILKAR, J.]
to the respondent. Even the Madhya Pradesh High Court in Geeta A
Reinboth (supra) relied upon Piara Singh (supra) as well as on the
dictum in the book titled Principles of Statutory Interpretation, 8th Edition
by Justice G.P. Singh and upon the decision of the same High Court in
Janki Bai v. Ratan Melu23, Ajit Prashad Jain (supra) and notification
No. GSR 456 (E) dated 26.05.1993 of the RBI (Exchange Control
B
Department) published in 1993 MPLT 242 (109). As regards the dictum
in the book Principles of Statutory Interpretation, that is a general
observation, not specifically dealing with the purport and interpretation
of Section 31 of the 1973 Act. As aforesaid, Section 31 needs to be
interpreted in light of the intent with which the same has been enacted
keeping in mind the general policy not to allow foreigners to transact in C
or hold real estate in India. The case of Janki Bai (supra) had dealt
with the provisions of C.P. & Berar Money Lenders Act, 1934. The
observations made therein are, therefore, in the context of provisions of
that Act. We have already analysed the dictum in Ajit Prashad Jain
(supra) and noted that the same is of no avail to the respondent. Reverting
D
to the stated notification dated 26.05.1993 issued by the RBI, that indeed
is to clarify the scope of Section 31 of the 1973 Act. However, it is
limited to transaction entered into by a foreign citizen of “Indian origin”,
to deal with real estate in India on certain conditions. This notification
has no application to foreigners or so to say the person who is not a
citizen of India, namely, foreign citizens. In the present case, the land E
was owned by a foreign citizen. For which reason, the rigours of Section
31 must apply with full force. Additionally, it must be kept in mind that
the stated notification was issued in 1993, around which time a change
in policy regarding the investment opportunities for non-resident Indians
and foreigners had been crystallised, by opening up of economy in India.
F
In the present case, we are dealing with the transaction effected close
to the coming into force of the 1973 Act i.e., in the year 1977 when
considerations were different and governed by different policy manifested
in the form of enactment of Section 31 of the 1973 Act, spoken to by the
then Finance Minister in the Lok Sabha, forbidding foreigners from dealing
with real estate in India. G
32. The two other decisions of the Madras High Court, namely,
Sivaprakasam (supra) and Mathu Sree Akkabai Ammani Charitable
Trust (supra), were pressed into service. These came to be decided on
similar reasoning adopted in the earlier decision of the same High Court
23
1962 MPLJ 78 : AIR 1962 MP 117 H
986 SUPREME COURT REPORTS [2021] 1 S.C.R.
A in R. Sambasivam (supra) and Piara Singh (supra) of the Punjab &
Haryana High Court. Those decisions will be of no avail to the respondent
in light of the view taken by us on the interpretation of Section 31 of the
1973 Act.
33. We may now usefully advert to the decision of the Bombay
B High Court (Goa Bench) in Joaquim Mascarenhas Fiuza v. Jaime
Rebello & Anr.24, which has taken a different view to interpret Section
31 of the 1973 Act. That dealt with the case of transfer of property
which according to the respondent therein could not be held by the
plaintiff/petitioner, who was a foreign national and not a citizen of India,
in absence of permission given by the RBI in that regard. The Bombay
C High Court took the view that the requirement of seeking previous
permission of the RBI in Section 31 of the 1973 Act is mandatory and a
foreign national could hold the property in India, only if so permitted by
the RBI. The view so taken commends to us. Notably, the Single Judge
of the Madras High Court had followed this dictum in Sahruvan Nachair
D & Anr. v. V.S. Mohammed Hussain Maracair25.
34. It has been brought to our notice that the Kerala High Court in
William Babu & Anr. v. Helma Roy Alias Emily Carmel26, opined
that contract in contravention of Section 31 is void, as previous general
or special permission of the RBI had not been obtained, which in its
view was mandatory. This decision had become final consequent to
E dismissal of SLP (Civil) No.11591 of 2018 on 23.04.2018. Even a Division
Bench of the Madras High Court in Mrs. Shoba Viswanatha v. D.P.
Kingsley27, while considering the purport of Section 31 of the 1973 Act,
vide its erudite judgment considered the scope of Section 23 of the
Contract Act and the principles delineated in that regard in Pollock and
F Mulla Indian Contract Act, VII Edition, page 158 including the decisions
in Joaquim Mascarenhas Fiuza (supra), Beharilal Maudgi v. The
Secretary to Govt. of A.P. Home Department, Hyderabad & Ors.28
and the considerations governing public policy as delineated in Gherulal
Parakh v. Mahadeodas Maiya & Ors.29, Rattan Chand Hira Chand
v. Askar Nawaz (Dead) by L.Rs. & Ors. 30 and other treaties, to
G 24
1986 SCC OnLine Bom 234 : 1986 Mah LJ 1031
25
(2001) 1 Mad LJ 188 : 2000 SCC OnLine Mad 737
26
(2018) 1 KLJ 525 : 2017 SCC OnLine Ker 25269
27
1996 (I) CTC 620 : 1996 SCC Online Mad 319
28
1986 (2) ALT 241
29
AIR 1959 SC 781
30
H 1991 (3) SCC 67
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS. 987
[A. M. KHANWILKAR, J.]
eventually conclude that the position of law is clear that when the A
enforcement of the contract is against any provision of law, that will
amount to enforcement of an illegal contract. The contract per se may
not be illegal. But its enforcement requires compliance of statutory
conditions, failure of which will amount to statutory violation. A court
which is expected to enforce the law, cannot be a party to such a decree.
The view so taken in this judgment commends to us. As a matter of fact, B
this judgment has become final in view of dismissal of SLP (Civil)
No.15024 of 1996 by this Court vide order dated 14.08.1996.
35. For the view that we have taken, it is not possible to
countenance the argument not to disturb the consistent view of different
High Courts on the principle of stare decisis by invoking the dictum in C
Waman Rao (supra), in reference to Section 31 of the 1973 Act. For,
there is conflict of opinion and is not a case of consistent view of all
High Courts, having occasion to deal with interpretation of Section 31 of
the 1973 Act. Resultantly, we had to undertake the exercise of analysing
all the decisions so as to give proper meaning to Section 31 of the 1973
Act. In our opinion, the requirement of seeking previous general or special D
permission of the RBI in respect of transaction covered by Section 31 of
the 1973 Act is mandatory. Resultantly, any sale or gift of property situated
in India by a foreigner in contravention thereof would be unenforceable
in law.
36. As the stated gift deeds dated 11.03.1977 and 19.04.1980 in
E
favour of respondent no.1 being unenforceable in law, respondent no.1
had no clear title to transfer the same to Dr. Thomas Chandy vide
purported sale deed dated 15.09.2005. It is not necessary for us to dilate
on the argument of the appellant that such a sale deed in any case could
not have been executed by respondent No.1 in favour of Dr. Thomas
Chandy in contravention of interim order passed by the High Court on F
07.04.2005 and the effect thereof.
37. As noticed above, the contrary decisions of High Courts have
completely missed the legislative intent and the spirit of enactment of
Section 31, as is manifest from the statement of the then Finance Minister
while tabling the Bill in the Lok Sabha that as a general policy foreign
national cannot be allowed to deal with real estate in India. Besides that G
clear indication, the legislative scheme impels us to take a view which is
reinforced from conjoint reading of Section 31 along with Sections 47,
50 and 63. There is little doubt that the requirement of “previous”
permission of the RBI, to be taken by a foreign national before transacting
in real estate, is mandatory. In other words, without previous permission
H
988 SUPREME COURT REPORTS [2021] 1 S.C.R.
A of the RBI, such a transaction is forbidden and if entered into, would be
unenforceable in law.
38. We hold that the condition predicated in Section 31 of the
1973 Act of obtaining “previous” general or special permission of the
RBI for transfer or disposal of immovable property situated in India by
sale or mortgage by a person, who is not a citizen of India, is mandatory.
B
Until such permission is accorded, in law, the transfer cannot be given
effect to; and for contravening with that requirement, the concerned
person may be visited with penalty under Section 50 and other
consequences provided for in the 1973 Act. Hence, the Trial Court as
well as the High Court committed manifest error in dismissing the suit
C filed by the plaintiff for a declaration in respect of suit property
admeasuring 12,306 square feet and for consequential reliefs referred
to therein.
39. A priori, we conclude that the decisions of concerned High
Courts taking the view that Section 31 of the 1973 Act is not mandatory
and the transaction in contravention thereof is not void or unenforceable,
D is not a good law. However, transactions which have already become
final including by virtue of the decision of the court of competent
jurisdiction, need not be reopened or disturbed in any manner because of
this pronouncement. This declaration/direction is being issued in exercise
of our plenary power under Article 142 of the Constitution of India. For,
there has been a paradigm shift in the general policy of investment by
E
foreigners in India and more particularly, the 1973 Act itself stands
repealed. Accordingly, we deem it appropriate to overrule the decisions
of the High Courts, taking contrary view, albeit,prospectively.
40. In view of the above, the appeal is allowed. The impugned
judgment and decree of the Trial Court, as confirmed by the High Court,
F is set aside. Instead, O.S. No.10079 of 1984 filed by Mr. R.P. David
(predecessor of the appellant and respondent no.4) stands decreed in
toto in favour of the plaintiff. The appellant (being the legal representative
of the plaintiff) is entitled for possession of the suit property being the
owner thereof and also for mesne profits for the relevant period for
which a separate inquiry be conducted under Order 20 Rule 12 of the
G Code of Civil Procedure, 1908. Ordered accordingly. No order as to
costs.
All pending applications stand disposed of.
H Divya Pandey Appeal allowed.
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