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 previous permission of the Reserve Bank of India under Section 31 of the Foreign Exchange Regulation Act = Section 31 of the 1973 Act is not mandatory and the transaction in contravention thereof is not void or unenforceable, 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shift in the general policy of investment by foreigners in India and more particularly, the 1973 Act itself stands repealed. Accordingly, we deem it appropriate to overrule 45 the decisions of the High Courts, taking contrary view, albeit, prospectively.1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 9546 OF 2010
Asha John Divianathan … Appellant
versus
Vikram Malhotra & Ors. …Respondents
J U D G M E N T
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 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 previous permission of the Reserve Bank of India2
under
1 For short, “the 1973 Act”
2 For short, “the RBI”
2
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 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 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 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
3
then sought for completing the transaction in favour of Mr. R.P.
David (predecessor of the appellant and respondent no.4). The
RBI granted 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 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 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 1984 on
10.02.1984 against respondent No.1 (Vikram Malhotra) praying
4
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 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
.
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 was procured by fraud,
misrepresentation 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?
3 For short, “the Trial Court”
5
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 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 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?
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 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
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.
6
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:
“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?
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?
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 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 profits at the rate of Rs.200/ per
month?
8. Are plaintiffs entitled to declaration, possession
and injunction?
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.
7
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 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 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?
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?
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?
10) What order or decree?”
8
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:
“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.
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.
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 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
9
concurred with the same, but proceeded to examine the solitary
legal point raised by the appellant before the High 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
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
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 dispensation specified
in the said provision is mandatory and no transaction in
contravention thereof would be enforceable in law. That position
4 AIR 1987 Punjab and Haryana 93
10
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 v. Escorts Ltd. & Ors.5
. Reliance has also
been placed on the observations made by threeJudge Bench of
this Court in Renusagar Power Co. Ltd. v. General Electric Co.6
and Vijay 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 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 Dhanabagyam8
, 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
transaction in contravention thereof is not void. (see Ajit Prashad
Jain v. N.K. Widhani & Ors.9
, Tufanu Chouhan & Ors. v. Md.
5 (1986) 1 SCC 264
6 1994 Supp (1) SCC 644
7 (2020) 11 SCC 1
8 2001 – 1 – L.W. 161
9 AIR 1990 Del 42 (para 26)
11
Abdur Rahman & Ors.10
, Geeta Reinboth v. Mrs. J. Clairs
Brohier through LRs. Mrs. Cheryl Brohier Gosens & Ors.11
,
Sivaprakasam v. Ilangovan & Ors.12 and Mathu Sree Akkabai
Ammani Charitable Trust & Ors. v. Samikannu13). None of the
decisions of the different 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 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 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
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
12
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
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 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 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.
13
9. Our attention was invited to the provisions of the Indian
Contract 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 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 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.
11. It is not in dispute that Mrs. F.L. Raitt was not a citizen of
India. She transferred right, title and interest in the larger
property (35,470 square feet) by way of sale to Mr. R.P. David
14 For short, “the Contract Act”
15 (1981) 2 SCC 362 (paras 36 to 40)
14
(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. 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 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 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.
15
13. Before we analyse Section 31 of the 1973 Act, it is essential
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 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 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
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
minimise the drainage of foreign exchange by way of repatriation
of income from immovable property and sale proceeds in case of
16
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 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 under
any law in force in India or in which the nonresident
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:
Provided that nothing in this subsection 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 subsection (1) and requiring a special permission under
that subsection for acquiring, 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 subsection
(2), the Reserve 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:
Provided further that if before the expiry of a
period of ninety days from the date on which the
application was received by the Reserve Bank, the
17
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 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 subsection (1) holding at the commencement of this Act
any immovable property situate 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.”
On a bare reading of subSection (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 years. This provision applies to foreign citizens and
foreign and FERA companies only. A nonresident Indian citizen
is not covered thereunder. SubSection (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. SubSection (3) postulates that on receipt of such an application, the
18
RBI after due inquiry as it deems fit, either may grant or refuse to
grant the permission applied for. The second proviso to subSection (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 subSection (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 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 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 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
19
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. 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 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 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 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 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, but—
(a) the said provisions shall apply to sums
required to be paid by any judgment or order of
any court as they apply in relation to other
sums;
20
(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 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 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 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.
***
50. Penalty.— If any person contravenes any of the
provisions of this Act [other than section 13, cl. (a) of
subsection (1) of section 18 and cl. (a) of subsection
(1) of section 19] or of any rule, direction or order
made thereunder, he shall be liable to such penalty
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 adjudicating officer).
***
63. Confiscation of currency, security, etc.— Any
court trying a contravention under section 56 and the
adjudicating officer 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
21
the Central Government and further direct that the
foreign exchange holdings, 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—
(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;
(c) any other property which has resulted out of
the conversion of that property.”
16. Reverting to Section 47, subSection (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 subSection
(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
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
22
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. 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 in India by a person, who is not a citizen of India, would
visit with penalty. Indeed, inserting such a provision does not
mean that the 1973 Act is 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 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
23
national without previous general or special 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. 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 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:
“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 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 — acting within his jurisdiction —
16 (2001) 6 SCC 534
17 (1965) 2 All ER 836
24
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 5044, have summarised 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 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.”
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 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
which is not to establish invalidity but where
questions of validity become relevant.”
22. Thus the expressions “void and voidable” have
been the subjectmatter of consideration on
innumerable occasions by courts. The expression
“void” has several facets. One type of 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 being represented by a next friend. Such a
25
transaction is a good transaction against the whole
world. So far as the minor is 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
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. 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.”
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 previous
permission it is in the nature of prohibition as observed by a
threeJudge 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,
18 (1977) 2 SCC 424
26
yet the thing is unlawful because it is not intended that a statute
would impose a 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. We may usefully reproduce paragraphs 18 to 22
of the said reported decision, which
read thus:
“18. The High Court said that the provisions contained
in Section 108 of the Act are directory because noncompliance with Section 108 of the Act is not declared
an offence. The reason given by the High Court is
that when the law does not prescribe the
consequences or does not lay down penalty for
noncompliance 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 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.
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 declaration that the contract is
void, because such a penalty implies a prohibition.
The penalty may be imposed with intent merely to
27
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 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 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, 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 law.
Where a contract, express or implied, is expressly or
by 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 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.
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
28
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.”
(emphasis supplied)
The principle underlying in this decision must apply on all fours
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 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 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 is otherwise legal cannot be held to be void
and if the effect of an agreement did not result in performance of
19 (2009) 10 SCC 552 (paras 14 and 15)
20 (2012) 1 SCC 718 (paras 16 to 19 and 21)
29
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 Shyam21 as to 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 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 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
21 (1971) 1 SCC 619
30
stage for the purchase of shares by nonresident companies and
not necessarily prior permission. The Court, therefore, opined
that even ex post facto permission can be 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 threeJudge Bench of this Court in
Vijay Karia (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 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.
24. Another threeJudge Bench in the case Renusagar Power
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
31
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:
“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 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)
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 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 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
22 (1956) 1 Ch 323
32
(c) it is part of English law and the relevant
statute or statutory instrument is applicable to
the contract:
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
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 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). 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
33
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.
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 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 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
34
Section 10 read with Section 23 of the Contract Act. For, it
remains a forbidden transaction unless permission is 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. In this view of the matter, the appellant must
succeed and would be entitled for the reliefs claimed in O.S. No.
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 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:
“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
35
property the title therein does not pass to him. What
the Act provides is that if a person contravenes S.31
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 subsec.(1) of S.31. Section 63
contains a provision regarding confiscation of certain
properties but it does not contain any provision for
confiscation if there is breach of the provisions of subsec.(1) of S.31. Therefore, the property purchased in
contravention of subsec.(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 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. 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
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
36
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 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 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 subSection (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 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.
37
31. In the case of Ajit Prashad Jain (supra) discussion
regarding 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 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 to the respondent. Even the Madhya Pradesh
High Court in Geeta 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 Department)
23 1962 MPLJ 78 : AIR 1962 MP 117
38
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 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 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 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
39
that the stated notification was issued in 1993, around which time
a change in policy regarding the investment opportunities for nonresident Indians and foreigners had been crystallised, by opening
up of economy in India. 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.
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 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
High Court (Goa Bench) in Joaquim Mascarenhas Fiuza v.
40
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 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 & 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 dismissal of SLP (Civil) No.11591 of
2018 on 23.04.2018. Even a Division Bench of the Madras High
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
41
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 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
eventually conclude that the position of law is clear that when the
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, this judgment has become
27 1996 (I) CTC 620 : 1996 SCC Online Mad 319
28 1986 (2) ALT 241
29 AIR 1959 SC 781
30 1991 (3) SCC 67
42
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 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 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
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
43
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 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 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
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. Until such permission is accorded, in law,
44
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 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, 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
foreigners in India and more particularly, the 1973 Act itself
stands repealed. Accordingly, we deem it appropriate to overrule
45
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, 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 Code of Civil
Procedure, 1908. Ordered accordingly. No order as to costs.
All pending applications stand disposed of.
..................................J.
(A.M. Khanwilkar)
...................................J.
(Indu Malhotra)
...................................J.
(Ajay Rastogi)
New Delhi;
February 26, 2021.
