2021 Supreme(SC) 111

SUPREME COURT OF INDIA
A.M. Khanwilkar, Indu Malhotra, Ajay Rastogi, JJ.
Asha John Divianathan – Appellant
versus
Vikram Malhotra & Ors. – Respondents
Civil Appeal No. 9546 of 2010
Decided On : 26-02-2021

IMPORTANT POINTS
(1) Restriction on acquisition and holding of immovable property in India – Requirement of taking previous permission of RBI before executing sale deed or gift deed is quintessence and failure to do so must render transfer unenforceable in law. Dispensation under Section 31 of FERA mandates previous or prior permission of RBI before transfer takes effect.
(2) A contract is void if prohibited by a statute under a penalty, even without express declaration that contract is void.
(3) It is open to legislature to provide two different consequences for violation.
(4) In every case where a statute imposes a penalty for doing an act, though, act not prohibited, yet thing is unlawful because it is not intended that a statute would impose a penalty for a lawful act.

Headnote:

(A) Foreign Exchange Regulation Act, 1973 – Section 31 read with Sections 29, 47, 50 and 63 – Restriction on acquisition and holding of immovable property in India – Requirement of taking previous permission of RBI before executing sale deed or gift deed is quintessence and failure to do so must render transfer unenforceable in law – Dispensation under Section 31 mandates “previous” or “prior” permission of RBI before transfer takes effect – RBI is competent to refuse to grant permission in a given case – Sale or gift could be given effect and taken forward only after such permission is accorded by RBI – There is no possibility of ex post facto permission being granted by RBI under Section 31 of 1973 Act, unlike in case of Section 29 – A person who is not a citizen of India, is not competent to dispose of by sale or gift, any immovable property situated in India without previous general or special permission of 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 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 RBI – Only then, transfer so intended could be given effect to – Consequences of failure to seek such previous permission has not been explicitly specified in same provision or elsewhere in the Act, but then purport of Section 31 must be understood in context of intent with which it has been enacted, 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 purport of other provisions of the Act – Requirement specified in Section 31 is mandatory and contract or agreement including gift pertaining to transfer of immovable property of a foreign national without previous general or special permission of RBI, would be unenforceable in law – Clear title would pass on and deed can be given effect to only if permission is accorded by RBI under Section 31 of 1973 Act to such transaction. (Paras 14, 15, 18 and 25)

(B) Contract Act, 1872 – Section 24 – Foreign Exchange Regulation Act, 1973 – Section 31 read with Sections 47, 50 and 63 – Void contract – A contract is void if prohibited by a statute under a penalty, even without express declaration that contract is void, because such a penalty implies a prohibition – Prohibition and negative words can rarely be directory – In present dispensation provided under Section 31 of 1973 Act read with Sections 47, 50 and 63 of same Act, although it may be a case of seeking previous permission it is in nature of prohibition – In every case where a statute imposes a penalty for doing an act, though, act not prohibited, yet 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, thing prohibited, if done, will be treated as void, even though penalty if imposed is not enforceable. (Para 20)

(C) Foreign Exchange Regulation Act, 1973 – Section 31 read with Sections 47, 50 and 63 – Restriction on acquisition and holding of immovable property in India – It is open to legislature to provide two different consequences for violation – Merely because no provision in the Act makes transaction void or says that no title in property passes to purchaser in case there is contravention of provisions of Section 31, will be of no avail – That does not validate transfer referred to in Section 31 which is not backed by previous permission of RBI – Requirement of seeking previous general or special permission of RBI in respect of transaction covered by Section 31 of 1973 Act is mandatory – Any sale or gift of property situated in India by a foreigner in contravention thereof would be unenforceable in law. (Paras 29, 35 and 38)

Facts of the case:

Central issue in this appeal is in reference to Section 31 of Foreign Exchange Regulation Act, 1973. Whether 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?

Findings of Court:

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. Without previous permission of the RBI, such a transaction is forbidden and if entered into, would be unenforceable in law.

Result : Appeal allowed.