Asha John Divianathan v. Vikram Malhotra & Ors.
Civil Appeal No. 9546 of 2010.
Decided on February 26, 2021.
A three-judge bench comprising of Justice A.M. Khanwilkar, Justice Indu Malhotra and Justice Ajay Rastogi decided the present case. The Court allowed the appeal, setting aside the impugned judgment and decree of the Trial Court and ordered that the Appellant is entitled to possession of the suit property and the mesne profit.
Mrs. F.L. Raitt, a foreigner without seeking approval from the RBI, under Section 31 of the Foreign Exchange Regulation Act, 1973 (hereinafter “the Act”) executed a gift deed which transferred a major portion of her property in favour of Respondent No.1, Vikram Malhotra. Before execution of the gift deed, she came into an agreement for sale of the property in favour of Mr. R.P. David, father of the Appellant and transferred the power of attorney in favour of Mr. Peter J. Philip, both of them done after seeking permission from the RBI under Section 31 of the Act. She also executed a supplementary gift deed in favour of Respondent No.1, but without seeking permission from the RBI under Section 31 of the Act.
The RBI granted permission and executed the sales deed on 02.04.1983, permitting transfer of the immovable property No.12, Magrath Road, in favour of Mr. R.P. David. Later, Mrs. F.L. Raitt filed a suit to declare the power of attorney to Mr. Peter J. Philip to be 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). Mrs. F.L Raitt died and Mrs. Ingrid L. Greenwood was substituted as her legal representative. A suit was also filed by the Mr. R.P. David praying that the gift deed and supplementary gift deed transferred in favour of Respondent No.1 be declared void and illegal. He also filed another suit against Mrs Ingrid L. Greenwood and Mr Clive Greenwood, who was claiming to be the successor in title of Mrs F.L. Raitt, for declaration and possession of entire property No.12 (Old No.10), measuring 35,470 square feet.
The Trial Court dismissed the first two suits and allowed the third suit, which led to the Appellant filing a suit before the High Court praying to declare the transfer of the gift deed and supplementary gift deed illegal and void. The High Court also dismissed the appeal. Aggrieved by the decision of the High Court, the Appellant filed an appeal before the Supreme Court.
The Appellant relied on judgments in the cases of Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644 and R. Sambasivam v. Thangavelu Dhanabagyam , 2001 – 1 – L.W. 161 and stated that Section 31 of the Act is mandatory and any of the transaction done without seeking the approval of the RBI under that Section is unenforceable by the law and has to be declared null and void.
Respondent No.1 argued that Section 31 of the Act is a directory provision and that not obtaining previous permission of the RBI would not render the gift deeds in question as invalid. Further, it was submitted that Section 31 is just a regulatory measure and not seeking approval from the RBI does not prohibit the transfer of gifts.
The Court, after hearing the arguments advanced on behalf of both the parties, analyzed Sections 31, 47, 50 and 63 of the Foreign Exchange Regulation Act, 1973 and stated:
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 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. (Para 15)
The Court stated that the requirement specified in Section 31 is mandatory and observed:
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. (Para 25)
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. (Para 35)
The Court held:
In other words, 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 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. (Para 27)
The Court held that the High Court had erred in its judgment:
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 sub-Section (1) of Section 31 had taken place. The basis of that judgment is tenuous and is palpably wrong. (Para 30)
The Court allowed the appeal and set aside the impugned judgment and decree of the Trial Court, as confirmed by the High Court.
View/Download Judgement: Asha John Divianathan v. Vikram Malhotra & Ors.
Utkarsh Kumar Jayaswal
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