ASHA JOHN DIVIANATHAN versus VIKRAM MALHOTRA & ORS. on 26 February 2021

ASHA JOHN DIVIANATHAN

v.

VIKRAM MALHOTRA & ORS.

(Civil Appeal No. 9546 of 2010)

FEBRUARY 26, 2021

[A. M. KHANWILKAR, INDU MALHOTRAAND AJAY RASTOGI, JJ.]

Foreign Exchange Regulation Act, 1973 – ss.31, 47, 50, 63 –A foreigner who was the owner of property in question, executedan agreement of sale in favour of predecessor of the appellant andrespondent no.4 after previous permission of the RBI – However,around the same time she gifted portion of the property to respondentno.1 though without any previous permission of the RBI – Suit filedby appellant and respondent no.4’s predecessor against therespondent no.1 inter alia for declaring the gift deeds in his favouras null and void and not binding – Dismissed by Trial Court – Firstappeal filed by the appellant and respondent no.4, dismissed byHigh Court – On appeal, held:The condition predicated ins.31ofobtaining previous general or special permission of the RBIfor transfer/disposal of immovable property situated in India by apersonwho is not a citizen of India is mandatory– Resultantly, anysale or gift of property situated in India by a foreigner incontravention thereof would be unenforceable in law– Gift deedsin favour of respondent no.1being unenforceable in law, he had noclear title to further transfer the same – Impugned judgment anddecree of the Trial Court as confirmed by the High Court, set aside– Suit filed by predecessor of the appellant and respondent no.4decreed in toto – Appellant being the legal representative of theplaintiff is entitled for possession of the suit property being theowner thereof and also for mesne profits for the relevant period –Interpretation of Statutes –Contract Act, 1872 – s.23 – Code ofCivil Procedure, 1908 – Or.20, r.12 – Constitution of India – Article142.

Foreign Exchange Regulation Act, 1973:

Object and purpose of – s.31 – Discussed.

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As.47 – Application of – Held: s.47 applies to all the contractsor agreements covered under the 1973 Act, which require previouspermission of the RBI.

Proviso to s.31 – Exception under – Discussed.

ss.29, 31 – Held: There is no possibility of ex post factoBpermission being granted by the RBI u/s.31 unlike in thecase of s.29.

ss.31, 63 – “property” in s.63 – Held: Expression “property”in s.63 takes within its sweep immovable property referred to ins.31.C

Interpretation of Statutes – Prohibition; negative words – Held:A contract is void if prohibited by a statute under a penalty, evenwithout express declaration that the contract is void, because sucha penalty impliesa prohibition – Prohibition and negative wordscan rarely be directory – Foreign Exchange Regulation Act, 1973 –Dss.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 ForeignEExchange Regulation Act, 1973 was brought into force was toconsolidate and amend the law relating to certain payments,dealings in foreign exchange and securities, transactions indirectlyaffecting foreign exchange and the import and export of currency,for the conservation of the foreign exchange resources of thecountry and the proper utilisation thereof in the interests of theFeconomic development of the country. The avowed object ofSection 31 of the 1973 Act was to minimise the drainage of foreignexchange by way of repatriation of income from immovableproperty and sale proceeds in case of disposal of property by aperson, who is not a citizen of India. As is noticed from the title ofGSection 31, it is to put restriction on acquisition, holding anddisposal of immovable property in India by foreigners-non citizens.On a bare reading of sub-Section (1), it is crystal clear that aperson, who is not a citizen of India, is not competent to disposeof by sale or gift, as in this case, any immovable property situatedin India without previous general or special permission of theH

RBI. The only exception provided in the proviso is that ofacquisition or transfer of immovable property by way of lease fora period not exceeding five years. This provision applies toforeign 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 makean application to the RBI in the prescribed form making necessarydisclosures. Sub- Section (3) postulates that on receipt of suchan application, the RBI after due inquiry as it deems fit, eithermay grant or refuse to grant the permission applied for. Thesecond proviso to sub- Section (3) provides for a defaultpermission, if no response is received to the application withinthe specified period. What is significant to notice is that as persub-Section (4), every person, who is not a citizen of India, holdingimmovable property situated in India at the time ofcommencement of the 1973 Act, is obliged to make declarationwithin ninety days from the commencement of the 1973 Act orsuch further period as may be allowed by the RBI. A person, whois not a citizen of India, holding immovable property situated inIndia was obliged to make disclosure and declaration in that behalfto the RBI; and in any case, if he/she intended to dispose of suchproperty by sale, mortgage, lease, gift, settlement or otherwise,was expected to obtain previous general or special permissionfrom the RBI. Only then, transfer so intended could be giveneffect to. It is true that the consequences of failure to seek suchprevious permission has not been explicitly specified in the sameprovision or elsewhere in the Act, but then the purport of Section31 must be understood in the context of intent with which it hasbeen enacted, the general policy not to allow foreign investmentin landed property/buildings constructed by foreigners or to allowthem to enter into real estate business to eschew capitalrepatriation, including the purport of other provisions of theAct, such as Sections 47, 50 and 63. [Paras 13- 15][969-E-F;970-B-C; 971-D-H; 972-A-C]

1.2 Section 47, sub--Section (1) clearly envisages that noperson shall enter into any contract or agreement which woulddirectly or indirectly evade or avoid in any way the operation ofany provision of the 1973 Act or of any rule, direction or ordermade thereunder. What is significant to notice is that sub-Section AB

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A(2) declares that the agreement shall not be invalid if it providesthat thing shall not be done without the permission of the CentralGovernment or the RBI. That would be the implied requirementof the agreement in terms of this provision. In other words, thoughostensibly the agreement would be a conditional one made subjectto permission of the Central Government or the RBI, as the caseBmay be and if such term is not expressly mentioned in theagreement, it shall be an implied term of every contract governedby the law - of obtaining permission of the Central Government orthe RBI before doing the thing provided for in the agreement. Inthat sense, such a term partakes the colour of a statutory contract.CNotably, Section 47 of the 1973 Act applies to all the contracts oragreements covered under the 1973 Act, which require previouspermission of the RBI. Section 50 reinforces the position thattransfer of land situated in India by a person, who is not a citizenof India, would visit with penalty. Section 63 of the 1973 Actempowers the court trying a contravention under Section 56 whichDincludes one under Section 51 of the 1973 Act, to confiscate thecurrency, security or any other money or property in respect ofwhich the contravention has taken place. The expression“property” in Section 63, takes within its sweep immovableproperty referred to in Section 31 of the 1973 Act. To put itEdifferently, the requirement specified in Section 31 is mandatoryand, therefore, contract or agreement including the gift pertainingto transfer of immovable property of a foreign national withoutprevious general or special permission of the RBI, would beunenforceable in law. [Paras 16-18][974-E-H; 975-B-C]

FDhurandhar Prasad Singh v. Jai Prakash University& Ors. (2001) 6 SCC 534 : 2001 (3) SCR 1129 – reliedon.

R. v. Paddington Valuation Officer, ex p PeacheyProperty Corpn. Ltd. (1965) 2 All ER 836 – referredGto.1.3 A contract is void if prohibited by a statute under apenalty, even without express declaration that the contract is void,because such a penalty implies a prohibition. Further, it is settledthat prohibition and negative words can rarely be directory. In H

the present dispensation provided under Section 31 of the 1973Act read with Sections 47, 50 and 63 of the same Act, although itmay be a case of seeking previous permission it is in the natureof prohibition. In every case where a statute imposes a penaltyfor doing an act, though, the act not prohibited, yet the thing isunlawful because it is not intended that a statute would impose apenalty for a lawful act. When penalty is imposed by statute forthe purpose of preventing something from being done on someground of public policy, the thing prohibited, if done, will be treatedas void, even though the penalty if imposed is not enforceable.[Para 20][977-D-G]

Mannalal Khetan & Ors. v. Kedar Nath Khetan & Ors.(1977) 2 SCC 424: 1977 (2) SCR 190 – relied on.

1.4 From the analysis of Section 31 of the 1973 Act andupon conjoint reading with Sections 47, 50 and 63 of the sameAct, it is held that the requirement of taking “previous”permission of the RBI before executing the sale deed or giftdeed is the quintessence; and failure to do so must render thetransfer unenforceable in law. The dispensation under Section31 mandates “previous” or “prior” permission of the RBI beforethe transfer takes effect. For, the RBI is competent to refuse togrant permission in a given case. The sale or gift could be giveneffect and taken forward only after such permission is accordedby the RBI. There is no possibility of ex post facto permissionbeing granted by the RBI under Section 31 of the 1973 Actunlike in the case of Section 29. Before grant of such permission,if the sale deed or gift deed is challenged by a person affected bythe same directly or indirectly and the court declares it to beinvalid, despite the document being registered, no clear titlewould pass on to the recipient or beneficiary under such deed.The clear title would pass on and the deed can be given effect toonly if permission is accorded by the RBI under Section 31 of the1973 Act to such transaction. In light of the general policy thatforeigners should not be permitted/allowed to deal with real estatein India; the peremptory condition of seeking previous permissionof the RBI before engaging in transactions specified in Section31 of the 1973 Act and the consequences of penalty in case ofcontravention, the transfer of immovable property situated in India AB

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Aby a person, who is not a citizen of India, without previouspermission of the RBI must be regarded as unenforceable andby implication a prohibited act. That can be avoided by the RBIand also by anyone who is affected directly or indirectly by such atransaction. There is no reason to deny remedy to a person, whois directly or indirectly affected by such a transaction. He can setBup challenge thereto by direct action or even by way of collateralor indirect challenge. Thus, until permission is accorded by theRBI, it would not be a lawful contract or agreement within themeaning of Section 10 read with Section 23 of the Contract Act.For, it remains a forbidden transaction unless permission isCobtained from the RBI. The fact that the transaction can be takenforward after grant of permission by the RBI does not make thetransaction any less forbidden at the time it is entered into. Itwould nevertheless be a case of transaction opposed to publicpolicy and, thus, unlawful. [Paras 25-27][982-B-H; 983-A]

DLife 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 contraventionreferred to in Section 31, does not mean that the requirement ofprevious permission of RBI is directory or a mere formality. It isEopen to the legislature to provide two different consequencesfor the violation. Further, Section 63 of the 1973 Act clearly refersto property in respect of which contravention has taken place forbeing confiscated to the Central Government. The expression“property” therein would certainly take within its sweep anFimmovable property referred to in Section 31 of the Act. Theexpression “property” in Section 63 is an inclusive term and,therefore, there is no reason to assume that consequence ofconfiscation may not apply to immovable property in respect ofwhich contravention of the provisions of sub-Section (1) of Section31 had taken place. The transaction of gift deed without previousGpermission of the RBI may not be nullity, but certainly notenforceable 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 specialpermission of the RBI in respect of transaction covered by SectionH31 of the 1973 Act is mandatory. Resultantly, any sale or gift of

property situated in India by a foreigner in contravention thereofwould be unenforceable in law. The stated gift deeds dated11.03.1977 and 19.04.1980 in favour of respondent no.1 beingunenforceable in law, respondent no.1 had no clear title to transferthe same to Dr. ‘TC’ vide purported sale deed dated 15.09.2005.The condition predicated in Section 31 of the 1973 Act of obtaining“previous” general or special permission of the RBI for transferor disposal of immovable property situated in India by sale ormortgage by a person, who is not a citizen of India, is mandatory.Until such permission is accorded, in law, the transfer cannot begiven effect to; and for contravening with that requirement, theconcerned person may be visited with penalty under Section 50and 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 takingthe view that Section 31 of the 1973 Act is not mandatory and thetransaction in contravention thereof is not void or unenforceable,is not a good law. However, transactions which have alreadybecome final including by virtue of the decision of the court ofcompetent jurisdiction, need not be reopened or disturbed inany manner because of this pronouncement. This declaration/direction is being issued in exercise of the plenary power underArticle 142 of the Constitution of India. For, there has been aparadigm shift in the general policy of investment by foreignersin India and more particularly, the 1973 Act itself stands repealed.The decisions of the High Courts taking contrary view, areoverruled, albeit, prospectively. The impugned judgment anddecree of the Trial Court, as confirmed by the High Court, is setaside. O.S.No.10079 of 1984 filed by predecessor of the appellantand respondent no.4 stands decreed in toto in favour of theplaintiff. The appellant (being the legal representative of theplaintiff) is entitled for possession of the suit property being theowner thereof and also for mesne profits for the relevant periodfor which a separate inquiry be conducted under Order 20Rule 12 of the Code of Civil Procedure, 1908. [Paras 39, 40][988-D-G]

Piara Singh v. Jagtar Singh and Anr. AIR 1987 Punjaband Haryana 93; R. Sambasivam v. Thangavelu AB

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Dhanabagyam 2001-1-L.W. 161; Ajit Prashad Jain v.N.K. Widhani & Ors. AIR 1990 Del 42; TufanuChouhan & Ors. v. Md. Abdur Rahman & Ors. (1993)1 Gau LR 306; Geeta Reinboth v. Mrs. J. Clairs Brohierthrough LRs. Mrs. Cheryl Brohier Gosens & Ors.(2005) 1 MP LJ 122; Sivaprakasam v. Ilangovan &Ors. (2010) 3 MWN (Civil) 525; Mathu Sree AkkabaiAmmani Charitable Trust & Ors. v. Samikannu (2013)1 LW 136 – overruled.

Renusagar Power Co. Ltd. v. General Electric Co. 1994Supp (1) SCC 644: 1993 (3) Suppl. SCR 22; VijayKaria & Ors. v. Prysmian Cavi E Sistemi SRL & Ors.(2020) 11 SCC 1; Dhurandhar Prasad Singh v. JaiPrakash University & Ors. (2001) 6 SCC 534: 2001(3) SCR 1129 – relied on.

Janki Bai v. Ratan Melu AIR 1962 MP 117– distinguished.

Joaquim MascarenhasFiuza v. Jaime Rebello & Anr.1986 SCC OnLine Bom 234; Mrs. Shoba Viswanathav. D.P. Kingsley 1996 (I) CTC 620 – approved.

Union of India & Ors. v. A.K. Pandey (2009) 10 SCC552: 2009 (14) SCR 528; Union of India v. ColonelL.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; GherulalParakh v. Mahadeodas Maiya & Ors. AIR 1959 SC781 : 1959 Suppl. SCR 406; Rattan Chand Hira Chandv. Askar Nawaz (Dead) by L.Rs. & Ors. 1991 (3) SCC67: 1991 (1) SCR 327 – referred to.

Sahruvan Nachair & Anr. v. V.S. Mohammed HussainMaracair (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. HomeDepartment, Hyderabad & Ors. 1986 (2) ALT 241– referred to.

ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS.

Herbert Wagg & Co. Ltd., Re (1956) 1 Ch 323– referred to.

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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9546of 2010.

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From the Judgment and Order dated 01.10.2009 of the High Courtof 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 ChandraSagar, E. C. Vidya Sagar, Advs. for the appearing parties.

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The Judgment of the Court was delivered by

A. M. KHANWILKAR, J.

1. The central issue in this appeal is in reference to Section 31 ofthe Foreign Exchange Regulation Act, 1973[1]. To wit, transaction (specifiedin Section 31 of the 1973 Act) entered into in contravention of that provisionis void or is only voidable and it can be voided at whose instance?

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2. The undisputed facts are that one Mrs. F.L. Raitt, widow oflate Mr. Charles Raitt, a foreigner and the owner of the property inquestion,gifted it to respondent No.1 (Vikram Malhotra) without obtaining1 For short, “the 1973 Act”

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Aprevious permission of the Reserve Bank of India[2] under Section 31 ofthe 1973 Act. Further, before executing the gift deed, she had executedan 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 on05.04.1976 whereunder the title deed of the schedule property wasBdelivered 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 squarefeet, vide gift deed dated 11.03.1977, in favour of respondent No.1 withoutseeking previous permission of the RBI under Section 31 of the 1973Act. She then executed a supplementary gift deed in favour of respondentCNo.1 on 19.04.1980. Even this deed was executed by Mrs. F.L. Raittwithout seeking previous permission of the RBI. The respondent claimedthat a power of attorney was executed in his favour by Mrs. F.L. Raitton 09.01.1982, which it appears, was revoked by Mrs. F.L. Raitt on03.06.1982. Thereafter, Mrs. F.L. Raitt executed a ratificatory agreementto sell the schedule property in favour of Mr. R.P. David (predecessorDof the appellant and respondent no.4) on 04.12.1982, followed by a powerof attorney in favour of Mr. Peter J. Philip dated 26.01.1983. That aformal permission of RBI under Section 31 of the 1973 Act was thensought for completing the transaction in favour of Mr. R.P. David(predecessor of the appellant and respondent no.4). The RBI grantedEthat permission on 02.04.1983, permitting transfer of the immovableproperty No.12 (old No.10A), Magrath Road, admeasuring 35,470 squarefeet in favour of Mr. R.P. David (predecessor of the appellant andrespondent no.4). Consequent to the said permission of the RBI, aregistered sale deed came to be executed by Mrs. F.L. Raitt in favour ofMr. R.P. David (predecessor of the appellant and respondent no.4) onF09.04.1983. However, Mrs. F.L. Raitt filed a suit being O.S. No.10328of 1983, on 30.07.1983, to declare the power of attorney dated 26.01.1983given to Mr. Peter J. Philip as null and void and for cancellation andsetting aside of the registered sale deed dated 09.04.1983 executed infavour of Mr. R.P. David (predecessor of the appellant and respondentGno.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 herdeath, Mrs. Ingrid L. Greenwood was substituted as her legalrepresentative in the pending suit. Mr. R.P. David (predecessor of theappellant and respondent no.4) and others then filed O.S. No.10079 of H2 For short, “the RBI”

H2 For short, “the RBI”

1984 on 10.02.1984 against respondent No.1 (Vikram Malhotra) prayingthat the gift deed and the supplementary deed allegedly executed in hisfavour in respect of portion of the larger property to the extent of 12,306square feet bearing No.12 (Old No.10A) be declared as null and voidand not binding and consequentially for relief of possession, permanentinjunction and mesne profits. Mr. R.P. David (predecessor of the appellantand respondent no.4) also filed O.S. No.10155 of 1984 against Mrs.Ingrid L. Greenwood and Mr. Clive Greenwood, who were claiming tobe successor in title of Mrs. F.L. Raitt, for declaration and possession ofentire property No.12 (Old No.10) admeasuring 35,470 square feet. Allthe three suits were tried and decided by the City Civil & Sessions Judge,Mayo, Bangalore[3].

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 framedas many as 11 issues, which read thus:

“1) Whether the plaintiffs prove that the power of attorney dated26.1.83 executed by the first plaintiff in favour of the 2[nd] defendantwas procured by fraud, mis-representation and undue influenceand the same was taken without her knowledge?

2) Whether the plaintiff proves that the power of attorney dated26.1.83 executed by the first plaintiff in favour of the seconddefendant is null and void and not binding on the first plaintiff?

3) Whether the plaintiffs are entitled for permanent injunctionrestraining the defendant – 2 from acting in any way on the strengthof the alleged power of attorney dated 26.1.1983?

4) Whether the plaintiff proves that the 2[nd] defendant fraudulentlyand without any legal authority of the first plaintiff executed thesale deed dated 9.4.1983 in favour of the 1[st] defendant in respectof the suit schedule property?

5) Whether the plaintiff further proves that the said sale deedwas never intended to be registered by the first plaintiff nor thesecond defendant was authorized or empowered to act as herGeneral Power of attorney holder for that purpose?

6) Whether the plaintiffs are entitled for declaration for thecancellation of the sale deed dt. 9.4.1983?

3 For short, “the Trial Court”

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A7) Whether the plaintiffs further prove that they are in actual andlawful possession of the suit schedule property?

8) Whether the defendants prove that the sale deed is a genuinedocument and the same is binding on the plaintiff?

9) Whether the plaintiffs are entitled for permanent injunction asBprayed for?

10) To what reliefs are the parties entitled?

11) What order or decree?”

After analysing the pleadings and evidence on record, the TrialCCourt vide judgment and decree dated 31.08.2001 proceeded to dismissthis 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 appellantand respondent no.4) being O.S.No.10079 of 1984, the Trial Court framed9 issues as follows:D

“1. Do Plaintiffs prove that the late Florence L. Raitt agreed tosell the entire suit property in favour of deceased R.P. David?

2. Do they next prove that Florence L. Raitt executed a ratifiedagreement dated 04.12.1982 after receiving Rs.One lakh ascontended?E3. Are the gift deed dated 11.03.1977 and the supplementary deeddated 19.04.1980 in favour of the defendant void being hit by theprovisions of the Foreign Exchange Regulation Act, 1973, asalleged?

F4. Does defendant prove that the said documents and transactionsare not hit by the Foreign Exchange Regulation Act, 1973 andthey are valid in law?

5. Does defendant prove the General Power of Attorney executedby Florence L. Raitt in favour of Mr. Peter Philip is not true andGgenuine?6. Do plaintiffs prove that deceased David purchased the entiresuit property as contended and the same is binding on thedefendant?

7. Do plaintiffs prove that they are entitled to recover past mesneHprofits 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 TrialCourt vide separate judgment and decree dated 31.08.2001 was pleasedto dismiss even this suit.

5. While dealing with the third suit filed by Mr. R.P. David(predecessor of the appellant and respondent no.4), the Trial Court framed10 issues, which read thus:

“1) Whether the plaintiff proves that they are the owner of thesuit schedule property under the terms of the sale deed dated9.4.83?

2) Whether the plaintiff further proves that Mrs. Florence L. Raittexecuted the General Power of Attorney dated 26.1.83 in favourof Mr. Peter Philip on her own free will?

3) Whether the defendant proves that General Power of Attorneydt. 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 scheduleproperty was bequeathed to defendant – 1 under the will executedby Mrs. Florence Raitt absolutely and unconditionally?

5) Whether the defendants further prove that defendant 1 is theabsolute 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, atwhat rate?

9) Whether the plaintiff is entitled to the possession of the suitschedule property?

10) What order or decree?”

After analysing the pleadings and evidence on record, the TrialCourt vide separate judgment and decree dated 31.08.2001 was pleasedto allow the suit in the following terms:

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A“ORDER

The suit of the plaintiff is decreed. The plaintiff is hereby declaredthat he is the absolute owner of the suit property and he is entitledto mesne profits from 9.1.84 till the end of 1990. Separate enquiryshall be initiated under Order 20 Rule 12 CPC for its determination.

BHaving regard to the circumstances of the case, no order as tocosts.

Draw the decree accordingly.”

Even this judgment is not the subject matter of the present appeal.C6. The appellant along with respondent No.4, however, had filedfirst appeal before the High Court of Karnataka at Bangalore beingR.F.A. No.1001 of 2001 against the judgment and decree dated31.08.2001 passed by the Trial Court in O.S. No.10079 of 1984. In thisappeal, therefore, the limited issue is about the validity of the gift deedDdated 11.03.1977 and the supplementary deed dated 19.04.1980 bothexecuted in favour of respondent No.1 by Mrs. F.L. Raitt in respect ofportion of the larger property admeasuring 12,306 square feet. As regardsthe finding of fact recorded by the Trial Court in reference to the saidchallenge, the High Court concurred with the same, but proceeded toexamine the solitary legal point raised by the appellant before the HighECourt regarding validity of the stated gift deeds being in violation ofSection 31 of the 1973 Act and, therefore, void and unenforceable inlaw. The learned Single Judge of the High Court essentially relying onthe decision of the Punjab & Haryana High Court in the case of PiaraSingh v. Jagtar Singh and Anr.[4], proceeded to negative the saidFchallenge and held that lack of permission under Section 31 of the 1973Act does not render the subject gift deeds as void much less illegal andunenforceable. Accordingly, the first appeal jointly filed by the appellantand respondent No.4 herein came to be dismissed vide impugnedjudgment and decree dated 01.10.2009.

7. In the present appeal, the sole point urged by the appellant isGthat the stated gift deeds dated 11.03.1977 and 19.04.1980 in favour ofrespondent No.1 are null and void and not binding on the appellant andrespondent no.4; and in any case are unenforceable in law, in light of themandate of Section 31 of the 1973 Act. According to the appellant, the H4 AIR 1987 Punjab and Haryana 93

dispensation specified in the said provision is mandatory and notransaction in contravention thereof would be enforceable in law. Thatposition is reinforced by Section 47 of the same Act. Further, violation ofSection 31 has also been made punishable under Section 50 of the 1973Act. In support of this submission, reliance is placed on the dictum ofConstitution Bench of this Court in Life Insurance Corporation of Indiav. Escorts Ltd. & Ors.[5]. Reliance has also been placed on theobservations made by three-Judge Bench of this Court in RenusagarPower Co. Ltd. v. General Electric Co.[6]andVijay Karia & Ors. v.Prysmian Cavi E Sistemi SRL & Ors.[7]. According to the appellant,the reasons weighed with the Punjab & Haryana High Court in PiaraSingh (supra) are manifestly wrong. That decision has not analysed thetrue scope and purport of Section 31 of the 1973 Act in correctperspective. Similar view taken by the Madras High Court in R.Sambasivam v. Thangavelu Dhanabagyam[8], following the decisionin Piara Singh (supra), suffers from the same error. On the same linesdifferent High Courts have construed Section 31 to mean that thetransaction in contravention thereof is not void. (see Ajit Prashad Jainv. N.K. Widhani & Ors.[9], Tufanu Chouhan & Ors. v. Md. AbdurRahman & Ors.[10], Geeta Reinboth v. Mrs. J. Clairs Brohier throughLRs. Mrs. Cheryl Brohier Gosens & Ors.[11], Sivaprakasam v.Ilangovan & Ors.[12]and Mathu Sree Akkabai Ammani CharitableTrust & Ors. v. Samikannu[13]). None of the decisions of the differentHigh Courts dealing with the purport of Section 31 of the 1973 Act haveinvoked principle that would stand the test of judicial scrutiny. It is urgedthat any transaction, which is in violation of Section 31 of the 1973 Act,would be unenforceable in law until such permission is accorded by theRBI and for that reason, the gift deeds in question cannot be given effectto or will be of any avail to respondent No.1. Instead, the entire propertyNo.12 (old No.10A), Magrath Road, admeasuring 35,470 square feetstood validly transferred in favour of Mr. R.P. David (predecessor ofthe appellant and respondent No.4 herein). It is then urged that despite5 (1986)1 SCC 2646 1994 Supp (1) SCC 6447 (2020) 11 SCC 18 2001 – 1 – L.W. 1619 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 424513 (2013) 1 LW 136 (para 16) : 2012 SCC OnLine Mad 2769

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Athe above, respondent no.1 sought to transfer the stated property to oneDr. Thomas Chandy under sale deed dated 15.09.2005 (which has notseen the light of day) by wilfully disobeying the High Court’s interimorder dated 07.04.2005. Hence, this transaction in any case is nullity.

8. Per contra, respondent No.1 would urge that Section 31 is aBdirectory provision; and not obtaining previous permission of the RBIwould not render the gift deeds in question invalid. It is urged that sinceno consequence is provided in Section 31 or any other provision in the1973 Act to treat the transaction in violation of Section 31 as void, thetransfer in favour of respondent No.1 cannot be regarded as ineffectiveor invalid. Such a transfer would at best be voidable that too only at theCinstance of the RBI and none else. The stipulation under Section 31 isonly a regulatory measure and not one of prohibiting transfer by way ofgift as such. The consequence of such violation is provided for as penaltyunder Section 50, for which the concerned parties can be proceededagainst. However, no action has been taken in that regard including byDthe RBI. The decision of the RBI to grant or refuse permission fortransfer is made final. The RBI is exclusively entrusted with the task ofdetermining the permissibility of the transaction, being repository ofmanagement of foreign exchange of the country.

9. Our attention was invited to the provisions of the Indian ContractEAct, 1872[14] and the Transfer of Property Act, 1882, to contend thatthere is marked distinction between void and voidable transaction. Atbest, the transfer in favour of respondent No.1 may come within thelatter category. It is further urged that different High Courts haveconsistently opined that transaction in contravention of Section 31 cannotbe regarded as void and that view needs no interference. Relying onFWaman Rao & Ors. v. Union of India & Ors.[15], the argument is thatfollowing the principle of stare decisis, this Court ought not tocountermand the consistent view of the High Courts prevailing since1987. It is further urged that the 1973 Act has since been repealed andtherefore, it would be in the fitness of things not to disturb the consistentGview taken by different High Courts in that regard.

10. We have heard Mr. Navkesh Batra, learned counsel for theappellant and Mr. C.A. Sundram, learned senior counsel for therespondent No.1.

14 For short, “the Contract Act”H15 (1981) 2 SCC 362 (paras 36 to 40)

11. It is not in dispute that Mrs. F.L. Raitt was not a citizen ofIndia. She transferred right, title and interest in the larger property (35,470square feet) by way of sale to Mr. R.P. David (predecessor of theappellant and respondent No.4). Around the same time, however, portionof the larger property (12,306 square feet) was given by her by way ofgift deeds to respondent No.1. As regards sale deed in favour of Mr.R.P. David, that was executed only after previous permission was givenby the RBI for such transfer. However, gift deeds in favour of respondentNo.1 in respect of portion of the larger property are not backed by suchprevious permission of the RBI either general or special. Admittedly, nopermission has been taken from the RBI in that regard thus far.

12. It is in this backdrop, the appellant is questioning the validity ofthe transaction or stated transfer in favour of respondent No.1 of propertyadmeasuring 12,306 square feet, being in contravention of Section 31 ofthe 1973 Act. And if that contention succeeds, it must follow that the giftdeeds, though executed in favour of respondent No.1, would beunenforceable in law. Resultantly, Mr. R.P. David (predecessor of theappellant and respondent No.4), had acquired clear title of the largerproperty admeasuring 35,470 square feet transferred to him vide registeredsale deed dated 09.04.1983 being backed by previous permission by theRBI in that regard.

13. Before we analyse Section 31 of the 1973 Act, it is essentialto understand the object and purpose for which the 1973 Act was broughtinto force. It was to consolidate and amend the law relating to certainpayments, dealings in foreign exchange and securities, transactionsindirectly affecting foreign exchange and the import and export ofcurrency, for the conservation of the foreign exchange resources of thecountry and the proper utilisation thereof in the interests of the economicdevelopment of the country. While introducing the Bill in the Lok Sabhaand 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 shouldnot allow foreign investment in landed property/buildingsconstructed by foreigners and foreign controlled companiesas such investments offer scope for considerable amountof capital liability by way of capital repatriation. While wemay still require foreign investments in certain AB

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Asophisticated branches of industry, there is no reason whywe should allow foreigners and foreign companies to enterreal estate business.”

(emphasis supplied)

14. The avowed object of Section 31 of the 1973 Act was thus toBminimise the drainage of foreign exchange by way of repatriation ofincome from immovable property and sale proceeds in case of disposalof property by a person, who is not a citizen of India. As is noticed fromthe title of Section 31, it is to put restriction on acquisition, holding anddisposal of immovable property in India by foreigners – non citizens. WeCdeem it apposite to reproduce Section 31 of the 1973 Act as applicableat the relevant time, the same reads thus:

“31. Restriction on acquisition, holding, etc., of immovable propertyin India.— (1) No person who is not a citizen of India and nocompany (other than a banking company) which is not incorporatedDunder any law in force in India or in which the non-resident interestis more than forty per cent shall, except with the previous generalor special permission of the Reserve Bank, acquire or hold ortransfer or dispose of by sale, mortgage, lease, gift, settlement orotherwise any immovable property situate in India:

EProvided that nothing in this sub-section shall apply to the acquisitionor transfer of any such immovable property by way of lease for aperiod not exceeding five years.

(2) Any person or company referred to in sub-section (1) andrequiring a special permission under that sub-section for acquiring,For holding, or transferring, or disposing of, by sale, mortgage, lease,gift, settlement or otherwise any immovable property situate inIndia may make an application to the Reserve Bank in such formand containing such particulars as may be specified by the ReserveBank.

(3) On receipt of an application under sub-section (2), the ReserveGBank may, after making such inquiry as it deems fit, either grantor refuse to grant the permission applied for:

Provided that no permission shall be refused unless the applicanthas been given a reasonable opportunity for making arepresentation in the matter:H

Provided further that if before the expiry of a period of ninetydays from the date on which the application was received by theReserve Bank, the Reserve Bank does not communicate to theapplicant that the permission applied for has been refused, it shallbe presumed that the Reserve Bank has granted such permission.

Explanation.— In computing the period of ninety days for thepurposes of the second proviso, the period, if any, taken by theReserve Bank for giving an opportunity to the applicant for makinga representation under the first proviso shall be excluded.

(4) Every person and company referred to in sub-section (1) holdingat the commencement of this Act any immovable property situatein India shall, before the expiry of a period of ninety days fromsuch commencement or such further period as the Reserve Bankmay allow in this behalf, make a declaration in such form as maybe specified by the Reserve Bank regarding the immovableproperty or properties held by such person or company.”

On a bare reading of sub-Section (1), it is crystal clear that aperson, who is not a citizen of India, is not competent to dispose of bysale or gift, as in this case, any immovable property situated in Indiawithout previous general or special permission of the RBI. The onlyexception provided in the proviso is that of acquisition or transfer ofimmovable property by way of lease for a period not exceeding fiveyears. This provision applies to foreign citizens and foreign and FERAcompanies only. A non-resident Indian citizen is not covered thereunder.Sub-Section (2) mandated such person, who is not a citizen of India, tomake an application to the RBI in the prescribed form making necessarydisclosures. Sub-Section (3) postulates that on receipt of such anapplication, the RBI after due inquiry as it deems fit, either may grant orrefuse to grant the permission applied for. The second proviso to sub-Section (3) provides for a default permission, if no response is receivedto the application within the specified period. What is significant to noticeis that as per sub-Section (4), every person, who is not a citizen of India,holding immovable property situated in India at the time ofcommencement of the 1973 Act, is obliged to make declaration withinninety days from the commencement of the 1973 Act or such furtherperiod as may be allowed by the RBI.

15. In other words, a person, who is not a citizen of India, holdingimmovable property situated in India was obliged to make disclosure A

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Aand declaration in that behalf to the RBI; and in any case, if he/sheintended to dispose of such property by sale, mortgage, lease, gift,settlement or otherwise, was expected to obtain previous general orspecial permission from the RBI. Only then, transfer so intended couldbe given effect to. It is true that the consequences of failure to seeksuch previous permission has not been explicitly specified in the sameBprovision or elsewhere in the Act, but then the purport of Section 31must 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 realestate business to eschew capital repatriation, including the purport ofotherCprovisions of the Act, such as Sections 47, 50 and 63. Here, we deem itapposite to reproduce Sections 47, 50 and 63 as applicable at the relevanttime, the same read thus:

“47. Contracts in evasion of the Act.— (1) No person shall enterinto any contract or agreement which would directly or indirectlyDevade or avoid in any way the operation of any provision of thisAct or of any rule, direction or order made thereunder.

(2) Any provision of, or having effect under, this Act that a thingshall not be done without the permission of the Central Governmentor the Reserve Bank, shall not render invalid any agreement byEany person to do that thing, if it is a term of the agreement thatthat thing shall not be done unless permission is granted by theCentral Government or the Reserve Bank, as the case may be;and it shall be an implied term of every contract governed by thelaw of any part of India that anything agreed to be done by anyterm of that contract which is prohibited to be done by or underFany of the provisions of this Act except with the permission of theCentral Government or the Reserve Bank, shall not be done unlesssuch permission is granted.

(3) Neither the provisions of this Act nor any term (whether expressor implied) contained in any contract that anything for which theGpermission of the Central Government or the Reserve Bank isrequired by the said provisions shall not be done without thatpermission, shall prevent legal proceedings being brought in Indiato recover any sum which, apart from the said provisions and anysuch term, would be due, whether as debt, damages or otherwise,but—H

(a) the said provisions shall apply to sums required to be paidby any judgment or order of any court as they apply in relationto other sums; (b) no steps shall be taken for the purpose of enforcing anyjudgment or order for the payment of any sum to which thesaid provisions apply except as respects so much thereof asthe Central Government or the Reserve Bank, as the casemay be, may permit to be paid; and

(c) for the purpose of considering whether or not to grant suchpermission, the Central Government or the Reserve Bank, asthe case may be, may require the person entitled to the benefitof the judgment or order and the debtor under the judgment ororder, to produce such documents and to give such informationas may be specified in the requisition.

(4) Notwithstanding anything contained in the NegotiableInstruments Act, 1881, neither the provisions of this Act or of anyrule, direction or order made thereunder, nor any condition, whetherexpressed or to be implied having regard to those provisions, thatany payment shall not be made without permission under this Act,shall be deemed to prevent any instrument being a bill of exchangeor promissory note.

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50. Penalty.— If any person contravenes any of the provisions ofthis Act [other than section 13, cl. (a) of sub-section (1) of section18 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 penaltynot exceeding five times the amount or value involved in any suchcontravention or five thousand rupees, whichever is more, as maybe adjudged by the Director of Enforcement or any other officerof Enforcement not below the rank of an Assistant Director ofEnforcement specially empowered in this behalf by order of theCentral Government (in either case hereinafter referred to as theadjudicating officer).

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63. Confiscation of currency, security, etc.— Any court trying acontravention under section 56 and the adjudicating officer

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Aadjudging any contravention under section 51 may, if it or he thinksfit and in addition to any sentence or penalty which it or he mayimpose for such contravention, direct that any currency, securityor any other money or property in respect of which thecontravention has taken place shall be confiscated to the CentralGovernment and further direct that the foreign exchange holdings,Bif any, of the person committing the contravention or any partthereof, shall be brought back into India or shall be retained outsideIndia in accordance with the directions made in this behalf.

Explanation.— For the purposes of this section, property in respectof which contravention has taken place shall include—C

(a) deposits in a bank, where the said property is convertedinto such deposits; (b) Indian currency, where the said property is converted intothat currency; D

(c) any other property which has resulted out of the conversionof that property.”

16. Reverting to Section 47, sub-Section (1) clearly envisagesthat no person shall enter into any contract or agreement which woulddirectly or indirectly evade or avoid in any way the operation of anyEprovision of the 1973 Act or of any rule, direction or order madethereunder. What is significant to notice is that sub-Section (2) declaresthat the agreement shall not be invalid if it provides that thing shall not bedone without the permission of the Central Government or the RBI.That would be the implied requirement of the agreement in terms of thisFprovision. In other words, though ostensibly the agreement would be aconditional one made subject to permission of the Central Governmentor the RBI, as the case may be and if such term is not expresslymentioned in the agreement, it shall be an implied term of every contractgoverned by the law — of obtaining permission of the Central Governmentor the RBI before doing the thing provided for in the agreement. In thatGsense, such a term partakes the colour of a statutory contract.Notably,Section 47 of the 1973 Act applies to all the contracts or agreementscovered under the 1973 Act, which require previous permission of theRBI.

17. Section 50 reinforces the position that transfer of land situatedHin 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 apenal statute, but is to provide for penal consequence for contraventionof provisions, such as Section 31 of the 1973 Act.

18. Section 63 of the 1973 Act empowers the court trying acontravention under Section 56 which includes one under Section 51 ofthe 1973 Act, to confiscate the currency, security or any other money orproperty in respect of which the contravention has taken place. Theexpression “property” in Section 63, takes within its sweep immovableproperty 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 immovableproperty of a foreign national without previous general or specialpermission of the RBI, would be unenforceable in law.

19. At this stage, it may be useful to keep in mind the purport ofexpression “void” and “voidable”. For that, we may advert to theexposition in the case of Dhurandhar Prasad Singh v. Jai PrakashUniversity & 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 CliveLewis, the same read thus:

“19. This question was examined by the Court of Appeal in thecase of R. v. Paddington Valuation Officer, ex p PeacheyProperty Corpn. Ltd. [(1965) 2 All ER 836 : (1966) 1 QB 380 :(1965) 3 WLR 426 (CA)] where the valuation list was challengedon 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 anullity altogether. In which case there is no need for an orderto quash it. It is automatically null and void without more ado.The other kind is when the invalidity does not make the listvoid altogether, but only voidable. In that case it stands unlessand until it is set aside. In the present case the valuation list isnot, and never has been, a nullity. At most the first respondent 16 (2001) 6 SCC 534

17 (1965) 2 All ER 836

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16 (2001) 6 SCC 534

17 (1965) 2 All ER 836

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— acting within his jurisdiction — exercised that jurisdictionerroneously. That makes the list voidable and not void. Itremains good until it is set aside.”

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20. de Smith, Woolf and Jowell in their treatise Judicial Reviewof Administrative Action, 5th Edn., para 5-044, have summarisedthe concept of void and voidable as follows:

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“Behind the simple dichotomy of void and voidable acts (invalidand valid until declared to be invalid) lurk terminological andconceptual problems of excruciating complexity. The problemsarose from the premise that if an act, order or decision is ultravires 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 itis flawed by an error perpetrated within the area of authorityor jurisdiction, it was usually said to be voidable; that is, validtill set aside on appeal or in the past quashed by certiorari forerror of law on the face of the record.”

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21. Clive Lewis in his work Judicial Remedies in Public Law atp. 131 has explained the expressions “void and voidable” asfollows:

“A challenge to the validity of an act may be by direct actionEor by way of collateral or indirect challenge. A direct action isone where the principal purpose of the action is to establishthe invalidity. This will usually be by way of an application forjudicial review or by use of any statutory mechanism for appealor review. Collateral challenges arise when the invalidity israised in the course of some other proceedings, the purpose ofFwhich is not to establish invalidity but where questions of validitybecome relevant.”

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22. Thus the expressions “void and voidable” have been thesubject-matter of consideration on innumerable occasions bycourts. The expression “void” has several facets. One type ofvoid acts, transactions, decrees are those which are wholly withoutjurisdiction, ab initio void and for avoiding the same no declarationis necessary, law does not take any notice of the same and it canbe disregarded in collateral proceeding or otherwise. The othertype of void act, e.g., may be transaction against a minor withoutbeing represented by a next friend. Such a transaction is a good G

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transaction against the whole world. So far as the minor isconcerned, if he decides to avoid the same and succeeds in avoidingit by taking recourse to appropriate proceeding the transactionbecomes void from the very beginning. Another type of void actmay be which is not a nullity but for avoiding the same a declarationhas to be made. Voidable act is that which is a good act unlessavoided, e.g., if a suit is filed for a declaration that a document isfraudulent and/or forged and fabricated, it is voidable as theapparent state of affairs is the real state of affairs and a partywho alleges otherwise is obliged to prove it. If it is proved that thedocument is forged and fabricated and a declaration to that effectis given, a transaction becomes void from the very beginning.There may be a voidable transaction which is required to be setaside and the same is avoided from the day it is so set aside andnot any day prior to it. In cases where legal effect of a documentcannot be taken away without setting aside the same, it cannot betreated to be void but would be obviously voidable.”

20. It is well established that a contract is void if prohibited by astatute under a penalty, even without express declaration that the contractis void, because such a penalty implies a prohibition. Further, it is settledthat prohibition and negative words can rarely be directory. In the presentdispensation provided under Section 31 of the 1973 Act read with Sections47, 50 and 63 of the same Act, although it may be a case of seekingprevious permission it is in the nature of prohibition as observed by athree-Judge Bench of this Court in Mannalal Khetan & Ors. v. KedarNath Khetan & Ors.[18]. In every case where a statute imposes a penaltyfor doing an act, though, the act not prohibited, yet the thing is unlawfulbecause it is not intended that a statute would impose a penalty for alawful act. When penalty is imposed by statute for the purpose ofpreventing something from being done on some ground of public policy,the thing prohibited, if done, will be treated as void, even though thepenalty if imposed is not enforceable. We may usefully reproduceparagraphs 18 to 22 of the said reported decision, which read thus:

“18. The High Court said that the provisions contained in Section108 of the Act are directory because non-compliance with Section108 of the Act is not declared an offence. The reason given by 18 (1977) 2 SCC 424

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the High Court is that when the law does not prescribe theconsequences or does not lay down penalty for non-compliance with the provision contained in Section 108 ofthe Act the provision is to be considered as directory. TheHigh Court failed to consider the provision contained in Section629(a) of the Act. Section 629(a) of the Act prescribes the penaltywhere no specific penalty is provided elsewhere in the Act. It isa question of construction in each case whether thelegislature intended to prohibit the doing of the actaltogether, or merely to make the person who did it liableto pay the penalty.

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19. Where a contract, express or implied, is expressly orby implication forbidden by statute, no court will lend itsassistance to give it effect. (See Mellis v. Shirley L.B. [(1885)16 QBD 446 : 55 LJQB 143 : 2 TLR 360] ) A contract is void ifprohibited by a statute under a penalty, even without expressDdeclaration that the contract is void, because such a penaltyimplies a prohibition. The penalty may be imposed with intentmerely to deter persons from entering into the contract or for thepurposes of revenue or that the contract shall not be entered intoso as to be valid at law. A distinction is sometimes madebetween contracts entered into with the object ofEcommitting an illegal act and contracts expressly orimpliedly prohibited by statute. The distinction is that in theformer class one has only to look and see what acts the statuteprohibits; it does not matter whether or not it prohibits a contract:if a contract is made to do a prohibited act, that contractFwill be unenforceable. In the latter class, one has to considernot what act the statute prohibits, but what contracts it prohibits.One is not concerned at all with the intent of the parties, if theparties enter into a prohibited contract, that contract isunenforceable. (See St. John Shipping Corporation v. JosephRank [(1957) 1 QB 267].) (See also Halsbury’s Laws of England,G3rd Edn., Vol. 8, p. 141.)

20. It is well established that a contract which involves inits fulfilment the doing of an act prohibited by statute isvoid. The legal maxim A pactis privatorum publico juri nonderogatur means that private agreements cannot alter the general H

law. Where a contract, express or implied, is expressly or byimplication forbidden by statute, no court can lend its assistanceto give it effect. (See Mellis v. Shirley L.B.) What is done incontravention of the provisions of an Act of the legislaturecannot be made the subject of an action.

21. If anything is against law though it is not prohibited inthe statute but only a penalty is annexed the agreement isvoid. In every case where a statute inflicts a penalty for doing anact, though the act be not prohibited, yet the thing is unlawful,because it is not intended that a statute would inflict a penalty fora lawful act.

22. Penalties are imposed by statute for two distinct purposes:

(1) for the protection of the public against fraud, or for someother object of public policy; (2) for the purpose of securing certainsources of revenue either to the State or to certain public bodies.If it is clear that a penalty is imposed by statute for thepurpose of preventing something from being done on someground of public policy, the thing prohibited, if done, willbe treated as void, even though the penalty if imposed isnot enforceable.”

(emphasis supplied)

The principle underlying in this decision must apply on all fourswhile analysing the purport of Section 31 of the 1973 Act.

21. The appellant has invited our attention to the dictum in Unionof India & Ors. v. A.K. Pandey[19], that where a contract, express orimplied, is expressly or by implication forbidden by statute, no court willlend its assistance to give it effect. Further, a contract is void if prohibitedby a statute under a penalty, even without express declaration that thecontract 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], theCourt opined that the contract would be lawful, unless the considerationand object thereof is of such a nature that, if permitted, it would defeatthe provisions of law and in such a case the consideration or object isunlawful and would become void and that unless the effect of anagreement 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)

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Ais otherwise legal cannot be held to be void and if the effect of anagreement did not result in performance of an unlawful act, as a matterof public policy, the court should refuse to declare the contract void witha view to save the bargain entered into by the parties and the solemnpromises made thereunder. The Court adverted to the exposition in theearlier decision in Shri Lachoo Mal v. Shri Radhey Shyam[21] as toBwhat makes an agreement, which is otherwise legal, void is that itsperformance is impossible except by disobedience of law.

22. Notably, the Constitution Bench of this Court in Life InsuranceCorporation of India (supra) had an occasion to examine the objectsand reasons for enacting the 1973 Act. The Court was called upon toCconsider the purport of Section 29 of the 1973 Act, which does not qualifythe words “general or special permission of the Reserve Bank of India”with word “previous” or “prior” unlike in the case of Section 31 of thesame Act. In paragraph 63, this distinction has been noticed and referencehas been specifically made to Section 31 of the 1973 Act. That makes itDamply clear that the dispensations provided in Sections 29 and 31, mustbe regarded as distinct and violation whereof would visit with differentconsequences. As regards Section 29, this Court opined that thepermission can be sought from the RBI at some stage for the purchaseof shares by non-resident companies and not necessarily prior permission.The Court, therefore, opined that even ex post facto permission can beEaccorded by the RBI in reference to transaction covered by Section 29of the Act.

23. Significantly, the consequence of contravention of Section 31of the Act as being rendering the transfer void, is also taken notice of inthe recent decision of a three-Judge Bench of this Court in Vijay KariaF(supra). It has been so noted in paragraph 88 while distinguishing thedispensation provided in the Foreign Exchange Management Act, 1999(FEMA). The Court has noted that FEMA unlike FERA — refers to thenation’s policy of managing foreign exchange instead of policing foreignexchange, the policeman being RBI under FERA. Indeed, it is not aGdecision dealing directly with the question involved in the present appeal.Nevertheless, it does take notice of the strict dispensation under Section31, as it obtained under the 1973 Act, particularly requiring “previous”general or special permission of the RBI.

24. Another three-Judge Bench in the case Renusagar PowerCo. Ltd. (supra) while dealing with the question of enforceability of anarbitral award, adverted to violation of FERA in reference to Section 47of the 1973 Act as can be discerned from paragraphs 68 to 84. We neednot dilate on this judgment except to notice the dictum in Herbert Wagg& Co. Ltd., Re[22] reproduced in paragraph 68, which reads thus:

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“68. … In Herbert Wagg & Co. Ltd., Re [(1956) 1 Ch 323],Upjohn J., has said:

“It cannot be doubted that legislation intended to protect theeconomy of the nation and the general welfare of its inhabitantsregardless of their nationality by various measures of foreignexchange control or by altering the value of its currency, isrecognised by foreign courts although its effect is usually partiallyconfiscatory. Probably there is no civilized country in the worldwhich has not at some stage in its history altered its currency orrestricted the rights of its inhabitants to purchase the currency ofanother country. (p. 349)

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In my judgment these courts must recognize the right of everyforeign State to protect its economy by measures of foreignexchange control and by altering the value of its currency. Effectmust be given to those measures where the law of the foreignState is the proper law of the contract or where the movable issituate within the territorial jurisdiction of the State.” (p. 351)”

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It may be useful to also reproduce paragraph 69 of the judgment,which reads thus:

“69. The following principle of Private International Law isFapplicable in relation to such legislation:

“212. (1) A contractual obligation may be invalidated ordischarged by exchange control legislation if—

(a) such legislation is part of the proper law of the contract; or G

(b) it is part of the law of the place of performance; or

(c) it is part of English law and the relevant statute or statutoryinstrument is applicable to the contract:

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982SUPREME COURT REPORTS

AProvided that foreign exchange legislation will not be applied if itis used not with the object of protecting the economy of the foreignState, 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 uponBconjoint reading with Sections 47, 50 and 63 of the same Act, we musthold that the requirement of taking “previous” permission of the RBIbefore executing the sale deed or gift deed is the quintessence; andfailure to do so must render the transfer unenforceable in law. Thedispensation under Section 31 mandates “previous” or “prior” permissionof the RBI before the transfer takes effect. For, the RBI is competent toCrefuse to grant permission in a given case. The sale or gift could begiven effect and taken forward only after such permission is accordedby the RBI. There is no possibility of ex post facto permission beinggranted by the RBI under Section 31 of the 1973 Act, unlike in the caseof Section 29 as noted in Life Insurance Corporation of India (supra).DBefore grant of such permission, if the sale deed or gift deed is challengedby a person affected by the same directly or indirectly and the courtdeclares it to be invalid, despite the document being registered, no cleartitle would pass on to the recipient or beneficiary under such deed. Theclear title would pass on and the deed can be given effect to only ifpermission is accorded by the RBI under Section 31 of the 1973 Act toEsuch transaction.

26. In light of the general policy that foreigners should not bepermitted/allowed to deal with real estate in India; the peremptorycondition of seeking previous permission of the RBI before engaging intransactions specified in Section 31 of the 1973 Act and the consequencesFof penalty in case of contravention, the transfer of immovable propertysituated in India by a person, who is not a citizen of India, without previouspermission of the RBI must be regarded as unenforceable and byimplication a prohibited act. That can be avoided by the RBI and also byanyone who is affected directly or indirectly by such a transaction. ThereGis no reason to deny remedy to a person, who is directly or indirectlyaffected by such a transaction. He can set up challenge thereto by directaction or even by way of collateral or indirect challenge.

27. In other words, until permission is accorded by the RBI, itwould not be a lawful contract or agreement within the meaning of SectionH10 read with Section 23 of the Contract Act. For, it remains a forbidden transaction unless permission is obtained from the RBI. The fact thatthe transaction can be taken forward after grant of permission by theRBI does not make the transaction any less forbidden at the time it isentered into. It would nevertheless be a case of transaction opposed topublic policy and, thus, unlawful. In this view of the matter, the appellantmust 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 andsupplementary deed dated 19.04.1980 in favour of respondent No.1 areinvalid, unenforceable and not binding on the plaintiff. A fortiori, theplaintiff is entitled for possession of the suit property from respondentno.1 and persons claiming through him, admeasuring 12,306 square feetand also mesne profits for the relevant period for which a separate inquiryneeds to be initiated under Order 20 Rule 12 of the Code of CivilProcedure, 1908.

28. Reverting to the judgment of Punjab & Haryana High Courtin Piara Singh (supra) relied upon in the impugned judgment, it washeld as follows:

“11. It is true that the section provides that without the previouspermission of the Reserve Bank, a person who is not a citizen ofIndia, cannot acquire property, but it does not provide that ifsomeone purchases any property the title therein does not pass tohim. What the Act provides is that if a person contravenes S.31and some other sections, he can be penalized under S.50 and canalso be prosecuted under S.56. However, there is no provision inthe Act which makes transaction void or says that no title in theproperty passes to the purchaser in case there is contravention ofthe provisions of sub-sec.(1) of S.31. Section 63 contains aprovision regarding confiscation of certain properties but it doesnot contain any provision for confiscation if there is breach of theprovisions of sub-sec.(1) of S.31. Therefore, the property purchasedin contravention of sub-sec.(1) of S.31 is also not liable toconfiscation. In the circumstances, it cannot be held that theplaintiffs are not entitled to obtain possession of the property orrecover damages for its use and occupation.”

29. In the first place, provision for penalty under Section 50 forcontravention referred to in Section 31, does not mean that the requirementof previous permission of RBI is directory or a mere formality. It is opento the legislature to provide two different consequences for the violation.

ABC

D

EF

GH

AAs already noted hitherto, despite the absence of express provisiondeclaring the transfer void, the intent behind enacting Section 31 and itspurport renders the transfer in contravention thereof unenforceable untilpermission for such transaction is granted by the RBI.

30. Suffice it to observe that merely because no provision in theBAct makes the transaction void or says that no title in the property passesto the purchaser in case there is contravention of the provisions of Section31, will be of no avail. That does not validate the transfer referred to inSection 31, which is not backed by “previous” permission of the RBI.Further, the Punjab & Haryana High Court erroneously assumed thatthere was no provision regarding confiscation of the immovable propertyCreferred to in Section 31. Section 63 of the 1973 Act clearly refers toproperty in respect of which contravention has taken place for beingconfiscated to the Central Government. The expression “property” thereinwould certainly take within its sweep an immovable property referred toin Section 31 of the Act. The expression “property” in Section 63 is anDinclusive term and, therefore, there is no reason to assume thatconsequence of confiscation may not apply to immovable property inrespect of which contravention of the provisions of sub-Section (1) ofSection 31 had taken place. The basis of that judgment is tenuous and ispalpably wrong. For the same reason, the decision in R. Sambasivam(supra) of the Madras High Court is erroneous as it has merely followedEthe dictum of the Punjab & Haryana High Court. Suffice it to observethat the transaction of gift deed without previous permission of the RBImay not be nullity, but certainly not enforceable in law until suchpermission is granted.

31. In the case of Ajit Prashad Jain (supra) discussion regardingFconsequences of contravention of Section 31 of the 1973 Act is found inparagraph 26 of the reported decision. Although, this decision isindependent of the view expressed in Piara Singh (supra) by the Punjab& Haryana High Court, there is no clear analysis of the aspects whichare germane for giving correct interpretation to Section 31 of the 1973GAct and the effect of consequences for its contravention. For the viewtaken by us hitherto, it is unnecessary to dilate on this judgment anyfurther. Similarly, the Gauhati High Court in the case of Tufanu Chouhan(supra) essentially relied upon the decision in Piara Singh (supra) ofthe Punjab & Haryana High Court. For the reasons already stated whiledealing with Piara Singh (supra), even this judgment will be of no availH

to the respondent. Even the Madhya Pradesh High Court in GeetaReinboth (supra) relied upon Piara Singh (supra) as well as on thedictum in the book titled Principles of Statutory Interpretation, 8[th] Editionby Justice G.P. Singh and upon the decision of the same High Court inJanki Bai v. Ratan Melu[23], Ajit Prashad Jain (supra) and notificationNo. GSR 456 (E) dated 26.05.1993 of the RBI (Exchange ControlDepartment) published in 1993 MPLT 242 (109). As regards the dictumin the book Principles of Statutory Interpretation, that is a generalobservation, not specifically dealing with the purport and interpretationof Section 31 of the 1973 Act. As aforesaid, Section 31 needs to beinterpreted in light of the intent with which the same has been enactedkeeping in mind the general policy not to allow foreigners to transact inor hold real estate in India. The case of Janki Bai (supra) had dealtwith the provisions of C.P. & Berar Money Lenders Act, 1934. Theobservations made therein are, therefore, in the context of provisions ofthat Act. We have already analysed the dictum in Ajit Prashad Jain(supra) and noted that the same is of no avail to the respondent. Revertingto the stated notification dated 26.05.1993 issued by the RBI, that indeedis to clarify the scope of Section 31 of the 1973 Act. However, it islimited to transaction entered into by a foreign citizen of “Indian origin”,to deal with real estate in India on certain conditions. This notificationhas no application to foreigners or so to say the person who is not acitizen of India, namely, foreign citizens. In the present case, the landwas owned by a foreign citizen. For which reason, the rigours of Section31 must apply with full force. Additionally, it must be kept in mind thatthe stated notification was issued in 1993, around which time a changein policy regarding the investment opportunities for non-resident Indiansand foreigners had been crystallised, by opening up of economy in India.In the present case, we are dealing with the transaction effected closeto the coming into force of the 1973 Act i.e., in the year 1977 whenconsiderations were different and governed by different policy manifestedin the form of enactment of Section 31 of the 1973 Act, spoken to by thethen Finance Minister in the Lok Sabha, forbidding foreigners from dealingwith real estate in India.

32. The two other decisions of the Madras High Court, namely,Sivaprakasam (supra) and Mathu Sree Akkabai Ammani CharitableTrust (supra), were pressed into service. These came to be decided onsimilar reasoning adopted in the earlier decision of the same High Court23 1962 MPLJ 78 : AIR 1962 MP 117

AB

C

D

EF

G

H

Ain R. Sambasivam (supra) and Piara Singh (supra) of the Punjab &Haryana High Court. Those decisions will be of no avail to the respondentin light of the view taken by us on the interpretation of Section 31 of the1973 Act.

33. We may now usefully advert to the decision of the BombayBHigh Court (Goa Bench) in Joaquim Mascarenhas Fiuza v. JaimeRebello & Anr.[24], which has taken a different view to interpret Section31 of the 1973 Act. That dealt with the case of transfer of propertywhich according to the respondent therein could not be held by theplaintiff/petitioner, who was a foreign national and not a citizen of India,in absence of permission given by the RBI in that regard. The BombayCHigh Court took the view that the requirement of seeking previouspermission of the RBI in Section 31 of the 1973 Act is mandatory and aforeign national could hold the property in India, only if so permitted bythe RBI. The view so taken commends to us. Notably, the Single Judgeof the Madras High Court had followed this dictum in Sahruvan Nachair & Anr. v. V.S. Mohammed Hussain Maracair[25].D34. It has been brought to our notice that the Kerala High Court inWilliam Babu & Anr. v. Helma Roy Alias Emily Carmel[26], opinedthat contract in contravention of Section 31 is void, as previous generalor special permission of the RBI had not been obtained, which in itsview was mandatory. This decision had become final consequent toEdismissal of SLP (Civil) No.11591 of 2018 on 23.04.2018. Even a DivisionBench of the Madras High Court in Mrs. Shoba Viswanatha v. D.P.Kingsley[27], while considering the purport of Section 31 of the 1973 Act,vide its erudite judgment considered the scope of Section 23 of theContract Act and the principles delineated in that regard in Pollock andFMulla Indian Contract Act, VII Edition, page 158 including the decisionsin Joaquim Mascarenhas Fiuza (supra), Beharilal Maudgi v. TheSecretary to Govt. of A.P. Home Department, Hyderabad & Ors.[28]and the considerations governing public policy as delineated in GherulalParakh v. Mahadeodas Maiya & Ors.[29], Rattan Chand Hira Chand v. Askar Nawaz(Dead) by L.Rs. & Ors.[30 ]and other treaties, toG24 1986 SCC OnLine Bom 234 : 1986 Mah LJ 103125 (2001) 1 Mad LJ 188 : 2000 SCC OnLine Mad 73726 (2018) 1 KLJ 525 : 2017 SCC OnLine Ker 2526927 1996 (I) CTC 620 : 1996 SCC Online Mad 31928 1986 (2) ALT 24129 AIR 1959 SC 781H30 1991 (3) SCC 67

eventually conclude that the position of law is clear that when theenforcement of the contract is against any provision of law, that willamount to enforcement of an illegal contract. The contract per se maynot be illegal. But its enforcement requires compliance of statutoryconditions, failure of which will amount to statutory violation. A courtwhich 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 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 tocountenance the argument not to disturb the consistent view of differentHigh Courts on the principle of stare decisis by invoking the dictum inWaman 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 allHigh Courts, having occasion to deal with interpretation of Section 31 ofthe 1973 Act. Resultantly, we had to undertake the exercise of analysingall the decisions so as to give proper meaning to Section 31 of the 1973Act. In our opinion, the requirement of seeking previous general or specialpermission of the RBI in respect of transaction covered by Section 31 ofthe 1973 Act is mandatory. Resultantly, any sale or gift of property situatedin India by a foreigner in contravention thereof would be unenforceablein law.

36. As the stated gift deeds dated 11.03.1977 and 19.04.1980 infavour of respondent no.1 being unenforceable in law, respondent no.1had no clear title to transfer the same to Dr. Thomas Chandy videpurported sale deed dated 15.09.2005. It is not necessary for us to dilateon the argument of the appellant that such a sale deed in any case couldnot have been executed by respondent No.1 in favour of Dr. ThomasChandy in contravention of interim order passed by the High Court on07.04.2005 and the effect thereof.

37. As noticed above, the contrary decisions of High Courts havecompletely missed the legislative intent and the spirit of enactment ofSection 31, as is manifest from the statement of the then Finance Ministerwhile tabling the Bill in the Lok Sabha that as a general policy foreignnational cannot be allowed to deal with real estate in India. Besides thatclear indication, the legislative scheme impels us to take a view which isreinforced 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 transactingin real estate, is mandatory. In other words, without previous permission AB

CD

EF

G

H

Aof the RBI, such a transaction is forbidden and if entered into, would beunenforceable in law.

38. We hold that the condition predicated in Section 31 of the1973 Act of obtaining “previous” general or special permission of theRBI for transfer or disposal of immovable property situated in India bysale or mortgage by a person, who is not a citizen of India, is mandatory.BUntil such permission is accorded, in law, the transfer cannot be giveneffect to; and for contravening with that requirement, the concernedperson may be visited with penalty under Section 50 and otherconsequences provided for in the 1973 Act. Hence, the Trial Court aswell as the High Court committed manifest error in dismissing the suitCfiled by the plaintiff for a declaration in respect of suit propertyadmeasuring 12,306 square feet and for consequential reliefs referredto therein.

39. A priori, we conclude that the decisions of concerned HighCourts taking the view that Section 31 of the 1973 Act is not mandatoryand the transaction in contravention thereof is not void or unenforceable,Dis not a good law. However, transactions which have already becomefinal including by virtue of the decision of the court of competentjurisdiction, need not be reopened or disturbed in any manner because ofthis pronouncement. This declaration/direction is being issued in exerciseof our plenary power under Article 142 of the Constitution of India. For,there has been a paradigm shift in the general policy of investment byEforeigners in India and more particularly, the 1973 Act itself standsrepealed. Accordingly, we deem it appropriate to overrule the decisionsof the High Courts, taking contrary view, albeit,prospectively.

40. In view of the above, the appeal is allowed. The impugnedjudgment and decree of the Trial Court, as confirmed by the High Court,Fis 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 intoto in favour of the plaintiff. The appellant (being the legal representativeof the plaintiff) is entitled for possession of the suit property being theowner thereof and also for mesne profits for the relevant period forwhich a separate inquiry be conducted under Order 20 Rule 12 of theGCode of Civil Procedure, 1908. Ordered accordingly. No order as tocosts.

All pending applications stand disposed of.

HDivya Pandey