Invalid Property Transfer Deeds Overturned Due to Lack of RBI Approval, Court Grants Possession and Mesne Profits.

The Court held that the gift deeds in favor of respondent No.1 were unenforceable due to non-compliance with Section 31 of FERA, which mandates prior RBI permission for property transfers by non-citizens. The appellant was granted a declaration of invalidity for the deeds, possession of the property, and mesne profits. The Court overruled previous High Court decisions, emphasizing the mandatory nature of Section 31. The appeal was allowed, setting aside the Trial Court and High Court judgments, and an inquiry under Order 20 Rule 12 of the CPC, 1908, was ordered for mesne profits.

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Issues Involved:
1. Validity of gift deed and supplementary deed under Section 31 of the Foreign Exchange Regulation Act, 1973 (FERA).
2. Consequences of non-compliance with Section 31 of FERA.
3. Interpretation of Section 31 of FERA in relation to other statutory provisions.
4. The enforceability of transactions made in contravention of Section 31 of FERA.

Detailed Analysis:

1. Validity of Gift Deed and Supplementary Deed:
The central issue pertains to whether the transaction specified in Section 31 of the Foreign Exchange Regulation Act, 1973 (FERA) is void or voidable and at whose instance it can be voided. The facts are undisputed that Mrs. F.L. Raitt, a foreigner, gifted property to respondent No.1 without obtaining prior permission from the Reserve Bank of India (RBI) as required under Section 31 of FERA. The appellant contended that such a gift deed is null and void due to non-compliance with Section 31.

2. Consequences of Non-Compliance with Section 31 of FERA:
Section 31 mandates that no person who is not a citizen of India shall transfer or dispose of any immovable property in India without previous permission from the RBI. The Court emphasized that the requirement of obtaining "previous" permission is mandatory. Failure to obtain such permission renders the transfer unenforceable in law. This is reinforced by Sections 47, 50, and 63 of FERA, which provide for penalties and consequences for contraventions.

3. Interpretation of Section 31 in Relation to Other Statutory Provisions:
The Court analyzed the legislative intent behind Section 31, which was to prevent foreign investment in real estate to avoid capital repatriation. Section 47 states that any agreement requiring RBI's permission shall not be invalid if it includes a term that the act shall not be done without such permission. Section 50 imposes penalties for contraventions, and Section 63 allows for confiscation of property involved in contraventions. The Court concluded that these provisions collectively underscore the mandatory nature of Section 31.

4. Enforceability of Transactions Made in Contravention of Section 31:
The Court held that any transaction in contravention of Section 31 is unenforceable unless permission is granted by the RBI. The Court distinguished between void and voidable transactions, stating that a transaction made without RBI's prior permission is not merely voidable but unenforceable until such permission is obtained. This interpretation aligns with the legislative intent to restrict foreign nationals from dealing in real estate in India without regulatory oversight.

Judgment:
The Court concluded that the gift deeds dated 11.03.1977 and 19.04.1980 in favor of respondent No.1 are unenforceable in law due to non-compliance with Section 31 of FERA. Consequently, the appellant is entitled to a declaration that these deeds are invalid and unenforceable, possession of the suit property, and mesne profits. The Court overruled contrary decisions of various High Courts, stating that Section 31 is mandatory and any transaction in violation thereof is unenforceable. The appeal was allowed, and the judgment and decree of the Trial Court and High Court were set aside. The appellant was granted possession of the suit property and mesne profits, with a separate inquiry to be conducted under Order 20 Rule 12 of the Code of Civil Procedure, 1908.

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