Agreement for Sale Not a Property Transfer Without RBI Permission Under FERA Sections 31 and 47

The HC held that the agreement for sale did not constitute a transfer of property without prior RBI permission and thus did not violate FERA, 1973. Section 47 implies that prohibited acts require prior approval, but this does not render the agreement invalid. The agreement lacked any clause mandating RBI permission under Section 31 and complied with other statutory requirements. Enforcement of such an agreement is not barred by Section 31 or Section 78 of FERA, and the civil court retains jurisdiction to entertain suits for enforcement. The court concluded the agreement was neither illegal nor void under FERA, and no jurisdictional bar existed to prevent the plaintiff from pursuing alternative remedies or enforcing the agreement.

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ISSUES:

Whether the suit for specific performance of an agreement for sale is barred by Section 31 of the Foreign Exchange Regulation Act (FERA), 1973.Whether execution of an agreement for sale amounts to "transfer" or "disposal" of immovable property under Section 31 of FERA, 1973 requiring prior permission of the Reserve Bank of India (RBI).Whether the agreement for sale is void or unenforceable under Section 23 of the Indian Contract Act, 1872 due to non-compliance with FERA, 1973.Whether the civil court has jurisdiction to entertain a suit for specific performance or other reliefs arising out of such an agreement in light of FERA, 1973 provisions, including Section 78.The scope and application of Section 47 of FERA, 1973 regarding contracts entered into in evasion of the Act.

RULINGS / HOLDINGS:

The suit is not barred by Section 31 of the FERA, 1973 as execution of an agreement for sale does not amount to "transfer" or "disposal" of immovable property requiring prior RBI permission.Section 31(1) prohibits acquisition, holding, transfer or disposal of immovable property by a foreigner except with the previous permission of the Reserve Bank of India, but execution of an unregistered agreement for sale does not result in transfer or disposal of immovable property nor create any interest in the property.The agreement for sale is not illegal or void under Section 23 of the Indian Contract Act, 1872 merely because prior RBI permission was not obtained, as the agreement contains an implied term that transfer shall not be done without such permission, consistent with Section 47 of FERA, 1973.Section 47(2) of FERA, 1973 provides that an agreement shall not be invalid if it contains a term that the act prohibited by the Act shall not be done unless permission is granted, making such a term an implied statutory contract term.The civil court's jurisdiction is not barred by Section 78 of FERA, 1973 to entertain a suit for specific performance or other reliefs arising from the agreement for sale that is not otherwise illegal or invalid under the Act.

RATIONALE:

The Court applied a combined reading of Sections 31, 47, 50, and 78 of the Foreign Exchange Regulation Act, 1973, along with principles under the Indian Contract Act, 1872.Section 31 restricts acquisition, holding, transfer, or disposal of immovable property by non-citizens without prior RBI permission but does not expressly prohibit execution of agreements for sale, which do not transfer title or create interest in property.Section 47 prohibits contracts that evade the provisions of FERA but permits agreements conditioned on obtaining necessary permissions, making such conditions implied terms of the contract.The Court rejected the argument that the agreement was void ab initio under Section 23 of the Indian Contract Act, 1872, as the plea was not taken in pleadings and the agreement did not seek to evade the Act's provisions.The ejusdem generis rule was considered but found inapplicable to broaden the scope of "or otherwise" in Section 31 to include agreements for sale, following authoritative precedents.Section 78 of FERA, 1973 was interpreted narrowly to bar suits only against the government or RBI officers for acts done in good faith under the Act, not to bar civil suits enforcing agreements not otherwise illegal.The Court relied on precedents including Asha John Divianathan v. Vikram Malhotra and Viswa Nath Sharma v. Shyam Shanker Goela to interpret the interplay of FERA provisions and the enforceability of agreements for sale involving foreign nationals.

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