2025 (7) TMI 1646 - HC - FEMA

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. ... Operation or application of the FERA, 1973 - execution of an agreement for sale - mandation to get prior permission of the Reserve Bank of India (RBI) - HELD THAT:- In the case in hand, no property had been sold or transferred, offending and without taking any permission of the Reserve Bank of India. No succinct or actual transfer took place. Issue is the agreement for sale. Section 47 may be looked into in this respect. Sub-section 2 is very clear. Any provision that the thing shall not be done without permission of the Central Government or the Reserve Bank shall not render invalid any agreement by any person to do that thing if it is a term of the agreement that the thing shall not be done unless permission is granted by the Central Government or the Reserve Bank of India and it shall be implied term of every contract that anything agreed to be done by any term of the contract which is a prohibited act unless permission is taken, shall not be done, unless such permission is granted. This specific provision does not support the argument of Mr. Sarkar. Any such interpretation of section 47 is opposed to the whole scheme, purport and meaning of the Act. The agreement for sale was executed on 2nd January, 1989 copy of which was marked as Ext. 3. There is no specific averment in the agreement that permission under Section 31 of FERA, 1973 should be taken from the Reserve Bank of India. It is in the agreement that prior to execution of a deed of conveyance compliances should be made with the West Bengal Urban Land (Ceiling and Regulation) Act, 1976 as well as the Income Tax Act,1961. There is no provision which can be interpreted as calculated to defeat or frustrate the operation or application of the FERA, 1973. The agreement, in fact, does not come within the mischief of Section 47. It rather contemplates and by deeming provision of Section 47 deemed to contain provision that permission requisite for transfer of title would have to be taken. The agreement itself as such is not illegal, offending any of the provision of the FERA, 1973 for which the Court would not come to the assistance by entertaining a suit. Inference of this Court, therefore, is that the agreement itself is not illegal or void. Bar of jurisdiction of the civil suit - Execution of an agreement for sale is not barred by Section 31 itself. Section 31 frowned upon specific transactions mentioned therein, namely, holding, acquiring and transferring by way of mortgaged, sale or other transactions were transferred of title is involved except without previous permission of the Reserve Bank of India. So far as, agreements are concerned, those are separately dealt with Section 47 of the Act. Since, the instant agreement is not one which comes within mischief of Section 47 and prohibitory one, enforcing those agreements is not barred. A civil suit to enforce that agreement is, of course, not barred. The question whether the agreement is enforceable or not yet to be decided; that goes to the merit of the suit but that itself doesn’t bar intuition of the civil suit in a civil Court. Plaintiff can still pursue for alternative remedy. Whether that remedy is available to him or not is a question of adjudication to be decided later on at the time of deciding the merit of the suit; but that cannot operate as a jurisdictional bar on this Court. Section 78 of the FERA, 1973 bars jurisdiction of civil courts in some specific cases. It does not bar jurisdiction of civil court to enforce an agreement for sale which is not otherwise offensive to the statute or illegal or invalid. This Court is of opinion for reasons stated above that neither the agreement is offensive to the FERA, 1973 nor jurisdiction of this Court is barred to enforce the agreement. 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.