2026 (2) TMI 401 - HC - FEMA

Suit for specific performance and damages: HC limited its ruling on the added issue; enforceability and FERA challenges remain open

A suit for specific performance and damages raised whether a bar under foreign exchange regulation and res judicata precluded relief; the High Court held ... Suit for specific performance and damages - Bar u/s 31 of the Foreign Exchange Regulation Act, 1973 - res judicata - enforceability of agreement in the context of the Income Tax Act, 1961 - limits of interlocutory determination - HELD THAT:- The additional issue framed on January 4, 2023 was taken up for consideration and decided by the impugned judgment and order. The additional issue was decided as against the appellant herein and in favour of the plaintiff. There is some substance in the contention of the appellant before us that, the second portion of the second issue and the additional issue framed on January 4, 2023 may overlap to some extent. Therefore, the appellant may face difficulty on the issue of res judicata. In such circumstances, it would be appropriate to clarify that, the decision rendered on the additional issue framed on January 4, 2023, by the impugned judgment and order, is limited to such issue. It is clarified that, the decision rendered on the additional issue framed on January 4, 2023 will not prejudice any of the parties, in relation to the other four issues framed on December 14, 1992. The issue of legality, validity, sufficiency, enforceability and the effect of the agreement dated January 2, 1989 is kept open to be decided at the trial without being impeded in any manner and form by the impugned judgment and order. The High Court negatived the contention that the suit is barred by Section 31 of the Foreign Exchange Regulation Act, 1973, but confined that finding strictly to the additional issue; all original issues framed on December 14, 1992, including questions of enforceability under the Income Tax Act, 1961 and other aspects of FERA, remain open for full adjudication at trial. Issues: (i) Whether the suit is barred by Section 31 of the Foreign Exchange Regulation Act, 1973 (additional issue framed on January 4, 2023) and whether the decision on that issue prejudices or operates as res judicata in respect of the other issues framed on December 14, 1992.Analysis: The Court considered the additional issue specifically confined to the bar under Section 31 of the Foreign Exchange Regulation Act, 1973 and noted that the learned trial Judge limited his decision to that additional issue. The Court recognised that some overlap may exist between the additional issue and the second portion of the originally framed second issue but observed that the suit remains pending on the four issues framed on December 14, 1992 which are yet to be finally decided. The Court therefore examined whether permitting the impugned judgment to stand in its present form would operate to preclude adjudication of the remaining issues at trial or give rise to res judicata at the interlocutory stage, and concluded that such prejudice must be avoided by confining the effect of the impugned decision to the specific question referred on January 4, 2023.Conclusion: The decision on the additional issue (whether the suit is barred by Section 31 of the Foreign Exchange Regulation Act, 1973) is affirmed in favour of the plaintiff and against the appellant, but the effect of that decision is strictly limited to that additional issue and shall not prejudice or operate as res judicata in respect of the other issues framed on December 14, 1992.Ratio Decidendi: A determination on a specific additional interlocutory issue under Section 31 of the Foreign Exchange Regulation Act, 1973 may be confined in effect to that issue so as not to preclude trial or operate as res judicata on separately framed substantive issues pending adjudication.