FEMA contravention does not automatically void a sale deed; civil court relief was barred on the same issue.

A civil suit seeking to declare a sale deed null and void for alleged FEMA contravention was not maintainable where the statutory authorities under FEMA had already adjudicated the breach and imposed penalty, because the civil court cannot decide a matter assigned to the Act's self-contained mechanism. The court also held that a FEMA violation does not, by itself, render a sale void under Section 23 of the Indian Contract Act or Section 6(h) of the Transfer of Property Act; in the absence of confiscation, the transaction was not shown to be forbidden by law. The partition decree was sustained for ancestral properties, but declaration and consequential reliefs concerning the sale transaction were set aside.

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Issues: (i) Whether a civil suit seeking declaration that a sale deed is null and void on the ground of violation of the Foreign Exchange Management Act, 1999 is barred by the exclusion of civil court jurisdiction under the Act. (ii) Whether a sale of agricultural property in favour of a non-resident Indian, said to be in contravention of the Foreign Exchange Management Act, 1999 and the allied regulations, is void by reason of Section 23 of the Indian Contract Act, 1872 and Section 6(h) of the Transfer of Property Act, 1882.

Issue (i): Whether a civil suit seeking declaration that a sale deed is null and void on the ground of violation of the Foreign Exchange Management Act, 1999 is barred by the exclusion of civil court jurisdiction under the Act.

Analysis: Section 34 of the Foreign Exchange Management Act, 1999 expressly excludes the jurisdiction of the civil court in respect of matters that the adjudicating authority, appellate tribunal or special director (appeals) is empowered to determine. The dispute regarding alleged contravention of FEMA was already taken up before the statutory authorities, which imposed penalty. The declaration sought before the civil court was not independent of the FEMA issue but was consequential to it, and therefore the civil suit could not be sustained on that aspect.

Conclusion: The issue is answered in favour of the appellants and against the respondent.

Issue (ii): Whether a sale of agricultural property in favour of a non-resident Indian, said to be in contravention of the Foreign Exchange Management Act, 1999 and the allied regulations, is void by reason of Section 23 of the Indian Contract Act, 1872 and Section 6(h) of the Transfer of Property Act, 1882.

Analysis: A contravention of FEMA does not, by itself, render the transaction void. The statutory scheme under FEMA provides for adjudication, penalty and, where warranted, confiscation, and the authorities in the present case chose to impose penalty without confiscating the property. Regulation 3(b) of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 also indicates that transfer of immovable property to a person resident in India is not prohibited in the manner contended. The transaction therefore could not be treated as forbidden by law so as to fall within Section 23 of the Indian Contract Act, 1872 or Section 6(h) of the Transfer of Property Act, 1882.

Conclusion: The issue is answered in favour of the appellants and against the respondent.

Final Conclusion: The decree for partition was sustained in respect of the ancestral properties, but the declaration and consequential reliefs relating to the separate properties dealt with in the impugned sale transaction were set aside.

Ratio Decidendi: A contravention of FEMA does not ipso facto make a transaction void, and where the statute provides a self-contained adjudicatory mechanism with penalties, the civil court cannot declare such transaction void on the basis of the alleged FEMA violation.

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