TaxTMI 
TaxTMI 
2021 (3) TMI 92
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....he gift deed, she had executed an agreement of sale in favour of one Mr. R.P. David, father of appellant (Asha John Divianathan) and husband of respondent No.4 (Mrs. R.P. David, wife of Mr. R.P. David). That agreement was executed on 05.04.1976 whereunder the title deed of the schedule property was delivered by Mrs. F.L. Raitt to late Mr. R.P. David. However, Mrs. F.L. Raitt gifted the portion of schedule property admeasuring 12,306 square feet, vide gift deed dated 11.03.1977, in favour of respondent No.1 without seeking previous permission of the RBI under Section 31 of the 1973 Act. She then executed a supplementary gift deed in favour of respondent No.1 on 19.04.1980. Even this deed was executed by Mrs. F.L. Raitt without seeking previous permission of the RBI. The respondent claimed that a power of attorney was executed in his favour by Mrs. F.L. Raitt on 09.01.1982, which it appears, was revoked by Mrs. F.L. Raitt on 03.06.1982. Thereafter, Mrs. F.L. Raitt executed a ratificatory agreement to sell the schedule property in favour of Mr. R.P. David (predecessor of the appellant and respondent no.4) on 04.12.1982, followed by a power of attorney in favour of Mr. Peter J. Phil....
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.... the power of attorney dated 26.1.83 executed by the first plaintiff in favour of the 2nd defendant was procured by fraud, misrepresentation and undue influence and the same was taken without her knowledge? 2) Whether the plaintiff proves that the power of attorney dated 26.1.83 executed by the first plaintiff in favour of the second defendant is null and void and not binding on the first plaintiff? 3) Whether the plaintiffs are entitled for permanent injunction restraining the defendant - 2 from acting in any way on the strength of the alleged power of attorney dated 26.1.1983? 4) Whether the plaintiff proves that the 2nd defendant fraudulently and without any legal authority of the first plaintiff executed the sale deed dated 9.4.1983 in favour of the 1st defendant in respect of the suit schedule property? 5) Whether the plaintiff further proves that the said sale deed was never intended to be registered by the first plaintiff nor the second defendant was authorized or empowered to act as her General Power of attorney holder for that purpose? 6) Whether the plaintiffs are entitled for declaration for the cancellation of the sale deed d....
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....hedule property under the terms of the sale deed dated 9.4.83? 2) Whether the plaintiff further proves that Mrs. Florence L. Raitt executed the General Power of Attorney dated 26.1.83 in favour of Mr. Peter Philip on her own free will? 3) Whether the defendant proves that General Power of Attorney dt. 26.1.1983 was procured by fraud, misrepresentation, coercion, undue influence and in breach of trust? 4) Whether the defendants further prove that the suit schedule property was bequeathed to defendant - 1 under the will executed by Mrs. Florence Raitt absolutely and unconditionally? 5) Whether the defendants further prove that defendant 1 is the absolute owner in actual possession of the suit schedule property? 6) Whether the second defendant is a necessary party to the suit? 7) Whether the plaintiff is entitled for a declaration as prayed for? 8) Whether the plaintiff is entitled for mesne profits? If so, at what rate? 9) Whether the plaintiff is entitled to the possession of the suit schedule property? 10) What order or decree?" After analysing the pleadings and evidence on record, the Trial Court v....
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....appellant, the dispensation specified in the said provision is mandatory and no transaction in contravention thereof would be enforceable in law. That position is reinforced by Section 47 of the same Act. Further, violation of Section 31 has also been made punishable under Section 50 of the 1973 Act. In support of this submission, reliance is placed on the dictum of Constitution Bench of this Court in Life Insurance Corporation of India v. Escorts Ltd. & Ors. (1986) 1 SCC 264. Reliance has also been placed on the observations made by threeJudge Bench of this Court in Renusagar Power Co. Ltd. v. General Electric Co. 1994 Supp (1) SCC 644 and Vijay Karia & Ors. v. Prysmian Cavi E Sistemi SRL & Ors. (2020) 11 SCC 1. According to the appellant, the reasons weighed with the Punjab & Haryana High Court in Piara Singh (supra) are manifestly wrong. That decision has not analysed the true scope and purport of Section 31 of the 1973 Act in correct perspective. Similar view taken by the Madras High Court in R. Sambasivam v. Thangavelu Dhanabagyam 2001 - 1 - L.W. 161, following the decision in Piara Singh (supra), suffers from the same error. On the same lines different High Courts have constr....
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....aken in that regard including by the RBI. The decision of the RBI to grant or refuse permission for transfer is made final. The RBI is exclusively entrusted with the task of determining the permissibility of the transaction, being repository of management of foreign exchange of the country. 9. Our attention was invited to the provisions of the Indian Contract Act, 1872 For short, "the Contract Act" and the Transfer of Property Act, 1882, to contend that there is marked distinction between void and voidable transaction. At best, the transfer in favour of respondent No.1 may come within the latter category. It is further urged that different High Courts have consistently opined that transaction in contravention of Section 31 cannot be regarded as void and that view needs no interference. Relying on Waman Rao & Ors. v. Union of India & Ors. (1981) 2 SCC 362 (paras 36 to 40), the argument is that following the principle of stare decisis, this Court ought not to countermand the consistent view of the High Courts prevailing since 1987. It is further urged that the 1973 Act has since been repealed and therefore, it would be in the fitness of things not to disturb the consistent view ta....
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.... we should not allow foreign investment in landed property/buildings constructed by foreigners and foreign controlled companies as such investments offer scope for considerable amount of capital liability by way of capital repatriation. While we may still require foreign investments in certain sophisticated branches of industry, there is no reason why we should allow foreigners and foreign companies to enter real estate business." (emphasis supplied) 14. The avowed object of Section 31 of the 1973 Act was thus to minimise the drainage of foreign exchange by way of repatriation of income from immovable property and sale proceeds in case of disposal of property by a person, who is not a citizen of India. As is noticed from the title of Section 31, it is to put restriction on acquisition, holding and disposal of immovable property in India by foreigners - non citizens. We deem it apposite to reproduce Section 31 of the 1973 Act as applicable at the relevant time, the same reads thus: "31. Restriction on acquisition, holding, etc., of immovable property in India.- (1) No person who is not a citizen of India and no company (other than a banking company) which is not....
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.... is not competent to dispose of by sale or gift, as in this case, any immovable property situated in India without previous general or special permission of the RBI. The only exception provided in the proviso is that of acquisition or transfer of immovable property by way of lease for a period not exceeding five years. This provision applies to foreign citizens and foreign and FERA companies only. A nonresident Indian citizen is not covered thereunder. Sub-Section (2) mandated such person, who is not a citizen of India, to make an application to the RBI in the prescribed form making necessary disclosures. Sub-Section (3) postulates that on receipt of such an application, the RBI after due inquiry as it deems fit, either may grant or refuse to grant the permission applied for. The second proviso to subSection (3) provides for a default permission, if no response is received to the application within the specified period. What is significant to notice is that as per subSection (4), every person, who is not a citizen of India, holding immovable property situated in India at the time of commencement of the 1973 Act, is obliged to make declaration within ninety days from the commence....
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....red by the said provisions shall not be done without that permission, shall prevent legal proceedings being brought in India to recover any sum which, apart from the said provisions and any such term, would be due, whether as debt, damages or otherwise, but- (a) the said provisions shall apply to sums required to be paid by any judgment or order of any court as they apply in relation to other sums; (b) no steps shall be taken for the purpose of enforcing any judgment or order for the payment of any sum to which the said provisions apply except as respects so much thereof as the Central Government or the Reserve Bank, as the case may be, may permit to be paid; and (c) for the purpose of considering whether or not to grant such permission, the Central Government or the Reserve Bank, as the case may be, may require the person entitled to the benefit of the judgment or order and the debtor under the judgment or order, to produce such documents and to give such information as may be specified in the requisition. (4) Notwithstanding anything contained in the Negotiable Instruments Act, 1881, neither the provisions of this Act or of any rule, direction ....
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....ice is that subSection (2) declares that the agreement shall not be invalid if it provides that thing shall not be done without the permission of the Central Government or the RBI. That would be the implied requirement of the agreement in terms of this provision. In other words, though ostensibly the agreement would be a conditional one made subject to permission of the Central Government or the RBI, as the case may be and if such term is not expressly mentioned in the agreement, it shall be an implied term of every contract governed by the law - of obtaining permission of the Central Government or the RBI before doing the thing provided for in the agreement. In that sense, such a term partakes the colour of a statutory contract. Notably, Section 47 of the 1973 Act applies to all the contracts or agreements covered under the 1973 Act, which require previous permission of the RBI. 17. Section 50 reinforces the position that transfer of land situated in India by a person, who is not a citizen of India, would visit with penalty. Indeed, inserting such a provision does not mean that the 1973 Act is a penal statute, but is to provide for penal consequence for contravention of provisi....
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....cial Review of Administrative Action, 5th Edn., para 5044, have summarised the concept of void and voidable as follows: "Behind the simple dichotomy of void and voidable acts (invalid and valid until declared to be invalid) lurk terminological and conceptual problems of excruciating complexity. The problems arose from the premise that if an act, order or decision is ultra vires in the sense of outside jurisdiction, it was said to be invalid, or null and void. If it is intra vires it was, of course, valid. If it is flawed by an error perpetrated within the area of authority or jurisdiction, it was usually said to be voidable; that is, valid till set aside on appeal or in the past quashed by certiorari for error of law on the face of the record." 21. Clive Lewis in his work Judicial Remedies in Public Law at p. 131 has explained the expressions "void and voidable" as follows: "A challenge to the validity of an act may be by direct action or by way of collateral or indirect challenge. A direct action is one where the principal purpose of the action is to establish the invalidity. This will usually be by way of an application for judicial review or b....
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....seeking previous permission it is in the nature of prohibition as observed by a three Judge Bench of this Court in Mannalal Khetan & Ors. v. Kedar Nath Khetan & Ors. (1977) 2 SCC 424. In every case where a statute imposes a penalty for doing an act, though, the act not prohibited, yet the thing is unlawful because it is not intended that a statute would impose a penalty for a lawful act. When penalty is imposed by statute for the purpose of preventing something from being done on some ground of public policy, the thing prohibited, if done, will be treated as void, even though the penalty if imposed is not enforceable. We may usefully reproduce paragraphs 18 to 22 of the said reported decision, which read thus: "18. The High Court said that the provisions contained in Section 108 of the Act are directory because noncompliance with Section 108 of the Act is not declared an offence. The reason given by the High Court is that when the law does not prescribe the consequences or does not lay down penalty for noncompliance with the provision contained in Section 108 of the Act the provision is to be considered as directory. The High Court failed to consider the provision containe....
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....penalty is annexed the agreement is void. In every case where a statute inflicts a penalty for doing an act, though the act be not prohibited, yet the thing is unlawful, because it is not intended that a statute would inflict a penalty for a lawful act. 22. Penalties are imposed by statute for two distinct purposes: (1) for the protection of the public against fraud, or for some other object of public policy; (2) for the purpose of securing certain sources of revenue either to the State or to certain public bodies. If it is clear that a penalty is imposed by statute for the purpose of preventing something from being done on some ground of public policy, the thing prohibited, if done, will be treated as void, even though the penalty if imposed is not enforceable." (emphasis supplied) The principle underlying in this decision must apply on all fours while analysing the purport of Section 31 of the 1973 Act. 21. The appellant has invited our attention to the dictum in Union of India & Ors. v. A.K. Pandey (2009) 10 SCC 552 (paras 14 and 15), that where a contract, express or implied, is expressly or by implication forbidden by statute, no court will len....
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....he Act as being rendering the transfer void, is also taken notice of in the recent decision of a three-Judge Bench of this Court in Vijay Karia (supra). It has been so noted in paragraph 88 while distinguishing the dispensation provided in the Foreign Exchange Management Act, 1999 (FEMA). The Court has noted that FEMA unlike FERA - refers to the nation's policy of managing foreign exchange instead of policing foreign exchange, the policeman being RBI under FERA. Indeed, it is not a decision dealing directly with the question involved in the present appeal. Nevertheless, it does take notice of the strict dispensation under Section 31, as it obtained under the 1973 Act, particularly requiring "previous" general or special permission of the RBI. 24. Another threeJudge Bench in the case Renusagar Power Co. Ltd. (supra) while dealing with the question of enforceability of an arbitral award, adverted to violation of FERA in reference to Section 47 of the 1973 Act as can be discerned from paragraphs 68 to 84. We need not dilate on this judgment except to notice the dictum in Herbert Wagg & Co. Ltd., Re (1956) 1 Ch 323 reproduced in paragraph 68, which reads thus: "68. ... In H....
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.... a given case. The sale or gift could be given effect and taken forward only after such permission is accorded by the RBI. There is no possibility of ex post facto permission being granted by the RBI under Section 31 of the 1973 Act, unlike in the case of Section 29 as noted in Life Insurance Corporation of India (supra). Before grant of such permission, if the sale deed or gift deed is challenged by a person affected by the same directly or indirectly and the court declares it to be invalid, despite the document being registered, no clear title would pass on to the recipient or beneficiary under such deed. The clear title would pass on and the deed can be given effect to only if permission is accorded by the RBI under Section 31 of the 1973 Act to such transaction. 26. In light of the general policy that foreigners should not be permitted/allowed to deal with real estate in India; the peremptory condition of seeking previous permission of the RBI before engaging in transactions specified in Section 31 of the 1973 Act and the consequences of penalty in case of contravention, the transfer of immovable property situated in India by a person, who is not a citizen of India, without ....
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....s a provision regarding confiscation of certain properties but it does not contain any provision for confiscation if there is breach of the provisions of subsec.( 1) of S.31. Therefore, the property purchased in contravention of subsec.( 1) of S.31 is also not liable to confiscation. In the circumstances, it cannot be held that the plaintiffs are not entitled to obtain possession of the property or recover damages for its use and occupation." 29. In the first place, provision for penalty under Section 50 for contravention referred to in Section 31, does not mean that the requirement of previous permission of RBI is directory or a mere formality. It is open to the legislature to provide two different consequences for the violation. As already noted hitherto, despite the absence of express provision declaring the transfer void, the intent behind enacting Section 31 and its purport renders the transfer in contravention thereof unenforceable until permission for such transaction is granted by the RBI. 30. Suffice it to observe that merely because no provision in the Act makes the transaction void or says that no title in the property passes to the purchaser in case there is contr....
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.... G.P. Singh and upon the decision of the same High Court in Janki Bai v. Ratan Melu 1962 MPLJ 78 : AIR 1962 MP 117, Ajit Prashad Jain (supra) and notification No. GSR 456 (E) dated 26.05.1993 of the RBI (Exchange Control Department) published in 1993 MPLT 242 (109). As regards the dictum in the book Principles of Statutory Interpretation, that is a general observation, not specifically dealing with the purport and interpretation of Section 31 of the 1973 Act. As aforesaid, Section 31 needs to be interpreted in light of the intent with which the same has been enacted keeping in mind the general policy not to allow foreigners to transact in or hold real estate in India. The case of Janki Bai (supra) had dealt with the provisions of C.P. & Berar Money Lenders Act, 1934. The observations made therein are, therefore, in the context of provisions of that Act. We have already analysed the dictum in Ajit Prashad Jain (supra) and noted that the same is of no avail to the respondent. Reverting to the stated notification dated 26.05.1993 issued by the RBI, that indeed is to clarify the scope of Section 31 of the 1973 Act. However, it is limited to transaction entered into by a foreign citi....
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....racair (2001) 1 Mad LJ 188 : 2000 SCC OnLine Mad 737. 34. It has been brought to our notice that the Kerala High Court in William Babu & Anr. v. Helma Roy Alias Emily Carmel (2018) 1 KLJ 525 : 2017 SCC OnLine Ker 25269, opined that contract in contravention of Section 31 is void, as previous general or special permission of the RBI had not been obtained, which in its view was mandatory. This decision had become final consequent to dismissal of SLP (Civil) No.11591 of 2018 on 23.04.2018. Even a Division Bench of the Madras High Court in Mrs. Shoba Viswanatha v. D.P. Kingsley 1996 (I) CTC 620 : 1996 SCC Online Mad 319, while considering the purport of Section 31 of the 1973 Act, vide its erudite judgment considered the scope of Section 23 of the Contract Act and the principles delineated in that regard in Pollock and Mulla Indian Contract Act, VII Edition, page 158 including the decisions in Joaquim Mascarenhas Fiuza (supra), Beharilal Maudgi v. The Secretary to Govt. of A.P. Home Department, Hyderabad & Ors. 1986 (2) ALT 241 and the considerations governing public policy as delineated in Gherulal Parakh v. Mahadeodas Maiya & Ors. AIR 1959 SC 781, Rattan Chand Hira Chand v. Askar ....
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....ed to deal with real estate in India. Besides that clear indication, the legislative scheme impels us to take a view which is reinforced from conjoint reading of Section 31 along with Sections 47, 50 and 63. There is little doubt that the requirement of "previous" permission of the RBI, to be taken by a foreign national before transacting in real estate, is mandatory. In other words, without previous permission of the RBI, such a transaction is forbidden and if entered into, would be unenforceable in law. 38. We hold that the condition predicated in Section 31 of the 1973 Act of obtaining "previous" general or special permission of the RBI for transfer or disposal of immovable property situated in India by sale or mortgage by a person, who is not a citizen of India, is mandatory. Until such permission is accorded, in law, the transfer cannot be given effect to; and for contravening with that requirement, the concerned person may be visited with penalty under Section 50 and other consequences provided for in the 1973 Act. Hence, the Trial Court as well as the High Court committed manifest error in dismissing the suit filed by the plaintiff for a declaration in respect of suit pro....