# ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS

- **Citation:** [2021] 1 S.C.R. 953
- **Court:** Supreme Court of India
- **Decided:** 2021-02-26
- **Case number:** Civil Appeal No. 9546 of 2010
- **Bench:** A. M. Khanwilkar, Indu Malhotra, Ajay Rastogi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/asha-john-divianathan-v-vikram-malhotra-ors-34809
- **Pages:** 36

## Headnote

Foreign Exchange Regulation Act, 1973 - ss.31, 47, 50, 63 -
A foreigner who was the owner of property in question, executed
an agreement of sale in favour of predecessor of the appellant and
respondent no.4 after previous permission of the RBI - However,
around the same time she gifted portion of the property to respondent
no.1 though without any previous permission of the RBI - Suit filed
by appellant and respondent no.4's predecessor against the
respondent no.1 inter alia for declaring the gift deeds in his favour
as null and void and not binding - Dismissed by Trial Court - First
appeal filed by the appellant and respondent no.4, dismissed by
High Court - On appeal, held:The condition predicated in
s.31ofobtaining previous general or special permission of the RBI
for transfer/disposal of immovable property situated in India by a
personwho is not a citizen of India is mandatory- Resultantly, any
sale or gift of property situated in India by a foreigner in
contravention thereof would be unenforceable in law- Gift deeds
in favour of respondent no.1being unenforceable in law, he had no
clear title to further transfer the same - Impugned judgment and
decree of the Trial Court as confirmed by the High Court, set aside
- Suit filed by predecessor of the appellant and respondent no.4
decreed in toto - Appellant being the legal representative of the
plaintiff is entitled for possession of the suit property being the
owner thereof and also for mesne profits for the relevant period -
Interpretation of Statutes -Contract Act, 1872 - s.23 - Code of
Civil Procedure, 1908 - Or.20, r.12 - Constitution of India - Article
142.
Foreign Exchange Regulation Act, 1973:
Object and purpose of - s.31 - Discussed.
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s.47 - Application of - Held: s.47 applies to all the contracts
or agreements covered under the 1973 Act, which require previous
permission of the RBI.
Proviso to s.31 - Exception under - Discussed.
ss.29, 31 - Held: There is no possibility of ex post facto
permission being granted by the RBI u/s.31 unlike in the
case of s.29.
ss.31, 63 - "property" in s.63 - Held: Expression "property"
in s.63 takes within its sweep immovable property referred to in
s.31.
Interpretation of Statutes - Prohibition; negative words - Held:
A contract is void if prohibited by a statute under a penalty, even
without express declaration that the contract is void, because such
a penalty impliesa prohibition - Prohibition and negative words
can rarely be directory - Foreign Exchange Regulation Act, 1973 -
ss.31, 47, 50, 63.
Words & Phrases - void, voidable - Purport of - Discussed.
Allowing the appeal, the Court
HELD: 1.1 The object and purpose for which the Foreign
Exchange Regulation Act, 1973 was brought into force was to
consolidate and amend the law relating to certain payments,
dealings in foreign exchange and securities, transactions indirectly
affecting foreign exchange and the import and export of currency,
for the conservation of the foreign exchange resources of the
country and the proper utilisation thereof in the interests of the
economic development of the country. The avowed object of
Section 31 of the 1973 Act was 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.
On a bare reading of sub-Section (1), it is crystal clear that a
person, who is not a citizen of India, 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
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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 exceedin

## Text

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 [2021] 1 S.C.R. 953
953
ASHA JOHN DIVIANATHAN
v.
VIKRAM MALHOTRA & ORS.
(Civil Appeal No. 9546 of 2010)
FEBRUARY 26, 2021
 [A. M. KHANWILKAR, INDU MALHOTRA
AND AJAY RASTOGI, JJ.]
Foreign Exchange Regulation Act, 1973 - ss.31, 47, 50, 63 -
A foreigner who was the owner of property in question, executed
an agreement of sale in favour of predecessor of the appellant and
respondent no.4 after previous permission of the RBI - However,
around the same time she gifted portion of the property to respondent
no.1 though without any previous permission of the RBI - Suit filed
by appellant and respondent no.4's predecessor against the
respondent no.1 inter alia for declaring the gift deeds in his favour
as null and void and not binding - Dismissed by Trial Court - First
appeal filed by the appellant and respondent no.4, dismissed by
High Court - On appeal, held:The condition predicated in
s.31ofobtaining previous general or special permission of the RBI
for transfer/disposal of immovable property situated in India by a
personwho is not a citizen of India is mandatory- Resultantly, any
sale or gift of property situated in India by a foreigner in
contravention thereof would be unenforceable in law- Gift deeds
in favour of respondent no.1being unenforceable in law, he had no
clear title to further transfer the same - Impugned judgment and
decree of the Trial Court as confirmed by the High Court, set aside
- Suit filed by predecessor of the appellant and respondent no.4
decreed in toto - Appellant being the legal representative of the
plaintiff is entitled for possession of the suit property being the
owner thereof and also for mesne profits for the relevant period -
Interpretation of Statutes -Contract Act, 1872 - s.23 - Code of
Civil Procedure, 1908 - Or.20, r.12 - Constitution of India - Article
142.
Foreign Exchange Regulation Act, 1973:
Object and purpose of - s.31 - Discussed.
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s.47 - Application of - Held: s.47 applies to all the contracts
or agreements covered under the 1973 Act, which require previous
permission of the RBI.
Proviso to s.31 - Exception under - Discussed.
ss.29, 31 - Held: There is no possibility of ex post facto
permission being granted by the RBI u/s.31 unlike in the
case of s.29.
ss.31, 63 - "property" in s.63 - Held: Expression "property"
in s.63 takes within its sweep immovable property referred to in
s.31.
Interpretation of Statutes - Prohibition; negative words - Held:
A contract is void if prohibited by a statute under a penalty, even
without express declaration that the contract is void, because such
a penalty impliesa prohibition - Prohibition and negative words
can rarely be directory - Foreign Exchange Regulation Act, 1973 -
ss.31, 47, 50, 63.
Words & Phrases - void, voidable - Purport of - Discussed.
Allowing the appeal, the Court
HELD: 1.1 The object and purpose for which the Foreign
Exchange Regulation Act, 1973 was brought into force was to
consolidate and amend the law relating to certain payments,
dealings in foreign exchange and securities, transactions indirectly
affecting foreign exchange and the import and export of currency,
for the conservation of the foreign exchange resources of the
country and the proper utilisation thereof in the interests of the
economic development of the country. The avowed object of
Section 31 of the 1973 Act was 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.
On a bare reading of sub-Section (1), it is crystal clear that a
person, who is not a citizen of India, 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
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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 non--
resident 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 sub- Section (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
sub-Section (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 commencement of the 1973 Act or
such further period as may be allowed by the RBI. A person, who
is not a citizen of India, holding immovable property situated in
India was obliged to make disclosure and declaration in that behalf
to the RBI; and in any case, if he/she intended to dispose of such
property by sale, mortgage, lease, gift, settlement or otherwise,
was expected to obtain previous general or special permission
from the RBI. Only then, transfer so intended could be given
effect to. It is true that the consequences of failure to seek such
previous permission has not been explicitly specified in the same
provision or elsewhere in the Act, but then the purport of Section
31 must be understood in the context of intent with which it has
been enacted, the general policy not to allow foreign investment
in landed property/buildings constructed by foreigners or to allow
them to enter into real estate business to eschew capital
repatriation, including the purport of other provisions of the
Act, such as Sections 47, 50 and 63. [Paras 13- 15][969-E-F;
970-B-C; 971-D-H; 972-A-C]
1.2 Section 47, sub--Section (1) clearly envisages that no
person shall enter into any contract or agreement which would
directly or indirectly evade or avoid in any way the operation of
any provision of the 1973 Act or of any rule, direction or order
made thereunder. What is significant to notice is that sub-Section
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS.
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(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. 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. Section 63 of the 1973 Act
empowers the court trying a contravention under Section 56 which
includes one under Section 51 of the 1973 Act, to confiscate the
currency, security or any other money or property in respect of
which the contravention has taken place. The expression
"property" in Section 63, takes within its sweep immovable
property referred to in Section 31 of the 1973 Act. To put it
differently, the requirement specified in Section 31 is mandatory
and, therefore, contract or agreement including the gift pertaining
to transfer of immovable property of a foreign national without
previous general or special permission of the RBI, would be
unenforceable in law. [Paras 16-18][974-E-H; 975-B-C]
Dhurandhar Prasad Singh v. Jai Prakash University
& Ors. (2001) 6 SCC 534 : 2001 (3) SCR 1129 - relied
on.
R. v. Paddington Valuation Officer, ex p Peachey
Property Corpn. Ltd. (1965) 2 All ER 836 - referred
to.
1.3 A contract is void if prohibited by a statute under a
penalty, even without express declaration that the contract is void,
because such a penalty implies a prohibition. Further, it is settled
that prohibition and negative words can rarely be directory. In
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the present dispensation provided under Section 31 of the 1973
Act read with Sections 47, 50 and 63 of the same Act, although it
may be a case of seeking previous permission it is in the nature
of prohibition. 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.
[Para 20][977-D-G]
Mannalal Khetan & Ors. v. Kedar Nath Khetan & Ors.
(1977) 2 SCC 424: 1977 (2) SCR 190 - relied on.
1.4 From the analysis of Section 31 of the 1973 Act and
upon conjoint reading with Sections 47, 50 and 63 of the same
Act, it is held that the requirement of taking "previous"
permission of the RBI before executing the sale deed or gift
deed is the quintessence; and failure to do so must render the
transfer unenforceable in law. The dispensation under Section
31 mandates "previous" or "prior" permission of the RBI before
the transfer takes effect. For, the RBI is competent to refuse to
grant permission in 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. 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. 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
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by a person, who is not a citizen of India, without previous
permission of the RBI must be regarded as unenforceable and
by implication a prohibited act. That can be avoided by the RBI
and also by anyone who is affected directly or indirectly by such a
transaction. There is no reason to deny remedy to a person, who
is directly or indirectly affected by such a transaction. He can set
up challenge thereto by direct action or even by way of collateral
or indirect challenge. Thus, until permission is accorded by the
RBI, it would not be a lawful contract or agreement within the
meaning of Section 10 read with Section 23 of the Contract Act.
For, it remains a forbidden transaction unless permission is
obtained from the RBI. The fact that the transaction can be taken
forward after grant of permission by the RBI does not make the
transaction any less forbidden at the time it is entered into. It
would nevertheless be a case of transaction opposed to public
policy and, thus, unlawful. [Paras 25-27][982-B-H; 983-A]
Life Insurance Corporation of India v. Escorts Ltd. &
Ors. (1986) 1 SCC 264 : 1985 (3) Suppl. SCR 909
- followed.
1.5 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. Further, Section 63 of the 1973 Act clearly refers
to property in respect of which contravention has taken place for
being confiscated to the Central Government. The expression
"property" therein would certainly take within its sweep an
immovable property referred to in Section 31 of the Act. The
expression "property" in Section 63 is an inclusive term and,
therefore, there is no reason to assume that consequence of
confiscation may not apply to immovable property in respect of
which contravention of the provisions of sub-Section (1) of Section
31 had taken place. The transaction of gift deed without previous
permission of the RBI may not be nullity, but certainly not
enforceable in law until such permission is granted.
[Paras 29, 30][983-G-H; 984-C-E]
1.6 The requirement of seeking previous general or special
permission of the RBI in respect of transaction covered by Section
31 of the 1973 Act is mandatory. Resultantly, any sale or gift of
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property situated in India by a foreigner in contravention thereof
would be unenforceable in law. The stated gift deeds dated
11.03.1977 and 19.04.1980 in favour of respondent no.1 being
unenforceable in law, respondent no.1 had no clear title to transfer
the same to Dr. 'TC' vide purported sale deed dated 15.09.2005.
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. [Paras 35,
36, 38][987-D-E; 988-A-C]
1.7 A priori, the decisions of concerned High Courts taking
the view that Section 31 of the 1973 Act is not mandatory and the
transaction in contravention thereof is not void or unenforceable,
is not a good law. However, transactions which have already
become final including by virtue of the decision of the court of
competent jurisdiction, need not be reopened or disturbed in
any manner because of this pronouncement. This declaration/
direction is being issued in exercise of the plenary power under
Article 142 of the Constitution of India. For, there has been a
paradigm shift in the general policy of investment by foreigners
in India and more particularly, the 1973 Act itself stands repealed.
The decisions of the High Courts taking contrary view, are
overruled, albeit, prospectively. The impugned judgment and
decree of the Trial Court, as confirmed by the High Court, is set
aside. O.S.No.10079 of 1984 filed by predecessor of the appellant
and respondent no.4 stands decreed in toto in favour of the
plaintiff. The appellant (being the legal representative of the
plaintiff) is entitled for possession of the suit property being the
owner thereof and also for mesne profits for the relevant period
for which a separate inquiry be conducted under Order 20
Rule 12 of the Code of Civil Procedure, 1908. [Paras 39, 40]
[988-D-G]
Piara Singh v. Jagtar Singh and Anr. AIR 1987 Punjab
and Haryana 93; R. Sambasivam v. Thangavelu
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS.
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Dhanabagyam 2001-1-L.W. 161; Ajit Prashad Jain v.
N.K. Widhani & Ors. AIR 1990 Del 42; Tufanu
Chouhan & Ors. v. Md. Abdur Rahman & Ors. (1993)
1 Gau LR 306; Geeta Reinboth v. Mrs. J. Clairs Brohier
through LRs. Mrs. Cheryl Brohier Gosens & Ors.
(2005) 1 MP LJ 122; Sivaprakasam v. Ilangovan &
Ors. (2010) 3 MWN (Civil) 525; Mathu Sree Akkabai
Ammani Charitable Trust & Ors. v. Samikannu (2013)
1 LW 136 - overruled.
Renusagar Power Co. Ltd. v. General Electric Co. 1994
Supp (1) SCC 644: 1993 (3) Suppl. SCR 22; Vijay
Karia & Ors. v. Prysmian Cavi E Sistemi SRL & Ors.
(2020) 11 SCC 1; Dhurandhar Prasad Singh v. Jai
Prakash University & Ors. (2001) 6 SCC 534: 2001
(3) SCR 1129 - relied on.
Janki Bai v. Ratan Melu AIR 1962 MP 117
- distinguished.
Joaquim MascarenhasFiuza v. Jaime Rebello & Anr.
1986 SCC OnLine Bom 234; Mrs. Shoba Viswanatha
v. D.P. Kingsley 1996 (I) CTC 620 - approved.
Union of India & Ors. v. A.K. Pandey (2009) 10 SCC
552: 2009 (14) SCR 528; Union of India v. Colonel
L.S.N. Murthy & Anr. (2012) 1 SCC 718: 2011 (13)
SCR 295; Shri Lachoo Mal v. Shri RadheyShyam (1971)
1 SCC 619; Waman Rao & Ors. v. Union of India &
Ors. (1981) 2 SCC 362 : 1981 (2) SCR 1; Gherulal
Parakh v. Mahadeodas Maiya & Ors. AIR 1959 SC
781 : 1959 Suppl. SCR 406; Rattan Chand Hira Chand
v. Askar Nawaz (Dead) by L.Rs. & Ors. 1991 (3) SCC
67: 1991 (1) SCR 327 - referred to.
Sahruvan Nachair & Anr. v. V.S. Mohammed Hussain
Maracair (2001) 1 Mad LJ 188; William Babu &Anr.
v. Helma Roy Alias Emily Carmel (2018) 1 KLJ 525;
Beharilal Maudgi v. The Secretary to Govt. of A.P. Home
Department, Hyderabad & Ors. 1986 (2) ALT 241
- referred to.
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Herbert Wagg & Co. Ltd., Re (1956) 1 Ch 323
- referred to.
Case Law Reference
[1985] 3 Suppl. SCR 909
followed
Para 7
[1993] 3 Suppl. SCR 22
relied on
Para 7
(2020) 11 SCC 1
relied on
Para 7
[1981] 2 SCR 1
referred to
Para 9
[2001] 3 SCR 1129
relied on
Para 19
[1977] 2 SCR 190
relied on
Para 20
[2009] 14 SCR 528
referred to
Para 21
[2011] 13 SCR 295
referred to
Para 21
(1971) 1 SCC 619
referred to
Para 21
[1959] Suppl. SCR 406
referred to
Para 34
[1991] 1 SCR 327
referred to
Para 34
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9546
of 2010.
From the Judgment and Order dated 01.10.2009 of the High Court
of Karnataka at Bangalore in RFA No. 1001 of 2001.
C. Aryama Sundaram, Sr.Adv., Navkesh Batra, Sandeep Narain,
B.R. Dhanlaxmi, M/S. S. Narain & Co., Yatish Mohan, Subhash Chandra
Sagar, E. C. Vidya Sagar, Advs. for the appearing parties.
The Judgment of the Court was delivered by
A. M. KHANWILKAR, J.
1. The central issue in this appeal is in reference to Section 31 of
the Foreign Exchange Regulation Act, 19731. To wit, transaction (specified
in Section 31 of the 1973 Act) entered into in contravention of that provision
is void or is only voidable and it can be voided at whose instance?
2. The undisputed facts are that one Mrs. F.L. Raitt, widow of
late Mr. Charles Raitt, a foreigner and the owner of the property in
question, gifted it to respondent No.1 (Vikram Malhotra) without obtaining
1 For short, "the 1973 Act"
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previous permission of the Reserve Bank of India2 under Section 31 of
the 1973 Act. Further, before executing the 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. Philip dated 26.01.1983. That a
formal permission of RBI under Section 31 of the 1973 Act was then
sought for completing the transaction in favour of Mr. R.P. David
(predecessor of the appellant and respondent no.4). The RBI granted
that permission on 02.04.1983, permitting transfer of the immovable
property No.12 (old No.10A), Magrath Road, admeasuring 35,470 square
feet in favour of Mr. R.P. David (predecessor of the appellant and
respondent no.4). Consequent to the said permission of the RBI, a
registered sale deed came to be executed by Mrs. F.L. Raitt in favour of
Mr. R.P. David (predecessor of the appellant and respondent no.4) on
09.04.1983. However, Mrs. F.L. Raitt filed a suit being O.S. No.10328
of 1983, on 30.07.1983, to declare the power of attorney dated 26.01.1983
given to Mr. Peter J. Philip as null and void and for cancellation and
setting aside of the registered sale deed dated 09.04.1983 executed in
favour of Mr. R.P. David (predecessor of the appellant and respondent
no.4) - pertaining to the entire property admeasuring 35,470 square feet.
The said Mrs. F.L. Raitt, however, expired on 08.01.1984 and after her
death, Mrs. Ingrid L. Greenwood was substituted as her legal
representative in the pending suit. Mr. R.P. David (predecessor of the
appellant and respondent no.4) and others then filed O.S. No.10079 of
2 For short, "the RBI"
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1984 on 10.02.1984 against respondent No.1 (Vikram Malhotra) praying
that the gift deed and the supplementary deed allegedly executed in his
favour in respect of portion of the larger property to the extent of 12,306
square feet bearing No.12 (Old No.10A) be declared as null and void
and not binding and consequentially for relief of possession, permanent
injunction and mesne profits. Mr. R.P. David (predecessor of the appellant
and respondent no.4) also filed O.S. No.10155 of 1984 against Mrs.
Ingrid L. Greenwood and Mr. Clive Greenwood, who were claiming to
be successor in title of Mrs. F.L. Raitt, for declaration and possession of
entire property No.12 (Old No.10) admeasuring 35,470 square feet. All
the three suits were tried and decided by the City Civil & Sessions Judge,
Mayo, Bangalore3.
3. As regards the suit filed by Mrs. F.L. Raitt and Mrs. Ingrid L.
Greenwood bearing suit No.10328 of 1983, the Trial Court had framed
as many as 11 issues, which read thus:
"1) Whether the plaintiffs prove that the power of attorney dated
26.1.83 executed by the first plaintiff in favour of the 2nd defendant
was procured by fraud, mis-representation 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 dt. 9.4.1983?
3 For short, "the Trial Court"
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS.
[A. M. KHANWILKAR, J.]
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7) Whether the plaintiffs further prove that they are in actual and
lawful possession of the suit schedule property?
8) Whether the defendants prove that the sale deed is a genuine
document and the same is binding on the plaintiff?
9) Whether the plaintiffs are entitled for permanent injunction as
prayed for?
10) To what reliefs are the parties entitled?
11) What order or decree?"
After analysing the pleadings and evidence on record, the Trial
Court vide judgment and decree dated 31.08.2001 proceeded to dismiss
this suit. This judgment is not the subject matter of the present appeal.
4. In the suit filed by Mr. R.P. David (predecessor of the appellant
and respondent no.4) being O.S.No.10079 of 1984, the Trial Court framed
9 issues as follows:
"1. Do Plaintiffs prove that the late Florence L. Raitt agreed to
sell the entire suit property in favour of deceased R.P. David?
2. Do they next prove that Florence L. Raitt executed a ratified
agreement dated 04.12.1982 after receiving Rs.One lakh as
contended?
3. Are the gift deed dated 11.03.1977 and the supplementary deed
dated 19.04.1980 in favour of the defendant void being hit by the
provisions of the Foreign Exchange Regulation Act, 1973, as
alleged?
4. Does defendant prove that the said documents and transactions
are not hit by the Foreign Exchange Regulation Act, 1973 and
they are valid in law?
5. Does defendant prove the General Power of Attorney executed
by Florence L. Raitt in favour of Mr. Peter Philip is not true and
genuine?
6. Do plaintiffs prove that deceased David purchased the entire
suit property as contended and the same is binding on the
defendant?
7. Do plaintiffs prove that they are entitled to recover past mesne
profits at the rate of Rs.200/- per month?
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8. Are plaintiffs entitled to declaration, possession and injunction?
9. What relief or decree?"
After analysing the pleadings and evidence on record, the Trial
Court vide separate judgment and decree dated 31.08.2001 was pleased
to dismiss even this suit.
5. While dealing with the third suit filed by Mr. R.P. David
(predecessor of the appellant and respondent no.4), the Trial Court framed
10 issues, which read thus:
"1) Whether the plaintiff proves that they are the owner of the
suit schedule 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 vide separate judgment and decree dated 31.08.2001 was pleased
to allow the suit in the following terms:
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS.
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"ORDER
The suit of the plaintiff is decreed. The plaintiff is hereby declared
that he is the absolute owner of the suit property and he is entitled
to mesne profits from 9.1.84 till the end of 1990. Separate enquiry
shall be initiated under Order 20 Rule 12 CPC for its determination.
Having regard to the circumstances of the case, no order as to
costs.
Draw the decree accordingly."
Even this judgment is not the subject matter of the present appeal.
6. The appellant along with respondent No.4, however, had filed
first appeal before the High Court of Karnataka at Bangalore being
R.F.A. No.1001 of 2001 against the judgment and decree dated
31.08.2001 passed by the Trial Court in O.S. No.10079 of 1984. In this
appeal, therefore, the limited issue is about the validity of the gift deed
dated 11.03.1977 and the supplementary deed dated 19.04.1980 both
executed in favour of respondent No.1 by Mrs. F.L. Raitt in respect of
portion of the larger property admeasuring 12,306 square feet. As regards
the finding of fact recorded by the Trial Court in reference to the said
challenge, the High Court concurred with the same, but proceeded to
examine the solitary legal point raised by the appellant before the High
Court regarding validity of the stated gift deeds being in violation of
Section 31 of the 1973 Act and, therefore, void and unenforceable in
law. The learned Single Judge of the High Court essentially relying on
the decision of the Punjab & Haryana High Court in the case of Piara
Singh v. Jagtar Singh and Anr.4, proceeded to negative the said
challenge and held that lack of permission under Section 31 of the 1973
Act does not render the subject gift deeds as void much less illegal and
unenforceable. Accordingly, the first appeal jointly filed by the appellant
and respondent No.4 herein came to be dismissed vide impugned
judgment and decree dated 01.10.2009.
7. In the present appeal, the sole point urged by the appellant is
that the stated gift deeds dated 11.03.1977 and 19.04.1980 in favour of
respondent No.1 are null and void and not binding on the appellant and
respondent no.4; and in any case are unenforceable in law, in light of the
mandate of Section 31 of the 1973 Act. According to the appellant, the
4 AIR 1987 Punjab and Haryana 93
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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.5. Reliance has also been placed on the
observations made by three-Judge Bench of this Court in Renusagar
Power Co. Ltd. v. General Electric Co.6andVijay Karia & Ors. v.
Prysmian Cavi E Sistemi SRL & Ors.7. 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 Dhanabagyam8, following the decision
in Piara Singh (supra), suffers from the same error. On the same lines
different High Courts have construed Section 31 to mean that the
transaction in contravention thereof is not void. (see Ajit Prashad Jain
v. N.K. Widhani & Ors.9, Tufanu Chouhan & Ors. v. Md. Abdur
Rahman & Ors.10, Geeta Reinboth v. Mrs. J. Clairs Brohier through
LRs. Mrs. Cheryl Brohier Gosens & Ors.11, Sivaprakasam v.
Ilangovan & Ors.12and Mathu Sree Akkabai Ammani Charitable
Trust & Ors. v. Samikannu13). None of the decisions of the different
High Courts dealing with the purport of Section 31 of the 1973 Act have
invoked principle that would stand the test of judicial scrutiny. It is urged
that any transaction, which is in violation of Section 31 of the 1973 Act,
would be unenforceable in law until such permission is accorded by the
RBI and for that reason, the gift deeds in question cannot be given effect
to or will be of any avail to respondent No.1. Instead, the entire property
No.12 (old No.10A), Magrath Road, admeasuring 35,470 square feet
stood validly transferred in favour of Mr. R.P. David (predecessor of
the appellant and respondent No.4 herein). It is then urged that despite
5 (1986)1 SCC 264
6 1994 Supp (1) SCC 644
7 (2020) 11 SCC 1
8 2001 - 1 - L.W. 161
9 AIR 1990 Del 42 (para 26)
10 (1993) 1 Gau LR 306 (paras 5 and 6)
11 (2005) 1 MP LJ 122 (paras 12 to 16)
12 (2010) 3 MWN (Civil) 525 (paras 15 and 16) : 2010 SCC OnLine Mad 4245
13 (2013) 1 LW 136 (para 16) : 2012 SCC OnLine Mad 2769
ASHA JOHN DIVIANATHAN v. VIKRAM MALHOTRA & ORS.
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the above, respondent no.1 sought to transfer the stated property to one
Dr. Thomas Chandy under sale deed dated 15.09.2005 (which has not
seen the light of day) by wilfully disobeying the High Court's interim
order dated 07.04.2005. Hence, this transaction in any case is nullity.
8. Per contra, respondent No.1 would urge that Section 31 is a
directory provision; and not obtaining previous permission of the RBI
would not render the gift deeds in question invalid. It is urged that since
no consequence is provided in Section 31 or any other provision in the
1973 Act to treat the transaction in violation of Section 31 as void, the
transfer in favour of respondent No.1 cannot be regarded as ineffective
or invalid. Such a transfer would at best be voidable that too only at the
instance of the RBI and none else. The stipulation under Section 31 is
only a regulatory measure and not one of prohibiting transfer by way of
gift as such. The consequence of such violation is provided for as penalty
under Section 50, for which the concerned parties can be proceeded
against. However, no action has been taken 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, 187214 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.15, 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 taken by different High Courts in that regard.
10. We have heard Mr. Navkesh Batra, learned counsel for the
appellant and Mr. C.A. Sundram, learned senior counsel for the
respondent No.1.
14 For short, "the Contract Act"
15 (1981) 2 SCC 362 (paras 36 to 40)
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11. It is not in dispute that Mrs. F.L. Raitt was not a citizen of
India. She transferred right, title and interest in the larger property (35,470
square feet) by way of sale to Mr. R.P. David (predecessor of the
appellant and respondent No.4). Around the same time, however, portion
of the larger property (12,306 square feet) was given by her by way of
gift deeds to respondent No.1. As regards sale deed in favour of Mr.
R.P. David, that was executed only after previous permission was given
by the RBI for such transfer. However, gift deeds in favour of respondent
No.1 in respect of portion of the larger property are not backed by such
previous permission of the RBI either general or special. Admittedly, no
permission has been taken from the RBI in that regard thus far.
12. It is in this backdrop, the appellant is questioning the validity of
the transaction or stated transfer in favour of respondent No.1 of property
admeasuring 12,306 square feet, being in contravention of Section 31 of
the 1973 Act. And if that contention succeeds, it must follow that the gift
deeds, though executed in favour of respondent No.1, would be
unenforceable in law. Resultantly, Mr. R.P. David (predecessor of the
appellant and respondent No.4), had acquired clear title of the larger
property admeasuring 35,470 square feet transferred to him vide registered
sale deed dated 09.04.1983 being backed by previous permission by the
RBI in that regard.
13. Before we analyse Section 31 of the 1973 Act, it is essential
to understand the object and purpose for which the 1973 Act was brought
into force. It was to consolidate and amend the law relating to certain
payments, dealings in foreign exchange and securities, transactions
indirectly affecting foreign exchange and the import and export of
currency, for the conservation of the foreign exchange resources of the
country and the proper utilisation thereof in the interests of the economic
development of the country. While introducing the Bill in the Lok Sabha
and explaining the object of Section 31 of the 1973 Act, Mr. Y.B. Chavan,
the then Minister of Finance rose to state as follows:
"As a matter of general policy it has been felt that 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
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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.