9911796707
TMI Blog2021 (3) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 F.L. Raitt on 09.01.1982, which it appears, was revoked by Mrs.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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dt. 9.4.1983? 7) Whether the plaintiffs further prove that they are in actual and lawful possession of the suit sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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: "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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission, 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 construed Section 31 to mean that the transaction in contravention thereof is not void. (see Ajit Prashad Jain v. N.K. Widhani & Ors. AIR 1990 Del 42 (para 26), Tufanu Chouhan & Ors. v. Md. Abdur Rahman & Ors. (1993) 1 Gau LR 306 (paras 5 and 6), Geeta Reinboth v. Mrs. J. Clairs Brohier through LRs. Mrs. Cheryl Brohier Gosens & O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 incorporated under any law in force in India or in which the nonresident interest is more than forty per cent shall, except with the previous general or special permission of the Reserve Bank, acquire or hold or transfer or dispose of by sale, mortgage, lease, gift, settlement or otherwise any immovable property situate in India: Provided that nothing in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident 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 commencement of the 1973 Act or such further period as may be allowed by the RBI. 15. In other words, 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 ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or order made thereunder, nor any condition, whether expressed or to be implied having regard to those provisions, that any payment shall not be made without permission under this Act, shall be deemed to prevent any instrument being a bill of exchange or promissory note. *** 50. Penalty.- If any person contravenes any of the provisions of this Act [other than section 13, cl. (a) of subsection (1) of section 18 and cl. (a) of subsection (1) of section 19] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm 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 provisions, such as Section 31 of the 1973 Act. 18. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpetrated 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 by use of any statutory mechanism for appeal or review. Collateral challenges arise when the invalidity is raised in the course of some other proceedings, the purpose of which is not to establish invalidity but where questions of validity become relevant." 22. Thus the expressions "void and voidable" have been the subjectmatter of consideration on innumerable occasions by courts. The expression "void" has several facets. One type of void acts, transactions, decrees are those which are wholly without jurisdiction, ab initio void and for avoiding the same no declara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty 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 contained in Section 629(a) of the Act. Section 629(a) of the Act prescribes the penalty where no specific penalty is provided elsewhere in the Act. It is a question of construction in each case whether the legislature intended to prohibit the doing of the act altogether, or merely to make the person who did it liable to pay the penalty. 19. Where a contract, express or implied, is expressly or by implication forbidden by statute, no court will lend its assistance to give it effect. (See Mellis v. Shirley L.B. [(1885) 16 QBD 446 : 55 LJQB 143 : 2 TLR 360] ) A contract is void if prohibited by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 lend its assistance to give it effect. Further, 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. Similarly, in the case of Union of India v. Colonel L.S.N. Murthy & Anr. (2012) 1 SCC 718 (paras 16 to 19 and 21), the Court opined that the contract would be lawful, unless the consideration and object thereof is of such a nature that, if permitted, it would defeat the provisions of law and in such a case the consideration or object is unlawful and would become void and that unless the effect of an agreement results in performance of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 Herbert Wagg & Co. Ltd., Re [(1956) 1 Ch 323], Upjohn J., has said: "It cannot be doubted that legislation intended to protect the economy of the nation and the general welfare of its inhabitants regardless of their nationality by various measures of foreign exchange control or by altering the value of its currency, is recognised by foreign courts although its effect is usually partially confiscatory. Probably there is no civilized country in the world which has not at some stage in its history altered its currency or restricted the rights of its inhabitants to purchase the currency of another country. (p. 349) In my judgment these courts must recognize the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 27. In other words, 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contravention of the provisions of Section 31, will be of no avail. That does not validate the transfer referred to in Section 31, which is not backed by "previous" permission of the RBI. Further, the Punjab & Haryana High Court erroneously assumed that there was no provision regarding confiscation of the immovable property referred to in Section 31. 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 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 citizen of "Indian origin", to deal with real estate in India on certain conditions. This notification has no application to foreigners or so to say the person who is not a citizen of India, namely, foreign citizens. In the present case, the land was owned by a foreign citizen. For which reason, the rigours of Section 31 must apply with full force. Additionally, it must be kept in mind that the stated notification was issued in 1993, around which time a change in policy regarding the investment opportunities for nonresident Indians and foreigners had been crystallised, by opening up of economy in India. In the present case, we are dealing with the transaction effected close to the coming into force of the 1973 Act i.e., in the year 1977 when considerations were di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Nawaz (Dead) by L.Rs. & Ors. 1991 (3) SCC 67 and other treaties, to eventually conclude that the position of law is clear that when the enforcement of the contract is against any provision of law, that will amount to enforcement of an illegal contract. The contract per se may not be illegal. But its enforcement requires compliance of statutory conditions, failure of which will amount to statutory violation. A court which is expected to enforce the law, cannot be a party to such a decree. The view so taken in this judgment commends to us. As a matter of fact, this judgment has become final in view of dismissal of SLP (Civil) No.15024 of 1996 by this Court vide order dated 14.08.1996. 35. For the view that we have taken, it is not possible to countenance the argument n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... datory. 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 property admeasuring 12,306 square feet and for consequential reliefs referred to therein. 39. A priori, we conclude that 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 our 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 its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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