TMI Blog2021 (3) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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. 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. In this view of the matter, the appellant must succeed and would be entitled for the reliefs claimed in O.S. No. 10079 of 1984 for declaration that the gift deed dated 11.03.1977 and supplementary deed dated 19.04.1980 in favour of respondent No.1 are invalid, unenforceable and not binding on the plaintiff. A fortiori , the plaintiff is entitled for possession of the suit property from respondent no.1 and persons claiming through him, admeasuring 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ularly, the 1973 Act itself stands repealed. Accordingly, we deem it appropriate to overrule the decisions of the High Courts, taking contrary view, albeit, prospectively. The appeal is allowed. The impugned judgment and decree of the Trial Court, as confirmed by the High Court, is set aside. - Civil Appeal No. 9546 of 2010 - - - Dated:- 26-2-2021 - A.M. Khanwilkar, Indu Malhotra And Ajay Rastogi For the Appellant(s) : Mr. Navkesh Batra, Adv., Mr. Sandeep Narain, Adv., Ms. B.R. Dhanlaxmi, Adv And M/S. S. Narain Co., AOR For the Respondent(s) : Mr. E. C. Vidya Sagar, AOR JUDGMENT A. M. KHANWILKAR, J. 1. The central issue in this appeal is in reference to Section 31 of the Foreign Exchange Regulation Act, 1973 For short, the 1973 Act . 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 previous permission of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 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, Bangalore For short, the Trial Court . 3. As regards the suit filed by Mrs. F.L. Raitt and Mrs. Ingrid L. Greenwood bearing suit No.10328 of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 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 ₹ 200/per month? 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 sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. AIR 1987 Punjab and Haryana 93 , 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 dispensation specified in the said provision i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant and respondent No.4 herein). It is then urged that despite 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for making a representation in the matter: Provided further that if before the expiry of a period of ninety days from the date on which the application was received by the Reserve Bank, the Reserve Bank does not communicate to the applicant that the permission applied for has been refused, it shall be presumed that the Reserve Bank has granted such permission. Explanation.- In computing the period of ninety days for the purposes of the second proviso, the period, if any, taken by the Reserve Bank for giving an opportunity to the applicant for making a representation under the first proviso shall be excluded. (4) Every person and company referred to in subsection (1) holding at the commencement of this Act any immovable property situate in India shall, before the expiry of a period of ninety days from such commencement or such further period as the Reserve Bank may allow in this behalf, make a declaration in such form as may be specified by the Reserve Bank regarding the immovable property or properties held by such person or company. 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l enter into any contract or agreement which would directly or indirectly evade or avoid in any way the operation of any provision of this Act or of any rule, direction or order made thereunder. (2) Any provision of, or having effect under, this Act that a thing shall not be done without the permission of the Central Government or the Reserve Bank, shall not render invalid any agreement by any person to do that thing, if it is a term of the agreement that that thing shall not be done unless permission is granted by the Central Government or the Reserve Bank, as the case may be; and it shall be an implied term of every contract governed by the law of any part of India that anything agreed to be done by any term of that contract which is prohibited to be done by or under any of the provisions of this Act except with the permission of the Central Government or the Reserve Bank, shall not be done unless such permission is granted. (3) Neither the provisions of this Act nor any term (whether express or implied) contained in any contract that anything for which the permission of the Central Government or the Reserve Bank is required by the said provisions shall not be done without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government and further direct that the foreign exchange holdings, if any, of the person committing the contravention or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf. Explanation.- For the purposes of this section, property in respect of which contravention has taken place shall include- (a) deposits in a bank, where the said property is converted into such deposits; (b) Indian currency, where the said property is converted into that currency; (c) any other property which has resulted out of the conversion of that property. 16. Reverting to Section 47, subSection (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 subSection (2) declares that the agreement shall not be invalid if it provides that thing shall not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined by the Court of Appeal in the case of R. v. Paddington Valuation Officer, ex p Peachey Property Corpn. Ltd. [(1965) 2 All ER 836 : (1966) 1 QB 380 : (1965) 3 WLR 426 (CA)] where the valuation list was challenged on the ground that the same was void altogether. On these facts, Lord Denning, M.R. laid down the law, observing at p. 841 thus: It is necessary to distinguish between two kinds of invalidity. The one kind is where the invalidity is so grave that the list is a nullity altogether. In which case there is no need for an order to quash it. It is automatically null and void without more ado. The other kind is when the invalidity does not make the list void altogether, but only voidable. In that case it stands unless and until it is set aside. In the present case the valuation list is not, and never has been, a nullity. At most the first respondent - acting within his jurisdiction - exercised that jurisdiction erroneously. That makes the list voidable and not void. It remains good until it is set aside. 20. de Smith, Woolf and Jowell in their treatise Judicial Review of Administrative Action , 5th Edn., para 5044, have summarised the concept of void and vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forged and fabricated, it is voidable as the apparent state of affairs is the real state of affairs and a party who alleges otherwise is obliged to prove it. If it is proved that the document is forged and fabricated and a declaration to that effect is given, a transaction becomes void from the very beginning. There may be a voidable transaction which is required to be set aside and the same is avoided from the day it is so set aside and not any day prior to it. In cases where legal effect of a document cannot be taken away without setting aside the same, it cannot be treated to be void but would be obviously voidable. 20. It is well established that 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 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 as observed by a three Judge Bench of this Court in Mannalal Khe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that contract will be unenforceable . In the latter class, one has to consider not what act the statute prohibits, but what contracts it prohibits. One is not concerned at all with the intent of the parties, if the parties enter into a prohibited contract, that contract is unenforceable. (See St. John Shipping Corporation v. Joseph Rank [(1957) 1 QB 267].) (See also Halsbury's Laws of England , 3rd Edn., Vol. 8, p. 141.) 20. It is well established that a contract which involves in its fulfilment the doing of an act prohibited by statute is void . The legal maxim A pactis privatorum publico juri non derogatur means that private agreements cannot alter the general law. Where a contract, express or implied, is expressly or by implication forbidden by statute, no court can lend its assistance to give it effect. (See Mellis v. Shirley L.B. ) What is done in contravention of the provisions of an Act of the legislature cannot be made the subject of an action . 21. If anything is against law though it is not prohibited in the statute but only a penalty is annexed the agreement is void . In every case where a statute inflicts a penalty for doing an act, though the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fe Insurance Corporation of India (supra) had an occasion to examine the objects and reasons for enacting the 1973 Act. The Court was called upon to consider the purport of Section 29 of the 1973 Act, which does not qualify the words general or special permission of the Reserve Bank of India with word previous or prior unlike in the case of Section 31 of the same Act. In paragraph 63, this distinction has been noticed and reference has been specifically made to Section 31 of the 1973 Act. That makes it amply clear that the dispensations provided in Sections 29 and 31, must be regarded as distinct and violation whereof would visit with different consequences. As regards Section 29, this Court opined that the permission can be sought from the RBI at some stage for the purchase of shares by nonresident companies and not necessarily prior permission. The Court, therefore, opined that even ex post facto permission can be accorded by the RBI in reference to transaction covered by Section 29 of the Act. 23. Significantly, the consequence of contravention of Section 31 of the Act as being rendering the transfer void, is also taken notice of in the recent decision of a th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trol legislation if- ( a ) such legislation is part of the proper law of the contract; or ( b ) it is part of the law of the place of performance; or ( c ) it is part of English law and the relevant statute or statutory instrument is applicable to the contract: Provided that foreign exchange legislation will not be applied if it is used not with the object of protecting the economy of the foreign State, but as an instrument of oppression or discrimination. ( See : Dicey Morris, The Conflict of Laws , 11th Edn., Vol. II, 1466.) 25. From the analysis of Section 31 of the 1973 Act and upon conjoint reading with Sections 47, 50 and 63 of the same Act, we must hold 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the suit property from respondent no.1 and persons claiming through him, admeasuring 12,306 square feet and also mesne profits for the relevant period for which a separate inquiry needs to be initiated under Order 20 Rule 12 of the Code of Civil Procedure, 1908. 28. Reverting to the judgment of Punjab Haryana High Court in Piara Singh (supra) relied upon in the impugned judgment, it was held as follows: 11. It is true that the section provides that without the previous permission of the Reserve Bank, a person who is not a citizen of India, cannot acquire property, but it does not provide that if someone purchases any property the title therein does not pass to him. What the Act provides is that if a person contravenes S.31 and some other sections, he can be penalized under S.50 and can also be prosecuted under S.56. However, there is no provision in the Act which makes transaction void or says that no title in the property passes to the purchaser in case there is contravention of the provisions of sub-sec.(1) of S.31. Section 63 contains a provision regarding confiscation of certain properties but it does not contain any provision for confiscation if ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion is granted. 31. In the case of Ajit Prashad Jain (supra) discussion regarding consequences of contravention of Section 31 of the 1973 Act is found in paragraph 26 of the reported decision. Although, this decision is independent of the view expressed in Piara Singh (supra) by the Punjab Haryana High Court, there is no clear analysis of the aspects which are germane for giving correct interpretation to Section 31 of the 1973 Act and the effect of consequences for its contravention. For the view taken by us hitherto, it is unnecessary to dilate on this judgment any further. Similarly, the Gauhati High Court in the case of Tufanu Chouhan (supra) essentially relied upon the decision in Piara Singh (supra) of the Punjab Haryana High Court. For the reasons already stated while dealing with Piara Singh (supra), even this judgment will be of no avail to the respondent. Even the Madhya Pradesh High Court in Geeta Reinboth (supra) relied upon Piara Singh (supra) as well as on the dictum in the book titled Principles of Statutory Interpretation, 8 th Edition by Justice G.P. Singh and upon the decision of the same High Court in Janki Bai v. Ratan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in R. Sambasivam (supra) and Piara Singh (supra) of the Punjab Haryana High Court. Those decisions will be of no avail to the respondent in light of the view taken by us on the interpretation of Section 31 of the 1973 Act. 33. We may now usefully advert to the decision of the Bombay High Court (Goa Bench) in Joaquim Mascarenhas Fiuza v. Jaime Rebello Anr. 1986 SCC OnLine Bom 234 : 1986 Mah LJ 1031 , which has taken a different view to interpret Section 31 of the 1973 Act. That dealt with the case of transfer of property which according to the respondent therein could not be held by the plaintiff/petitioner, who was a foreign national and not a citizen of India, in absence of permission given by the RBI in that regard. The Bombay High Court took the view that the requirement of seeking previous permission of the RBI in Section 31 of the 1973 Act is mandatory and a foreign national could hold the property in India, only if so permitted by the RBI. The view so taken commends to us. Notably, the Single Judge of the Madras High Court had followed this dictum in Sahruvan Nachair Anr. v. V.S. Mohammed Hussain Maracair (2001) 1 Mad LJ 188 : 2000 SCC O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions so as to give proper meaning to Section 31 of the 1973 Act. In our opinion, 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 property situated in India by a foreigner in contravention thereof would be unenforceable in law. 36. As 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. Thomas Chandy vide purported sale deed dated 15.09.2005. It is not necessary for us to dilate on the argument of the appellant that such a sale deed in any case could not have been executed by respondent No.1 in favour of Dr. Thomas Chandy in contravention of interim order passed by the High Court on 07.04.2005 and the effect thereof. 37. As noticed above, the contrary decisions of High Courts have completely missed the legislative intent and the spirit of enactment of Section 31, as is manifest from the statement of the then Finance Minister while tabling the Bill in the Lok Sabha that as a general policy foreign national cannot be ..... 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