Summary
Applying the historical Foreign Exchange Regulation Act, 1973, the Supreme Court held that previous RBI permission for a foreign national’s transfer of Indian immovable property was mandatory. Gifts made without that permission were unenforceable, and an affected person could challenge them. The appellant’s predecessor had subsequently purchased the property with RBI permission; the suit challenging the earlier gifts was decreed, with possession and an inquiry into mesne profits. Contrary High Court rulings were overruled prospectively, with transactions already final protected from reopening on this ground.
Issues
- Whether gifts of Indian immovable property by a foreign national without previous RBI permission were enforceable under Section 31 of the 1973 Act.
- Whether an affected private party could challenge the gifts and what protection applied to transactions already final.
Provisions considered
- Section 31, read with Sections 47, 50 and 63, Foreign Exchange Regulation Act, 1973The historical scheme made previous permission mandatory; penal consequences did not reduce it to a directory requirement or exclude an affected person’s challenge. (¶¶ 14-18, 25-30, 35-38)
- Sections 10 and 23, Indian Contract Act, 1872A transfer forbidden by the applicable foreign-exchange scheme was not an enforceable lawful transaction without the required permission. (¶ 27)
- Order XX Rule 12, Code of Civil Procedure, 1908A separate inquiry was directed to determine mesne profits consequent to the decree for possession. (¶¶ 27, 40)
Held
- Under the then-applicable Section 31, previous general or special RBI permission was mandatory for covered transfers by foreign nationals. The absence of an express statutory declaration of nullity did not make a gift without permission enforceable. The Court distinguished Section 29’s different permission regime. (¶¶ 14-18, 22, 25, 29-30, 38)
- A person directly or indirectly affected could challenge the transaction; that remedy was not confined to the RBI. The gifts were invalid, unenforceable and not binding on the plaintiff, whose predecessor purchased with the required permission. (¶ 25-27)
- The donee had no clear title to pass to a later purchaser. The Court did not decide the separate contention that the later sale also violated the High Court’s interim order. (¶ 36)
- Contrary High Court decisions were overruled prospectively. In exercise of Article 142, transactions already final, including through competent-court decisions, were protected against reopening because of this pronouncement. (¶ 39)
- The plaintiff’s suit was decreed in full, with possession of the disputed portion and a separate inquiry into mesne profits. (¶ 40)
Result
Appeal allowed; adverse trial and High Court decrees set aside and suit decreed in toto. Possession and inquiry into mesne profits granted; no costs.