Are plaintiffs entitled for a declaration for the cancellation of the sale deed u/s 31 of the Foreign Exchange Regulation Act, 1973?

Last updated: 10 March 2021

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Quick Summary

This Supreme Court case examines whether a transaction made in contravention of Section 31 of the Foreign Exchange Regulation Act, 1973, is void or merely voidable. The central issue revolves around a property gifted without the Reserve Bank of India's prior permission, leading to disputes over its validity and who can seek its cancellation. The court's decision clarifies the legal standing of such transactions.

Court :
Supreme Court of India

Brief :
The central issue in this appeal is in reference to Section 31of the Foreign Exchange Regulation Act, 19731. To wit,transaction (specified in Section 31 of the 1973 Act) entered into incontravention of that provision is void or is only voidable and it can be voided at whose instance?

Citation :
CIVIL APPEAL NO. 9546 OF 2010

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 9546 OF 2010

Asha John Divianathan … Appellant

versus

Vikram Malhotra & Ors. …Respondents

J U D G M E N T

A. M. KHANWILKAR, J.

1. The central issue in this appeal is in reference to Section 31of the Foreign Exchange Regulation Act, 19731. To wit,transaction (specified in Section 31 of the 1973 Act) entered into incontravention 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 inquestion, gifted it to respondent No.1 (Vikram Malhotra) withoutobtaining previous permission of the Reserve Bank of India2 underSection 31 of the 1973 Act. Further, before executing the giftdeed, 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 whereunderthe 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 theportion of schedule property admeasuring 12,306 square feet, videgift deed dated 11.03.1977, in favour of respondent No.1 withoutseeking previous permission of the RBI under Section 31 of the1973 Act. She then executed a supplementary gift deed in favourof respondent No.1 on 19.04.1980. Even this deed was executedby Mrs. F.L. Raitt without seeking previous permission of the RBI.The respondent claimed that a power of attorney was executed inhis favour by Mrs. F.L. Raitt on 09.01.1982, which it appears, wasrevoked 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.

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FAQ :

The main legal question is whether a transaction entered into in contravention of Section 31 of the Foreign Exchange Regulation Act, 1973, is void or voidable, and at whose instance it can be voided.

The case involves a property gifted by its foreign owner to a respondent without obtaining the Reserve Bank of India's prior permission as required by Section 31 of the 1973 Act.

Yes, before the gift deed, the owner had executed an agreement of sale in favour of the father of the appellant and husband of respondent No.4, and delivered the title deed.

No, the owner executed a gift deed and a supplementary gift deed in favour of the respondent without seeking the previous permission of the RBI.

Following the gift deeds, a power of attorney was allegedly executed in favour of the respondent, which was later revoked. Subsequently, the owner executed a ratificatory agreement to sell the property to the predecessor of the appellant and respondent No.4.