Sale or gift of property by foreigner without RBI's nod illegal: Supreme Court

The court declared that transactions which have already become final need not be reopened

Any sale or gift of a property by a foreigner without prior permission of the RBI would be illegal, the Supreme Court has ruled.

"We hold that the condition predicated in Section 31 of the Foreign Exchange Regulation Act, 1973 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," a bench presided over by Justice A M Khanwilkar said.

"Until such permission is accorded, in law, the transfer cannot be given effect to; and for contravening with that requirement," the bench, also comprising Justices Indu Malhotra and Ajay Rastogi, added.

However, the court declared that 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 direction is being issued in exercise of our plenary power under Article 142 of the Constitution. 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shift in the general policy of investment by foreigners in India and more particularly, the 1973 Act itself stands repealed," the bench said.

The court was dealing with a suit property, measuring 12,306 square feet at Bengaluru, which was gifted in March, 1977 by widow of Charles Raitt, a foreigner and owner to Vikram Malhotra, without obtaining previous permission of the RBI. It set aside the Karnataka High Court's order which confirmed trial court's decision allowing the deal.

The court referred to the legislative intent and the spirit of enactment of Section 31, which, it said, was 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 allowed to deal with real estate in India.

"There is little doubt that the requirement of “previous” permission of the RBI, to be taken by a foreign national before transacting in real estate, is mandatory. In other words, without previous permission of the RBI, such a transaction is forbidden and if entered into, would be unenforceable in law," the court said.