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Contract Is Void If Prohibited By Statute Under A Penalty Even If It Does Not Expressly Declare It Void: Supreme Court

Team SoOLEGAL 2 Mar 2021 3:09pm

Contract Is Void If Prohibited By Statute Under A Penalty Even If It Does Not Expressly Declare It Void: Supreme Court

On 26th February, 2021, Supreme Court had held that, a contract, if prohibited by a statute under a penalty, will be void even without any declaration that the contract is void. Justice AM Khanwilkar, Justice Indu Malhotra and Justice Ajay Rastogi were of the view that, the condition which have been stated under Section 31 of Foreign Exchange Regulation Act, 1973, for obtaining a special permission from Reserve Bank of India for transfer or disposal of any immovable property which is situated in India in the form of sale or mortgage by a person who is not a citizen of India, is compulsory.

The main issue which was dealt with by the Supreme Court was that, whether the contract entered into was in violation of Section 31 of Foreign Exchange Regulation Act, 1973, is void or is only voidable. In 1998 Foreign Exchange Regulation Act was invalidated and Foreign Exchange Management Act, has taken its place.

From the review of Section 31 of the Foreign Exchange Regulation Act, 1973, and the combined reading of Sections 47, 50 and 63 of the same Act, it may be observed that the provision to receive "previous" or "prior" consent from the RBI prior to the implementation of the sale or gift deed is mandatory and the inability to do so makes the transfer unenforceable by statute. The observation was made in the light of the general policy that foreigners should not be allowed to deal with real estate in India.

The pre-existing condition of obtaining prior permission from the RBI to participate in transactions referred to in Section 31 of the 1973 Act and the implications of the penalty in the event of violation, the sale of immovable property situated in India by an individual who is not a citizen of India without prior permission from the RBI must be treated as unenforceable and hence prohibited.

The Court had clearly clarified that, because of this order, any transaction which had become final by the decision of the Court of competent jurisdiction is not necessary to be reopened or disturbed in any manner.



Tagged: Supreme Court   Justice AM Khanwilkar   Justice Indu Malhotra   Justice Ajay Rastogi   Foreign Exchange Regulation Act   Reserve Bank of India  
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