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Asha John Divianathan v. Vikram Malhotra & Ors.

Civil Appeal · 2021 INSC 121Decided 26 Feb 2021
Civil Appeal No. 9546 of 2010
Justice A.M. Khanwilkar · Justice Indu Malhotra · Justice Ajay Rastogi

Background

Mrs. F.L. Raitt, a foreign national who owned a large property in Bangalore, sold part of it to Mr. R.P. David (the appellant's predecessor) with the Reserve Bank of India's (RBI) prior permission, but separately gifted another portion of the same property to the respondent, Vikram Malhotra, without ever obtaining the RBI's permission required under Section 31 of the Foreign Exchange Regulation Act, 1973 (FERA) for a foreigner to transfer immovable property in India. Years of litigation followed between the rival claimants, and the key legal question reaching the Supreme Court was whether a gift made without the RBI's mandatory prior permission is completely void, or merely "voidable" (valid until challenged): a question on which different High Courts had taken inconsistent views for decades.

Decision Breakdown

The Supreme Court held that the requirement of obtaining the RBI's previous permission under Section 31 of FERA before a foreign national transfers immovable property in India is mandatory, not merely directory, reflecting a deliberate national policy to prevent foreigners from dealing freely in Indian real estate. Because the respondent never obtained this permission before receiving the gift, the gift deeds in his favour were unenforceable in law, meaning he never acquired a valid title and could not pass any title onward. The Court overruled the contrary line of High Court decisions (that had treated such transfers as merely voidable) prospectively, while protecting already-settled past transactions, using its special constitutional powers to balance fairness with the correct legal position. The appeal was allowed, restoring full ownership and possession rights to the appellant (the legal heir of Mr. R.P. David).

Lesson Learnt

A property transaction by a foreign national in India that skips a legally mandatory government permission (such as RBI approval) is not just risky: it can be entirely unenforceable, meaning the recipient never gets valid ownership rights at all, regardless of how long ago the transfer took place.

Official source (sci.gov.in)View Judgment (PDF)

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