I.

Asha John Divianathan versus Vikram Malhotra & Ors.

Facts of the case

In this case women name Mrs. F.L. Raitt widow of late Mr. Charles Raitt, (a foreigner) gifted the
property in question to Vikram Malhotra (Respondent). While doing so she didn’t obtain
permission from Reserve Bank of India as mandated by Section 31 of Foreign Exchange
Regulation Act, 1973 (which provides for the prior permission from RBI when a foreign national
acquire/hold/transfer/disposes immovable property situated in India).

Further, before executing such gift deed she executed a sale deed in favour of one Mr. R.P.
David who is the father of the appellant (Asha John). Persuant to this agreement dated 5.4.1976
Mrs. F.L. Raitt delivered the title sale deed to R.P. David. However, a portion of such property
was gifted to Respondent vide gift deed dated 11.03.1977 without the permission of RBI. Again
on 19.04.1980 a supplementary gift was made in favour of Respondent 1 without permission of
RBI. Thereafter she executed a ratificatory agreement to sell the property to R.P. David and also
got the approval of RBI under section 31 and thus completing the transaction of sell. Mr. R.P.
David (predecessor of appellant) thereby filed suit against Respondent 1 and sought declaration
of the gift deed to be void and null.

Issue Raised

1. Whether Section 31 of FERA Act is mandatory or directive in nature?

2. Whether lack of permission from RBI u/s 31 of the FERA Act render gift deed void or
voidable?

Judgment

The three judges bench of the Supreme Court while dealing with the first issue ruled that such
permission from RBI is not merely directive in nature rather mandatory. To arrive at this
conclusion they referred to following-

 Reference was made to the object of the S.31which was to minimise the drainage of
foreign exchange by way of repatriation of income from immovable property and sale
proceeds in case of disposal of property by a person, who is not a citizen of India.
  They refer to title of the section and concluded that it is to put restriction on acquisition,
holding and disposal of immovable property in India by foreigners – non citizens.
Thereby person, who is not a citizen of India, is not competent to dispose of by sale or
gift, as in this case, any immovable property situated in India without previous general or
special permission of the RBI. The only exception of this clause is its proviso i.e.
acquisition or transfer of immovable property by way of lease for a period not exceeding
five years.
 Moreover, Section 50 provides a penalty if such provision is contravened. The court
clarified that mere because there’s a provision providing a penalty in case of violation of
statutory requirement it can’t be inferred that the provision is not mandatory.
 They also mention a Bombay HC judgment in Joaquim Mascarenhas fiuza vs. Jaime
rebello & anr1 where they held that permission of RBI u/s 31 as mandatory. Also noted
the same approach followed by the single judge of the Madras migh court in Sahruvan
Nachair & anr. v. V.S. Mohammed Hussain Maracair.2

Then dealing with the Second Issue following observations were made-

 Even when there’s no express provision declaring a contract to be void it can be infer
from the provisions which prohibits such with a penalty. In the present case even it is
about prior-permission from RBI under s.31 it is in the nature of prohibition if read with
section 50, 47, and 63 of the same act.
 Thereby they declare Punjab and Haryana HC judgment in Piara Singh3 and of Madras
HC in R. Sambasivam4 as erroneous on which respondent was relying. As here the High
Courts were of opinion that as there is no provision in the act which makes transaction
void or says that no title in the property passes to the purchaser in case there is
contravention of the provisions the transaction can’t be called “void.’ Though the SC
while using its plenary power under Art.142 of the Constitution apply the principle of
prospective over-ruling here.

1
1986 SCC OnLine Bom 234.
2
 (2001) 1 Mad LJ 188.
3
Piara singh v. Jagtar singh and anr,  AIR 1987 Punjab and Haryana 93.
4
R. Sambasivam v. Thangavelu Dhanabagyam, 2001 – 1 – L.W. 161.
  Thus in the Para 20 it was observed by the bench that “when penalty is imposed by
statute for the purpose of preventing something from being done on some ground of
public policy, the thing prohibited, if done, will be treated as void, even though the
penalty if imposed is not enforceable.”

Hence, it was held that on conjoint reading of section 31 with sections 47, 50 and 63 of the same
act, the requirement of taking “previous” permission of the RBI before executing the sale deed or
gift deed is the quintessence; and failure to do so must render the transfer unenforceable in law.

II. ADM International Sarl v. Sunraja Oil Industries Private Limited and ors

Facts of the Case

In this case Arbitration proceedings were initiated by Switzerland-based ADM International Sarl
from whom the crude sunflower seed oil was procured by two companies, Sunraja Oil Industries
Private Limited and Gem Edible Oils Private Limited. The two of the company objected to the
proceeding instituted in Federation of Oil Seeds & Fats Association (FOSFA) and filed separate
suit seeking a declaration that such are against public policy and hence null and void. They also
sought declaration that the specific contract between them and ADM is null and void. They
obtained an interim injunction against the arbitration proceeding in 2019 which they get
extended from time-to-time. Against this then ADM finally move to Madras High Court to
vacate the interim injunction.

Issues Raised

I. Whether the threshold tests for an anti- arbitration injunction would be more exacting
than that applicable for an anti-suit injunction and if so, then what would be
the principal considerations?
Ratio-

While dealing with the issue the Madras High Court referred to the Delhi High Court Judgment
of McDonalds India Pvt. Ltd. v. Vikram Bakshi 5 where it was observed that the fact that the
threshold tests for an anti-arbitration injunction are more exacting than that applicable for an
anti-suit injunction. Further, that the principal considerations would be those underpinning
Section 45 of the Indian Arbitration Act, i.e. whether there is an arbitration agreement; and
whether such agreement is null and void, inoperative or incapable of being performed. The court
accepted this ratio and held that this test would be applicable in the present case as well.

In view of the principles outlined above on the grant of anti-arbitration injunctions the HC ruled
in ADM’S favour. They dealt the contention made by Sunraja and Gem one-by-one and
dismissed the same-

 While dealing with the contention that the FOFSA is not a neutral platform inasmuch as
it is controlled by oil seed producers. It was contended that merely ‘A justifiable doubt of
bias’ would suffice their case but court rejected the same. They observe that though
'justifiable doubts of bias' may be a valid test when an arbitral tribunal is challenged
either before such tribunal or before a jurisdictional court; as stated earlier, a higher
threshold should be satisfied for an anti-arbitration injunction because the plaintiff
should justify the departure from the contractual dispute resolution mechanism," 

 Further, that being controlled by oil seed producers is not necessarily a indicator of bias.
As there are several arbitral institutions which represent the interest of specific trade. This
becomes beneficial as they have expertise while dealing the matter related to specific
trade. Thus ex-facie there’s no evidence which shows that FOFSA is not-neutral.

 Then, prima-facie rejecting the next contention that FOFSA Form 54 was not provided to
the buyer companies the court observe that on prima-facie examination of the document

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2016 SCC Online Delhi 3949
 no such complaint was made. Moreover, they executed a contract having clause where
parties admit the knowledge and notice of contract Form 54. They also noted that
reciprocal obligations were fulfilled with regards to executed contract having same
template and then such allegation were not made. Though court not gave a conclusive
finding in this respect so as to not prejudice the interest of the contesting party and duch
can be made before appropriate forum.

 Thus, unless it becomes ex-facie evident that the contractual remedy here is an illusionary
one either because there’s no existence of agreement to resolve the dispute through
arbitration or similar compelling reason the court would not interfere contractual dispute
resolution.

Thereby, the Court set aside the anti-arbitration injunction obtained earlier by the two buyer-
companies and ruled that the Court does not have jurisdiction over such an issue as the buyer
companies failed to demonstrate that the arbitration agreement is null and void, inoperative or
incapable of being performed.