2021 (5) TMI 198 - HC - FEMA

Applicant in respect of Section 31(1) of FERA - time-limit for cognizance of any offence under FERA - suit for specific performance for dismissal of the suit and rejection of the plaint under Order VII Rule 11 of The Code of Civil Procedure, 1908 (CPC) on the ground that the suit is barred by law - HELD THAT - The statement in the plaint has been made with reference to the letter dated 14th December, 1989 from the lawyers of the plaintiff to Helen Wilson which reveals that Helen Wilson was a foreign national and hence came within the statutory requirement of Section 31(1) of FERA. This letter also reveals that Helen Wilson may not have had the permission of the RBI or communicated such permission to the plaintiff as on 14th December, 1989 which would be corroborated by the letter of 8th October, 1993 of the RBI granting permission to Helen Wilson under Section 31(1) of FERA. The letter of 8th October, 1993 has been brought on record by the applicant defendant no.3 as a part of the application for dismissal of the suit. Order VII Rule 11(d) applies where the plaint, on the face of it, is barred by law and the contravention of the law must be clear and unambiguous from the plaint itself. A Court which is called upon to decide the issue cannot engage with the alleged statutory violation or the fact to be determined beyond the limits of what the plaint discloses. The letter dated 14th December, 1989 would have served the objective of the defendant no.3 of having the suit dismissed if by such letter the Court could have come to an indisputable conclusion that Helen Wilson, a foreign national, had alienated the property by way of sale or gift or otherwise in favour of the plaintiff without first obtaining the permission from the Reserve Bank of India under Section 31(1) of FERA. This is obviously not the case since the plaintiff was constrained to file a suit on 18th July, 1990 precisely because the agreement had not been executed hence necessitating a direction on the original defendant to execute and register the deed of conveyance in terms of the agreement for sale dated 2nd January, 1989. The contention of the applicant in respect of Section 31(1) of FERA, subject to Section 49(3) of FEMA setting the time-limit for cognizance of any offence under FERA, would have also been acceptable had Helen Wilson attempted to set the property in motion from herself to the plaintiff without first complying with the statutory requirement as existed on the date of sale of the property. Since this is not the factual position, this Court is not persuaded to dismiss the suit or reject the plaint for contravention of any law which existed on the date when the suit was filed. The prayers must hence be rejected and the application for dismissal of the suit is accordingly dismissed without any order as to costs. The suit shall be listed for hearing after the summer holidays.

Summary

Issues Involved:
1. Whether the suit for specific performance of an agreement for sale is barred by law under Order VII Rule 11 of the Code of Civil Procedure, 1908.
2. Whether the agreement for sale dated 2nd January 1989 is void under Section 31(1) of the Foreign Exchange Regulation Act, 1973 (FERA).
3. The effect of the repeal of FERA by the Foreign Exchange Management Act, 1999 (FEMA) on the enforceability of the agreement.
4. The timing and necessity of obtaining permission from the Reserve Bank of India (RBI) under Section 31(1) of FERA.

Detailed Analysis:

1. Suit for Specific Performance and Order VII Rule 11 of CPC:
The defendant no.3 filed an application for dismissal of the suit and rejection of the plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908, arguing that the suit is barred by law. The plaintiff sought specific performance of an agreement for sale dated 2nd January 1989. The defendant no.3 claimed that the agreement is void due to non-compliance with Section 31(1) of FERA, which bars the suit for specific performance.

2. Agreement Void under Section 31(1) of FERA:
The defendant no.3 argued that the agreement for sale is void as the vendor, a foreign national, did not obtain prior permission from the RBI under Section 31(1) of FERA. The defendant relied on the fact that the vendor, Helen Wilson, was a foreign national and lacked the necessary RBI permission at the time of the agreement, making the contract unenforceable in law. The plaintiff countered that the permission under Section 31(1) is required before the execution of a registered conveyance, not at the time of entering into the agreement for sale.

3. Repeal of FERA by FEMA:
The plaintiff argued that FERA was repealed by FEMA, which includes a sunset clause under Section 49(3), limiting the period for taking cognizance of offenses under FERA to two years from the commencement of FEMA. The court agreed, stating that the contravention of FERA could not be considered after the stipulated period, which expired on 30th May 2002.

4. Timing and Necessity of RBI Permission:
The court examined whether permission from the RBI is required at the time of entering into the agreement for sale or before the execution of the registered conveyance. It was held that Section 31(1) of FERA requires permission before the transfer or disposal of immovable property by execution of a registered conveyance, not at the time of entering into the agreement for sale. The court referred to the Supreme Court's decision in Vishwa Nath Sharma, which clarified that the requirement of permission for sale is not a condition precedent for passing a decree for specific performance of a contract.

Conclusion:
The court dismissed the application for rejection of the plaint under Order VII Rule 11 of CPC, stating that the agreement for sale was not void under Section 31(1) of FERA at the time of entering into the agreement. The court also held that the suit for specific performance is not barred by the repeal of FERA by FEMA, as the period for taking cognizance of offenses under FERA had expired. The suit was directed to be listed for hearing after the summer holidays.