The practice of gifting is widely practiced around the globe and is common to nearly all cultures, countries and religions. However, cross-border gifts which involve immovable property often require approval from Governmental Institutions or agencies. In India, the question whether the permission of the Reserve Bank of India (RBI) for a gift deed executed regarding immovable property by a foreign citizen is mandatory or not was uncertain for a long time. It was finally answered by the Supreme Court in the case of Asha John Divianathan v. Vikram Malhotra & Others. The owner in the instant case was a foreign citizen who had executed a gift deed in the favour of an Indian citizen without taking prior permission from the RBI. Subsequently, further transactions related to the property were carried out, one of which was a sale transaction.
The contention of the defendant was that Section 31 of the Foreign Exchange Regulation Act, 1973 was not mandatory whereas the petitioner contended that it is mandatory. Section 31 of the Act stated that the permission of RBI for the transfer or disposal of immovable property in India. The failure to do the same can result in penalty under Section 50 of the 1973 Act. The Supreme Court examined the objective of the Act and examined the words said by the then Finance Minister Y.B. Chavan to understand the intent behind creation of the Act. He had stated that, “As a matter of general policy it has been felt that we should not allow foreign investment in landed property/buildings constructed by foreigners and foreign controlled companies as such investments offer scope for considerable amount of capital liability by way of capital repatriation. While we may still require foreign investments in certain sophisticated branches of industry, there is no reason why we should allow foreigners and foreign companies to enter real estate business.” Therefore, the act was intended to restrict the acquisition, holding and disposal of immovable property in India by foreigners.
The Supreme Court held that, “The requirement specified in Section 31 is mandatory and, therefore, contract or agreement including the gift pertaining to transfer of immovable property of a foreign national without previous general or special permission of the RBI, would be unenforceable in law.” It further stated that prior permission of the RBI is mandatory and any subsequent permission cannot be granted by RBI. The Supreme Court held that the transaction carried out without the permission of RBI is opposed to public policy and, thus, unlawful.
Implications of the decision
The decision clarifies that it is mandatory for foreign citizens to take the prior permission of RBI if they are disposing or transferring any immovable property in India. If they do not take the prior permission, the whole transaction will be void.
NRIs and OCIs
The decision does not impact them. RBI has already clarified in a statement that, “At present NRIs and OCIs are governed by provisions of Foreign Exchange Management Act (FEMA) 1999 and do not require prior approval of RBI for acquisition and transfer of immovable property in India, other than agricultural land, farm house, plantation property,”
 Asha John Divianathan v. Vikram Malhotra & Others, 2021 SCC OnLine SC 147.