Calcutta High Court
Nand Kishore Todi And Ors. vs The Union Of India (Uoi) And Ors. on 1 December, 1989
Equivalent citations: (1990)1CALLT348(HC)
JUDGMENT Monoranjan Mallick, J.
1. The petitioners who are husband and wife claiming to be non-resident Indians residing in the United States of America have applied for permission under Section 31(1) of the Foreign Exchange Regulation Act, 1973 to acquire and hold immovable property in India being Flat No. B320 on the 2nd floor of the premises No. 106 or Narkeldanga Main Road, Calcutta in Form No. IPI-1 along with requisite papers at the Calcutta Head Office of Reserve Bank of India on 10th March 1987.
2. The petitioners said permission has been refused by the controller, Reserve Bank of India Exchange Control Department, Central Office,. Bombay by the order dated, 25th July 1987 and thereafter by order dated, 24th August, 1987. As the representations of the petitioners through their authorised representative S. K. Khemka & Co., Chartered Accountants, to the Controller, Reserve Bank of India has found no response of the Reserve Bank of India, the petitioners have moved this Court under Article 226 of the Constitution of India praying for cancelling and setting aside the impugned orders and for certain consequential reliefs,
3. The petitioners allege that as the respondents have not communicated their refusal to such permission within 90 days of the said of application filed by the petitioners then the application for permission should be deemed to have been granted by the Reserve Bank of India in view of the second proviso to sub-section (3) of Section 31 of the Foreign Exchange Regulation Act, 1973 (hereinafter referred to as FERA).
4. It is also contended that the Reserve Bank of India ought to have accepted the valuation report of the authorised valuer submitted by the petitioners along with the application assessing the value of the property as Rs. 3,56,000/- and the Reserve Bank of India illegally accepted the report of valuation of the Income Tax Department assessing the value of the flat in question as Rs. 7,21,000/- and offering to consider the petitioner's application for permission on their agreeing to bring in additional funds equivalent to Rs. 3,86,000/- being the difference between what according to Reserve Bank of India is the fair market value of the property and the actual purchase consideration by way of inward remittance from abroad in foreign exchange through normal banking channel and crediting the same to the petitioners' ordinary non-resident account with a bank authorised to deal in foreign exchange in India etc. The Respondents 2 to 4 have contested the writ petition by filing an affidavit-in-opposition jointly. Their contentions may be briefly stated as follows :
(1) For the purpose of submission of application for permission under Section 3d of the FERA procedure has been laid down in Chapter 23 of the Exchange Control Manual, 1978 Edition. Volume I. It is clearly stated in para 23.1 of the said Manual that the work regarding the immovable property is centralised in the Control Office of the Reserve Bank of India at Bombay and all applications should be submitted to the Respondent No. 4, Controller, Exchange Control Department, Reserve Bank of India Central Office, Bombay. The petitioners did not file the application directly in Central Office but in their Calcutta office. The Respondent No. 4 received the said application from the Calcutta office on 27th April 1987 and therefore the Respondent No. 4's communication, dated, 25th July 1987 was before the expiry of the period of 90 days and the contentions of the petitioner that their application should be deemed to have granted in view of the proviso 2 of sub-section (3) of Section 31 of FERA is not a correct contention.
(2) On scrutiny of the application and valuation report submitted by the petitioners the Respondent No. 4 was satisfied that the basis adopted by the Government approved valuer for assessing the fair market value of the flat in question was not correct. So, in exercise of the power under Section 31(3) to make enquiry, the Respondent No. 1 referred the matter for valuation of the property to an officer of the Income Tax Department. The valuations made by the valuation Officer indicated the difference of Rs. 3,86,000/- which worked out 53% under valuation as against the agreed purchase price of Rs. 3,35,000/-. Considering the said under valuation, the Respondent No. 4 could not grant permission from Foreign Exchange angle and, therefore, issued requisite notice vide his letter dated, 25th July 1987 to the petitioners affording them opportunities to make representations against the proposed action of refusal of their application which was on the ground of under valuation.
(3) Respondent No. 4 did not receive any reply to show cause notice within fortnight of the date of issue of the notice dated, 25th July 1987. The respondent No. 4 by his letter dated, 24th August 1987 rejected the application for permission. As the permission was not granted on the oonly ground of under-valuation and as the respondent No. 4 was satisfied that the requirement from the foreign exchange angle would be met if the petitioners bring in additional foreign exchange equivalent of Rs. 3,86,000/being the difference of the fair market valuer and the actual purchase consideration by way of inward remittance from abroad through normal banking channel, such a direction was given. This requirement relates only to bringing in the additional funds in foreign exchange. The funds so brought would continue to belong to the petitioner and they are entitled to utilize the same as their own for any purpose except repatriation outside India.
(4) After the above letter was issued the Respondent No. 4 received the two letters dated, 3rd September 1987 from the petitioners to which the reply was sent by the letter dated, 16th October 1987. By that letter another opportunity was given to the petitioners to reply to the Respondent No. 4's letter dated, 24th August, 1987. The petitioners' constituted attorney made representations for consideration) by the letter dated, 16th November 1987. Since no new point was cited in the representations the Respondent No. 4 reiterated its earlier decision by the letter dated, 26th November, 1987.
(5) While considering the petitioners' representation it was found that the valuation made by the valuation officer of the Income Tax Department was with reference to 21st January 1987 on which the agreement for sale was made. But it was found that the agreement for purchase was finalised in January 1986. So the valuation officer was requested to forward the valuation as in January 1986. On such re-valuation the valuation officer reported to the Respondent No. 4 the fair market value at Rs. 6,35,000/as on 20th January 1986. On the basis of the said valuation the difference between fair market value and the actual purchase consideration came to Rs. 3,00,000/- which was 47% under valuation. The petitioners were therefore advised by the Respondent No. 4 by his letter dated 5th January 1989 the Respondent No. 4 would consider their application favourably provided the petitioners were preferred to bring in additional fund of Rs. 3,00,000/-.
(6) The Respondents contend that the action of the Respondent No. 4 is not at all illegal or arbitrary, that sub-section (3) of Section 31 of the FERA valuation of the immovable property is most relevant and vital factor from foreign exchange angle and Respondent No. 4 is bound to satisfy himself about the proper and true valuation of the immovable property and is not bound to accept the valuation report submitted by the petitioners and is entitled to make necessary enquiry and that when on a proper enquiry through the valuation officer of the Income Tax Department the Respondent could assess the fair market value of the flat in question the action of the Respondents to consider the application of the petitioners if they bring in foreign exchange equivalent of Rs. 3,00,000/- in the country and which shall be property to the petitioners to be utilized by them within India alone is not illegal and is perfectly justified regard being had to the object of FERA.
5. The petitioners have filed an affidavit-in-reply contesting all the allegations made in the affidavit-in-opposition.
6. The petitioners being foreign nationals of Indian origin desires of acquiring immovable property and has applied under Section 31(1) of the FERA' after entering to agreement for sale with the seller at Rs. 3,35,000/- for purchasing the flat in question and after making payment of most of the consideration money. The application for permission was submitted in the Calcutta Office of the Reserve Bank of India on 10th Marchr, l987.
7. On behalf of the Respondents the Foreign Exchange Manual, 1978 Edition, Volume I has been produced. Chapter 23 of the said Manual, Rule 23.1, indicates that all applications for permission for purchase of immovable property should be submitted and correspondence addressed to Controller Exchange Control Department, Reserve Bank of India, Central Office, Bombay. The petitioners admittedly did not file the applications in the Central Office Bombay but at the Calcutta Office. It is stated on affidavit by the Respondent No. 4 that the same was received by the Respondent No. 4 only on 27th April, 1987. The petitioners are not in a position to contradict this statement of fact that Respondent No. 4 received it on 27th April 1987. Therefore within 90 days of that date the first communication was made by the Respondents on 25th July 1987. So, the contention of the petitioners that as the Respondent No. 4 did not refuse the application for permission within 90 days of the date of filing the applications should be deemed to have been granted under proviso 2 of subsection (3) of Section 31 of the FERA is not acceptable.
8. I would now enter into the merits of the petitioners' contention that the Respondent No. 4 arbitrarily and illegally refused to grant the permission under Section 31 of the FERA.
Section 31 of the FERA reads thus-
"31. No person who is not a citizen of India and no company (other than a banking company) which is not incorporated under any law in force in India or in which the non-resident interest is more than forty per cent shall, except with the previous general or special permission of the Reserve Bank, acquire or hold or transfer or dispose of by sale, mortgage, lease, gift, settlement or otherwise any immovable property situate in India :
Provided that nothing in this sub-section shall apply to the acquisition or transfer of any such immovable property by way of lease for a period not exceeding five years.
(2) Any person or company referred to in sub-section (1) and requiring a special permission under that sub-section for acquiring, or holding, or transferring, or disposing of, by sale, mortgage, lease, gift, settlement or otherwise any immovable property situate in India may make an application to the Reserve Bank in such form and containing such particulars as may be specified by the Reserve Bank.
(3) On receipt of an application under sub-section (2), the Reserve Bank may, after making such inquiry as it deems fit, either grant or refuse to grant the permission applied for :
Provided that no permission shall be refused unless the applicant has been given a reasonable opportunity for making a representation in the matter :
Provided further that if before the expiry of a period of ninety days from the date on which the application was received by the Reserve Bank, the Reserve Bank does not communicate to the applicant that the permission applied for has been refused, it shall be presumed that the Reserve Bank has granted such permission.
Explanation : In computing the period of ninety days for the purposes of the second proviso, the period, if any, taken by the Reserve Bank for giving an opportunity to the applicant for making a representation under the first proviso shall be excluded.
(4) Every person and company referred to in sub-section (1) holding at the commencement of this Act any immovable property situate in India shall, before the expiry of a period of ninety days from such commencement or such further period as the Reserve Bank may allow in this behalf, make a declaration in such form as may be specified by the Reserve Bank regarding the immovable property or properties held by such person or company."
9. On perusing sub-section (3) of Section 31 it is clear that the Reserve Bank may either grant such application or refuse it. That is the discretionary power of the Reserve Bank. But such exercise of discretion cannot be arbitratory. But before refusing such application it has to give reasonable opportunity to the applicant of being heard.
10. The Respondent No. 4 contends that on an enquiry he found that there was undervaluation of the property and the show cause notice was issued by the letter dated 25th July 1987 to make any representation against the decision of refusal of the application on the ground of undervaluation within 15th days from the date of receipt of the said letter. As the petitioners did not respond the Respondent No. 4 issued the letter dated, 24th August 1987. However after that letter was issued the Respondent received the representation dated, 3rd September 1987 from the petitioners. The Respondent No. 4 claims to have replied to that representation by the letter dated, 16th October and to the representation dated, 18th September, 1987 by the letter dated, 26th November 1987. The Respondent No. 4 claims that subsequently the Respondent No. 4 by the letter dated, 5th January 1988 modified its offer and agreed to consider the petitioner's prayer for permission if they could bring in Rs. 3,00,000/by way of foreign exchange instead of Rs. 3,86,000/- as originally asked for. The copy of that letter, however, has neither been produced by the petitioner nor by the Respondents. The petitioners challenge the above stand of the Respondent No. 4 as illegal and arbitrary and has urged that the valuation report of the Government valuer submitted by the petitioners should have been accepted and the action of the Respondent is arbitrary. The Rule 23A.8 of the Chapter 23 of the Exchange Control Manual, 1978 Edition Volume I, gives the guidelines to the Reserve Bank as to how the applications by foreign nationals of Indian Origin desiring to acquire property within India would be dealt with. The said rule is states thus-
"23A. 8 : Foreign nationals of Indian origin resident in India or abroad are normally allowed, on application to Reserve Bank, to acquire only one immovable property in India in each case for residential purposes provided that Reserve Bank is satisfied about the reasonableness of the valuation of the property and further in case of persons resident outside India-
(a) purchase price is paid either out of funds remitted from abroad through banking channel or from funds held in the purchaser's ordinary non-resident/non-resident (External)/NDRS Special account with an authorised dealer in India and
(b) applicant furnishes an undertaking that he will not ask for repatriation outside India of the income accruing thereon or the sale proceeds of the property (if sold at a later date).
Persons of Indian Origin resident abroad may be permitted to acquire another immovable property in India on merits, provided the purchase will be made against the full cost thereof being remitted to India in foreign exchange or paid from funds in Non-resident (External) account of FCNR account of the purchaser. Facilities for repatriation of capital and income thereon will not be available even in such case."
11. Therefore, the Respondent No. 4 has the obligation to ascertain the fair market value of the property sought to be purchased. For that purpose the Respondent may not accept the valuation report submitted by the petitioners. As the Respondent No. 4 wanted to ascertain the proper market value at the time when the agreement was entered into the report of the valuer of the Income Tax Department was called for. Such a report was received assessing the value at Rs. 7,21,000/-. However, the revised valuation has been annexed in the affidavit-in-opposition which shows the Chief Valuation Officer of the Income Tax Department assessed the market value as on 20th January 1986 at Rs. 6,35,000/-.
12. Respondents contend that by the communication of January 5, 1988 the Respondent No. 4 agreed to consider the permission if the petitioners agreed to bring Rs. 3,00,000/- from the Foreign country in foreign exchange. As the intention of the Reserve Bank was to increase the foreign exchange reserve of our country such proposal was given. I am not of the view that the said proposal had any mala fide motive. The money that would be brought would continue to remain the property of the petitioners. Only they would not be able to repatriate the same to any foreign country. So, I am unable to hold that the proposal of the Reserve Bank is at all unfair.
13. However, on considering the report of the valuations submitted by the Income Tax Department, I find that the said officer did not contact the petitioners. He contacted only the seller. It appears that the Respondent No. 4 blindly accepted the valuation of the Chief Valuer of the Income Tax Department. The petitioners' valuation report was also submitted by a Government approved valuer. It is therefore necessary for the Respondent No. 4 to make an objective assessment of both the valuations and he should give reasons as to why it has rejected the valuation of the Government approved valuer making valuation on the rental method.
14. I would, therefore, dispose of the writ petition with this order that the Respondent No. 4 shall again consider both the valuation reports, one by the petitioners and other by the Income Tax Department, and on giving another opportunity to the petitioners to produce any other material document in support of the valuation report submitted by them shall make independent assessment of the proper valuation of the flat in question. If after such assessment he finds that the price agreed by the petitioners with the seller has under-valued the property then he can take appropriate steps in the matter either rejecting the application on the ground of under- valuation or offering them to bring in necessary foreign exchange for the purpose of considering the petitioners' application for permission under Section 31(1) of the FERA otherwise he shall grant the application if he finds that valuation report of the petitioner is correct.
The writ petition is disposed of accordingly. No order for costs is passed.
All parties shall act on the signed copy of the operative portion of this Judgment.