SC Holds Contract is Void if Prohibited by Statute under a Penalty

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Mar 31, 2021

SC Holds Contract is Void if Prohibited by Statute under a Penalty

The Supreme Court in Asha John Divianathan v. Vikram Malhotra & Others^[1], has held that a gift deed which lacked the mandatory permission of the RBI under Section 31 of the Foreign Exchange Regulation Act, 1973 was unenforceable. It was held that where penalty is imposed by statute for the purpose of preventing an act from being done on the grounds of public policy; such prohibited act would be treated as void if done, even if the penalty was unenforceable. It was further clarified that this decision does not apply to transactions which have already become final and that they need not be reopened or disturbed in any manner.

[1] Asha John Divianathan v. Vikram Malhotra & Ors., Civil Appeal No. 9546 of 2010.

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