Acquisition and Transfer of Immovable Property

Few corners of the Foreign Exchange Management Act, 1999 (FEMA) touch ordinary lives as directly as the rules on who may own land and buildings across the border. A non-resident Indian buying a Pune apartment, an emigrant who left a Chennai house behind, a foreign company leasing an office, a widow of a British citizen gifting away a Bangalore plot, all of them collide with the same statutory machinery. The acquisition and transfer of immovable property is, in FEMA's taxonomy, a capital account transaction involving a non-debt instrument, so it is presumptively forbidden and opened only category by category. The governing text now lives partly in Sections 6(4) and 6(5) of the Act and chiefly in the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. This chapter maps the framework, isolates the unyielding bar on agricultural land, farmhouses and plantation property, traces the migration from the old FEMA 21(R) regulations to the 2019 Rules, and grounds the consequences of getting it wrong in Asha John Divianathan v. Vikram Malhotra and Mannalal Khetan v. Kedar Nath Khetan.

Where immovable property sits in FEMA's scheme

Immovable property is not regulated by a free-standing section of FEMA carrying its own number; it is a species of capital account transaction under Section 6. The definitions clause, Section 2(e), tells you why: a capital account transaction is one that alters the assets or liabilities, including contingent liabilities, outside India of a person resident in India, or the assets or liabilities in India of a person resident outside India. The purchase of a London flat by a resident creates a foreign immovable asset; the purchase of a Mumbai flat by a non-resident creates an Indian immovable asset held by a non-resident. Both alter the cross-border balance sheet and are therefore capital in character.

Because the default rule of Section 6 is that a capital account transaction is prohibited unless permitted, immovable property dealings are lawful only to the extent that the statute or the regulations made under it carve out a permitted class. That carve-out comes from two directions: the grandfathering safe harbours built into Sections 6(4) and 6(5), and the affirmative permissions in the subordinate legislation, today the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. The whole subject is best read as the application of the Section 6 default to a single, emotionally charged asset class, land.

Sections 6(4) and 6(5): property you keep regardless of residence

The two mirror-image safe harbours in the bare Act are the natural starting point. Section 6(4) provides that a person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such property was acquired, held or owned by him when he was resident outside India, or was inherited from a person who was resident outside India. Section 6(5) is the symmetrical inverse: a person resident outside India may hold, own, transfer or invest in Indian currency, security or immovable property situated in India if it was acquired, held or owned when he was resident in India, or inherited from a person who was resident in India.

These provisions stop FEMA from operating retrospectively to strip people of legitimately-acquired property merely because their residential status later changed. An engineer who bought a Dubai apartment while working there keeps it after returning to India; an emigrant who owned ancestral land before leaving for Canada keeps that land too. Crucially, Sections 6(4) and 6(5) operate automatically, without any further RBI permission, which is why they are the bedrock of every fact-pattern question about returning NRIs and departing emigrants. The relationship between these grandfathered holdings and the wider scheme is developed in the chapter on holding of foreign exchange.

From FEMA 21(R) to the Non-Debt Instruments Rules, 2019

The detailed permissions do not live in the Act; they live in delegated legislation, and the source of authority shifted in 2015. Before the Finance Act, 2015, the Reserve Bank regulated all capital account transactions and issued the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, most recently consolidated as Notification FEMA 21(R)/2018-RB dated 26 March 2018 (GSR 280(E)). After the Finance Act, 2015 inserted Section 6(2A), power over non-debt instruments, which expressly include immovable property, moved from the RBI to the Central Government, as the chapter on the FERA to FEMA transition explains.

The consequential machinery was notified on 17 October 2019, when the Central Government issued the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. These Rules superseded both the foreign-investment regulations (the old FEMA 20R) and the immovable-property regulations (FEMA 21(R)), folding the property rules into a single instrument. Importantly, the substance was carried over largely intact; the 2019 Rules re-enacted the property regime without major change. For an examiner, the safe formulation is that the acquisition and transfer of immovable property in India by a person resident outside India is now governed by the Non-debt Instruments Rules, 2019 made under Section 6(2A), the earlier FEMA 21(R) regulations having been superseded with effect from 17 October 2019.

What an NRI or OCI may acquire

The most generous category is the non-resident Indian (NRI) and the Overseas Citizen of India (OCI). Under the Non-debt Instruments Rules, an NRI or an OCI may acquire any immovable property in India other than agricultural land, a farmhouse or plantation property. The permission is general; no prior approval of the Reserve Bank is needed for a residential flat or a commercial building. There is no cap on the number of such properties an NRI or OCI may own.

The same persons may also acquire immovable property by way of gift from a person resident in India, an NRI or an OCI who is a relative within the meaning of the Companies Act, 2013, again excluding agricultural land, farmhouse and plantation property; and they may acquire any immovable property, including agricultural land, by way of inheritance from a person resident in India or from a person who acquired it in accordance with the foreign-exchange law in force at the time of acquisition. Inheritance is the single doorway through which agricultural land can lawfully pass into non-resident hands. Payment for a purchase must be made out of funds received in India through banking channels by way of inward remittance from outside India, or out of funds held in the buyer's NRE, FCNR(B) or NRO account; payment in foreign currency notes or by traveller's cheque is not permitted.

The agricultural-land, farmhouse and plantation bar

The single most examinable proposition in this topic is the absolute prohibition on a non-resident purchasing agricultural land, a farmhouse or plantation property. The bar applies to NRIs, OCIs and foreign nationals alike, and it cannot be cured by routing the money through banking channels or by obtaining any general permission, because no general permission opens it. The policy is protective: agricultural land is treated as a strategic and socially sensitive asset, and India has consistently declined to permit its passage into non-resident ownership through ordinary commercial purchase.

Two qualifications must be held precisely. First, the bar is on acquisition by purchase or gift; it does not bar acquisition by inheritance, which is why a non-resident heir can lawfully come to own ancestral farmland under Section 6(5) read with the inheritance permission. Second, where a non-resident has inherited agricultural land, the asset can ordinarily be sold only to a person resident in India, not to another non-resident, keeping such land within the resident pool. The corollary trap is that the prohibited category in the Permissible Capital Account Transactions framework, discussed under capital account transactions, separately forbids foreign investment in entities doing real-estate business, the construction of farmhouses and dealing in transferable development rights, so the wall around Indian land is built from more than one statutory brick.

Transfer of property by a non-resident

The Rules govern not only acquisition but transfer. An NRI or OCI may transfer any immovable property in India to a person resident in India. The same person may transfer property other than agricultural land, farmhouse or plantation property to another NRI or OCI. Agricultural land, a farmhouse or plantation property held by a non-resident may be transferred only to a person resident in India who is a citizen of India, which channels these socially sensitive assets back into the resident citizen pool rather than allowing them to circulate among non-residents.

A person resident outside India who is not an NRI or OCI, that is, a foreign national of non-Indian origin, faces a far tighter regime. Such a person may not acquire immovable property in India by purchase at all without the prior approval of the Reserve Bank, save through the narrow inheritance and lease windows discussed below. The transfer side mirrors this: a foreign national holding Indian property, however acquired, generally needs to clear the Reserve Bank before disposing of it, the very situation that produced the litigation in Asha John Divianathan.

The five-year lease window

Not every dealing with Indian land amounts to an acquisition for FEMA purposes. The Rules carry forward the long-standing concession that any person resident outside India may take on lease any immovable property in India for a period not exceeding five years without the prior permission of the Reserve Bank. A lease that does not exceed five years is treated as too transient to amount to the acquisition of a capital asset and is therefore left outside the prohibition.

The practical importance of this window is large. It is the route by which foreign companies house their employees, multinationals take office space, and foreign nationals working in India secure accommodation, all without engaging the heavy machinery of RBI approval. It dovetails with the establishment-of-place-of-business regime under Section 6(6), addressed in the chapter on capital account transactions, since a branch or project office set up under that provision will typically lease, rather than buy, its premises. The candidate's takeaway is crisp: lease up to five years, free for everyone; anything longer, or any purchase, drops back into the permission regime.

The eleven-country prohibition

A discrete and frequently-tested rule singles out citizens of certain countries for the strictest treatment. A citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong or the Democratic People's Republic of Korea (North Korea) may not, without the prior permission of the Reserve Bank, acquire or transfer immovable property in India other than by way of a lease not exceeding five years. The bar attaches to citizenship, not residence, and it applies irrespective of whether the person is otherwise an NRI or OCI; indeed the very grant of OCI status to a citizen of these countries is itself restricted.

The rationale is plainly one of national security and border sensitivity, the listed states being India's neighbours or jurisdictions raising particular strategic concern. For an exam, the disciplined answer is to reproduce the list accurately, to note that the only freely-available transaction for such citizens is a lease of not more than five years, and to stress that everything else requires the prior, specific permission of the Reserve Bank rather than any general permission. Misstating the list, or omitting that the lease window survives even for these citizens, are the two common errors.

Foreign nationals resident in India and diplomatic missions

Residence, not nationality alone, can change the analysis. A foreign national of non-Indian origin who has become a person resident in India within the meaning of Section 2(v), typically by being in India for more than 182 days in the preceding financial year and coming for employment, business or an uncertain stay, may acquire immovable property in India, subject to the eleven-country citizenship bar above and to the general exclusion of agricultural land, farmhouse and plantation property. This is a recurring point of confusion: a long-term expatriate employee who satisfies the residence test is treated very differently from a foreign national sitting abroad.

Separately, a foreign embassy, diplomatic mission or consulate general may purchase or sell immovable property in India, other than agricultural land, plantation property or a farmhouse, provided clearance from the Government of India (Ministry of External Affairs) has been obtained and the consideration is paid out of funds remitted from abroad through banking channels. These specialised permissions illustrate how the regime calibrates access to Indian land according to the status and purpose of the acquirer rather than applying a single blanket rule.

Repatriation of sale proceeds

Owning Indian property is one question; taking the money out on sale is another, and the two should never be conflated. Where an NRI or OCI sells immovable property in India other than agricultural land, farmhouse or plantation property, an authorised dealer may allow repatriation of the sale proceeds outside India subject to conditions: the property must have been acquired in accordance with the foreign-exchange law in force at the time of acquisition; the amount paid for it must have come through banking channels as inward remittance or out of NRE or FCNR(B) funds; and, in the case of residential property, repatriation is restricted to the sale proceeds of not more than two such properties.

Sale proceeds held in an NRO account, or amounts exceeding the two-residential-property limit, may still be remitted within the overall ceiling of USD one million per financial year under the general facility for NRO balances. The repatriation rules interlock with the obligations of realisation and repatriation of foreign exchange under Section 8 and with the holding rules under Section 4, so that acquisition, holding and exit form a single regulated cycle rather than three unconnected events. A candidate who can separate the acquisition permission from the repatriation permission already stands above the field.

Consequences of contravention: Asha John Divianathan

The leading authority on what happens when a non-resident transfers Indian property without the required permission is Asha John Divianathan v. Vikram Malhotra, (2021) 19 SCC 629, also reported as AIR 2021 SC 2932 and 2021 SCC OnLine SC 110, decided on 26 February 2021 by a three-judge bench of A.M. Khanwilkar, Indu Malhotra and Ajay Rastogi JJ. A foreign national, the widow Mrs F.L. Raitt, had gifted and otherwise transferred immovable property in Bangalore without obtaining the previous permission of the Reserve Bank required by Section 31 of the predecessor Foreign Exchange Regulation Act, 1973. The question was whether a transfer made in contravention of Section 31 was void or merely voidable, and at whose instance.

The Supreme Court held that the requirement of previous RBI permission under Section 31 was mandatory, and that a transfer effected without it is void, not merely voidable or irregular. The Court set aside the contrary view of the Karnataka High Court, which had treated Section 31 as directory. Although decided under FERA, the reasoning migrates directly into FEMA: a transaction in immovable property undertaken without the permission the law demands is liable to be treated as void, with the contravention separately exposed to penal proceedings under Section 13 of FEMA. The decision is the modern anchor for the proposition that, in immovable property dealings by non-residents, permission is a condition precedent and not an afterthought.

The void principle: Mannalal Khetan

The doctrinal foundation on which Asha John Divianathan rests is Mannalal Khetan v. Kedar Nath Khetan, (1977) 2 SCC 424. There the Supreme Court laid down the general principle that where a statute prohibits the doing of an act on grounds of public policy and reinforces the prohibition with a penalty, an act done in breach of the prohibition is void, even if the statute does not expressly say so, and even if the penalty is not in fact imposed in the particular case. The rationale is that the law will not lend its aid to enforce that which it forbids; a prohibition coupled with a penalty signals that the legislature meant the forbidden transaction to be a nullity.

Applying that principle, the Court in Asha John Divianathan reasoned that Section 31 of FERA prohibited a foreign national from transferring Indian property without RBI permission, and that the prohibition was backed by penal consequences, so a transfer in breach was void. The same chain of reasoning supports treating a FEMA contravention as void where the relevant rule prohibits the dealing and the Act attaches a penalty under Section 13. Citing Mannalal Khetan alongside Asha John Divianathan is therefore the complete answer to the examiner's favourite question, is an unauthorised transfer void or voidable?

Vodafone and the situs of the asset

A more oblique but still examinable authority is Vodafone International Holdings B.V. v. Union of India, (2012) 6 SCC 613. A Netherlands company acquired from a Hong Kong seller the shares of a Cayman Islands company whose subsidiaries indirectly held a controlling interest in an Indian telecom operator. The Supreme Court, per Kapadia C.J., held that the Indian revenue could not tax this offshore transfer of foreign shares between two non-residents, because Section 9(1)(i) of the Income-tax Act, 1961 did not, as then framed, reach the indirect transfer of underlying Indian assets through layers of foreign holding companies.

For the immovable property syllabus the relevance is conceptual rather than direct. The case underscores that India's exchange-control and fiscal jurisdiction follows the situs of the asset and the residence of the parties, the very coordinates Section 2(e) uses to define a capital account transaction. An asset physically situated in India, such as land or a building, plainly attracts FEMA's immovable-property regime; an offshore share, even one whose value derives from Indian real estate, sits on a different footing. Vodafone thus marks the outer boundary of the regime and is best deployed to show why the rules in this chapter bite on Indian-situated property but not automatically on every foreign vehicle that indirectly owns it.

Exam strategy and common traps

Several traps recur in judiciary and CLAT-PG questions. First, never say that an NRI or OCI may buy agricultural land; the bar on agricultural land, farmhouses and plantation property is absolute on purchase and gift, and yields only to inheritance. Second, keep the eleven-country list accurate, Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong and North Korea, and remember the bar attaches to citizenship while the five-year lease window survives even for them. Third, do not attribute the current regulatory authority to the RBI alone; since the Finance Act, 2015 and the notification of 17 October 2019, immovable property is a non-debt instrument governed by the Central Government's Non-debt Instruments Rules, 2019, which superseded the old FEMA 21(R) regulations.

Fourth, separate the three permissions, acquisition, transfer and repatriation, since a person may lawfully own property yet be unable to repatriate beyond two residential units. Fifth, on consequences, cite Asha John Divianathan v. Vikram Malhotra, (2021) 19 SCC 629, for the rule that want of mandatory RBI permission renders the transfer void, building on Mannalal Khetan v. Kedar Nath Khetan, (1977) 2 SCC 424. Finally, anchor the analysis in Sections 6(4) and 6(5): the threshold question in most fact patterns is whether the property is grandfathered by the holder's earlier residence or inheritance, because if it is, no further permission is needed at all. For a consolidated map of how these provisions fit together, see the FEMA notes hub.