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Upholds ED Seizure of Genpact Office, Orders Fresh NOC Review
In a significant ruling on the interplay between foreign exchange regulations and corporate restructuring, the dismissed ’s challenge to the Enforcement Directorate’s seizure of its Gurgaon head-office premises under . However, the court simultaneously set aside the ED’s rejection of Genpact’s application for a to invest $100 million in its GIFT City entity, directing a fresh, .
The judgment, delivered by Justice Suraj Govindaraj, addresses critical questions regarding the of Section 37A, the for seizure, and the procedural requirements for NOC decisions during pending investigations. While the court found sufficient grounds for the ED to invoke its seizure powers based on a series of transactions between 2015 and 2023, it faulted the authority for failing to provide adequate reasons when denying the NOC.
Background: The Restructuring and the ED Investigation
The dispute stems from Genpact’s restructuring of its Indian operations in 2015. was used to consolidate the group’s Indian businesses. In January 2015, funds were brought into Empower India, which acquired 49% of from Genpact group entities. Subsequently, borrowed $737.5 million from and transferred the funds to . On , Empower India issued 4,600 listed, redeemable non-convertible debentures (NCDs) to at ₹1 crore each, raising ₹4,600 crore. These proceeds were then used to acquire the remaining 51% of . The Indian entities were later amalgamated into Empower India, which was renamed . The company repaid the NCD amounts to between 2018 and 2023.
The ED began its FEMA investigation in after an communication flagged certain remittances. On , the ED passed an order seizing ’s property at DLF City, Phase V, Sector 53, Gurgaon. Genpact challenged the seizure and also the rejection of its NOC application under , to invest $100 million in its wholly owned GIFT City entity, .
Retrospectivity and the 2015 Transaction
One of Genpact’s primary arguments was that Section 37A of FEMA, which empowers seizure of the value equivalent of foreign exchange or property held in contravention of Section 4, came into force only on . Since the NCD transaction occurred in March 2015, the provision could not apply retrospectively. The court agreed that Section 37A cannot be applied to completed transactions that took place before that date. However, the court noted that the ED was not relying solely on the creation of the NCD liability in 2015. It also relied on actual payments made between 2018 and 2023, after Section 37A had come into force. These later payments, the court held, could be considered while examining whether the transactions formed part of a larger arrangement.
The court observed: “The fact that the NCDs were denominated in Indian Rupees does not, by itself, conclude the issue under Section 4 or Section 37A.” It further noted that ’s status as a -registered foreign portfolio investor did not immunize its transactions from FEMA scrutiny. “The fact that was a -registered FPI and was permitted to invest in NCDs does not make every transaction undertaken by the FPI immune from examination under FEMA.”
The court also rejected the argument that the movement of funds into and out of India, by itself, answered the FEMA issue. “What is material is the manner in which the entire arrangement operated and the rights and liabilities created as a result.”
Sufficient Grounds for Seizure
The court upheld the seizure order, finding that it contained sufficient factual material for the authorized officer to form the required “” under Section 37A. The seizure order recorded the movement of funds, the alleged , the return of funds to , the relationship between the entities, the NCD transaction, and the connected movement of funds. The court emphasized that it was not making a final finding that Genpact had violated FEMA; the ultimate question of the alleged contravention was left to the before the .
The court also held that earlier proceedings before the , , and income tax authorities did not prevent the ED from examining the transactions under FEMA. Those proceedings showed that particular aspects of the NCD transaction had been considered by other authorities, but did not establish that the entire arrangement—including the movement of funds through various entities—had been examined from the standpoint of .
Lack of Reasons for NOC Rejection
On the NOC issue, the court found the ED’s rejection defective. The ED had rejected Genpact’s application on , but the communication did not disclose the basis for the rejection or explain how the proposed investment was connected to the pending investigation. The court held that the mere pendency of an ED investigation cannot by itself justify refusing an NOC under Rule 10. The authority must consider whether there is a reasonable connection between the investigation and the proposed investment and provide sufficient reasons for its decision.
The court clarified that this did not mean the proposed investment had no connection with the investigation. It noted that the ED’s contention regarding the GIFT City entity’s proposed financing of overseas group companies “cannot be said to be without substance.” However, that reasoning was not contained in the January 13 rejection letter. The court also held that the subsequent February 3 seizure order could not be used to retrospectively justify the earlier NOC rejection.
Accordingly, the court set aside the rejection and remitted the application to the for fresh consideration. Genpact was given 10 days to submit relevant material after receiving the certified copy of the order, and the was directed to pass a fresh, reasoned order within 10 days of the complete submission. The court did not direct the ED to issue the NOC or permit the $100 million investment immediately, but it directed the regulatory authority to consider extending the time available for making or receiving the proposed investment, subject to applicable law.
Implications and Next Steps
The judgment strikes a careful balance between the ED’s enforcement powers and the procedural safeguards required when dealing with ongoing investigations. For legal professionals, the key takeaways are the court’s nuanced approach to retrospectivity—allowing later payments to be considered as part of a continuum—and its insistence on for NOC applications. The ruling underscores that while the ED can rely on a sequence of transactions spanning several years, it must articulate its reasoning clearly when denying permissions that affect legitimate business operations.
Genpact may continue its lawful business operations from the seized head-office premises, subject to restrictions on transferring, alienating, or creating third-party rights in the property. The substantive questions concerning the alleged FEMA contravention and the connection between the proposed investment and the investigation remain open for the to decide. The case will likely be closely watched by multinational corporations with complex cross-border structures, as it clarifies the scope of FEMA enforcement in restructuring transactions.
