Karnataka High Court Dismisses Genpact's Challenge To ED Seizure Of Gurgaon Office Under FEMA
The Karnataka High Court has dismissed Genpact India's, a business process management and professional services company, challenge to the Enforcement Directorate's seizure of its Gurgaon head-office premises under Section 37A of the Foreign Exchange Management Act (FEMA).
At the same time, the court set aside the ED's rejection of Genpact's application for a no-objection certificate (NOC) to invest $100 million in its GIFT City entity, holding that the rejection did not give adequate reasons for refusing the request. kahc0103715520265-701227
Justice Suraj Govindaraj passed the order while dealing with two petitions filed by Genpact India arising from an ED investigation under FEMA. One challenged the seizure order dated February 3, 2026, while the other challenged the rejection of Genpact's NOC application.
The dispute relates to Genpact's restructuring of its Indian operations in 2015. Empower Research Knowledge Services Pvt Ltd (Empower India) was used to consolidate the group's Indian businesses.
In January 2015, funds were brought into Empower India, which acquired 49% of Old Genpact India from Genpact group entities. In March that year, Genpact Global Holdings Bermuda borrowed $737.5 million from Morgan Stanley and transferred the funds to Genpact Luxembourg.
On March 25, 2015, Empower India issued 4,600 listed, redeemable non-convertible debentures (NCDs) to Genpact Luxembourg at ₹1 crore each. The ₹4,600 crore proceeds were then used to acquire the remaining 51% of Old Genpact India.
The Indian entities were subsequently amalgamated into Empower India, which was renamed Genpact India. The company repaid the NCD amounts to Genpact Luxembourg between 2018 and 2023.
The transactions were also examined by regulatory and tax authorities. Genpact relied on SEBI's response to its request for informal guidance and proceedings before the income tax authorities. The Income Tax Appellate Tribunal later set aside the Commissioner of Income Tax's order under Section 263 of the Income Tax Act and restored the original assessment, holding that the transaction had been duly considered and examined.
The ED began its FEMA investigation in 2021 after an RBI communication dated September 27, 2019, flagging importers and exporters who had received advance inward or outward remittances exceeding ₹100 crore but had not submitted shipping bills and documents for over a year. On February 3, 2026, the ED passed an order seizing Genpact India's property at DLF City, Phase V, Sector 53, Gurgaon.
Genpact argued that Section 37A could not be applied retrospectively to the March 2015 transaction because the provision came into force only on September 9, 2015. It also argued that the NCDs were rupee-denominated securities subscribed to in India by a SEBI-registered foreign portfolio investor and that the transaction was governed by the applicable regulatory framework.
The court agreed with Genpact to the extent that Section 37A could not be applied retrospectively to completed transactions that took place before September 9, 2015. However, it noted that the ED was not relying only on the creation of the NCD liability in 2015. It was also relying on actual payments made between 2018 and 2023, after Section 37A had come into force.
The court held that those later payments could be considered while examining whether the transactions formed part of a larger arrangement. It also found that the sequence of transfers, relationship between the entities, financial position of Empower India, immediate onward transfer of the NCD proceeds and subsequent discharge of the NCD liability provided a factual basis for the ED to examine the transactions together.
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 observed that Genpact Luxembourg's status as a SEBI-registered FPI did not place its transactions beyond FEMA scrutiny.
“The fact that Genpact Luxembourg was a SEBI-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.”, it noted.
At the same time, the court made clear that it was not making a final finding that Genpact had violated FEMA. It held that the material relied upon by the ED was sufficient to invoke Section 37A and examine the transactions under Section 4. The ultimate question of the alleged contravention was left to the statutory process before the Competent Authority.
Section 37A empowers an authorised officer to seize in India the value equivalent of foreign exchange, foreign securities or immovable property situated outside India where there is reason to believe that they are held in contravention of Section 4 of FEMA.
On the seizure itself, the court found that the order contained sufficient factual material for the authorised officer to form the required “reason to believe”.
It noted that the seizure order recorded the movement of funds, the alleged circular flow, the return of funds to Morgan Stanley, the relationship between the entities, the NCD transaction and the connected movement of funds. kahc0103715520265-701227
The court also held that the earlier RBI, SEBI and income tax proceedings 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 Section 4 of FEMA.
On the NOC issue, however, the court found the ED's rejection defective.
Genpact had sought an NOC under Rule 10 of the Foreign Exchange Management (Overseas Investment) Rules, 2022, to invest $100 million in its wholly owned GIFT City entity, Genpact Global (IFSC) Pvt Ltd. The proposed entity was intended to operate as a global or regional corporate treasury centre, including providing financial facilities to overseas Genpact entities.
The ED rejected the application on January 13, 2026, 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 found 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.
It accordingly set aside the rejection and remitted the application to the Competent Authority for fresh consideration. Genpact can submit relevant material within 10 days of receiving the certified copy of the order, after which the Competent Authority has been 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. It also directed the regulatory authority to consider extending the time available for making or receiving the proposed investment, subject to applicable law.
The court ultimately dismissed Genpact's petition challenging the seizure and vacated the interim stay. It nevertheless allowed the company to 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 NOC petition was partly allowed and remitted for fresh consideration. The court left open the substantive questions concerning the alleged FEMA contravention and the connection between the proposed investment and the investigation.
For Petitioner: Senior Advocate Udaya Holla, Advocates Anind Thomas, Vijayendra Pratapsingh, Prerna Poonappa, Vinudeep K and Kushagra Jain
For Respondents: Senior Advocates N Venkatraman, ASGI, Arvind Kamath, ASGI and Advocate Madhu N Rao, CGC