The Karnataka High Court has set aside the Enforcement Directorate’s rejection of Genpact application seeking a No-Objection Certificate (NOC) under Rule 10 of the Foreign Exchange Management (Overseas Investment) Rules, 2022, holding that mere pendency of an investigation cannot by itself justify refusal of an NOC.
The bench of Justice Suraj Govindaraj dismissed Genpact’s separate challenge to the ED’s seizure order concerning its Gurgaon property and vacated the interim protection earlier granted against the seizure.
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The first petition challenged the ED’s communication dated January 13, 2026, rejecting Genpact India’s application for an NOC under Rule 10 of the FEMA (Overseas Investment) Rules, 2022.
Genpact had sought permission for a proposed investment of USD 100 million in its wholly owned subsidiary, Genpact Global (IFSC) Pvt. Ltd., established in Gujarat International Finance Tec-City (GIFT City), for setting up a global/regional corporate treasury centre.
The second petition, W.P. No. 7283 of 2026, challenged the ED’s order dated February 3, 2026, passed under Section 37A of FEMA, by which the ED had seized Genpact’s property situated at DLF City, Phase V, Sector 53, Gurgaon, Haryana.
The Court noted that the factual background of both petitions was substantially common, although the legal reliefs sought were different.
Proposed USD 100 million investment in GIFT City
Genpact India had incorporated Genpact Global (IFSC) Pvt. Ltd. in 2025 as a wholly owned subsidiary in GIFT City. The entity obtained provisional registration from the International Financial Services Centres Authority (IFSCA) on September 15, 2025, as a finance company for undertaking global/regional corporate treasury centre activities.
The proposed treasury activities included lending, cash pooling and investments for Genpact group entities located outside India.
Since Genpact India had earlier received summons from the ED, it applied on November 26, 2025, under Rule 10 of the FEMA Overseas Investment Rules seeking an NOC for investing USD 100 million in the GIFT City entity.
The ED rejected the application on January 13, 2026.
Background of the ED investigation
The dispute traces back to a series of transactions undertaken in 2015 during the restructuring of Genpact’s Indian operations.
The Court recorded that Empower Research Knowledge Services Pvt. Ltd. (“Empower India”) had been acquired by the Genpact Group and was subsequently identified as the vehicle for consolidating Genpact’s Indian operations.
In January 2015, Headstrong Singapore borrowed approximately USD 660 million from Morgan Stanley and approximately USD 77.50 million from its holding company. The funds were infused into Empower India, which used them to acquire shares of the erstwhile Genpact India. The consideration for the share acquisition was approximately USD 737.50 million.
A second phase of transactions followed in March 2015. Genpact Global Holdings Bermuda borrowed approximately USD 737.50 million from Morgan Stanley. The amount was transferred to Genpact Luxembourg, which subscribed to approximately ₹4,600 crore of non-convertible debentures (NCDs) issued by Empower India.
The Court recorded that the NCDs carried an 11% annual coupon.
The ED examined the subsequent movement of these funds and alleged that the transactions formed part of a connected arrangement involving movement of funds through various Genpact entities.
According to the ED’s case, the ₹4,600 crore received by Empower India through the NCD subscription was transferred on the same day towards acquisition of the remaining 51% shareholding in Old Genpact India. The amount was thereafter transferred through the Genpact entities and ultimately utilised towards repayment of the Morgan Stanley borrowing.
The High Court observed that the sequence, timing and relationship between the entities could be examined collectively for determining whether the transactions constituted part of a larger arrangement.
Importantly, however, the Court stated that at the stage of examining the jurisdictional foundation for action under Section 37A, it was not finally determining whether the entire arrangement constituted a FEMA contravention.
Genpact challenged Section 37A seizure
The ED subsequently passed an order dated February 3, 2026, under Section 37A of FEMA, seizing Genpact’s Gurgaon property.
Genpact challenged the action, principally contending that the underlying transactions took place in January and March 2015, whereas Section 37A of FEMA came into force only on September 9, 2015.
Its argument was that Section 37A, being a substantive provision, could not be retrospectively applied to transactions that had already been completed before the provision came into force.
Genpact relied upon the Karnataka High Court’s earlier decision in Canara Bank v. Commissioner of Customs, where the Court had held that Section 37A was prospective in operation in relation to property mortgaged before the provision came into force.
The company argued that both the January 2015 equity transaction and March 2015 NCD transaction were completed before September 9, 2015, and therefore could not subsequently be subjected to Section 37A proceedings on the basis of retrospectivity.
ED relied on the complete movement of funds
The ED, on the other hand, maintained that the transactions could not be examined in isolation.
The material relied upon by the ED included the foreign borrowings, infusion of funds into Indian entities, acquisition of shares, issuance of NCDs, transfer of NCD proceeds and subsequent repayment of the foreign borrowing.
The Court held that the short interval between the successive transfers, the identity and relationship of the entities involved, the financial position of Empower India, the immediate onward transfer of the NCD proceeds, the purpose of the NCD structure, the subsequent amalgamation and later discharge of the NCD liability were relevant circumstances for examination.
The Court further observed that the fact that the NCDs were denominated in Indian rupees did not, by itself, conclude the issue under Sections 4 and 37A of FEMA.
Likewise, the fact that Genpact Luxembourg was a SEBI-registered FPI did not make every transaction undertaken by it immune from examination under FEMA.
The Court therefore declined to accept, at this stage, the proposition that the ED could not examine the transactions merely because the initial funds originated from a foreign lender.
Earlier Income Tax and regulatory proceedings not conclusive
Genpact relied upon various earlier proceedings before the Income Tax Department, ITAT, Delhi High Court, RBI and SEBI.
The record showed that the ITAT had set aside the CIT’s order under Section 263 in June 2022 after holding that the relevant transaction had been considered and examined. The Delhi High Court subsequently dismissed the Revenue’s challenge on December 11, 2024. The Revenue thereafter approached the Supreme Court, where notice was issued without any stay being granted, according to the judgment.
The Court, however, held that these earlier proceedings did not completely foreclose the ED’s examination under FEMA.
According to the High Court, RBI and SEBI communications demonstrated that particular aspects of the NCD transaction had been placed before and considered by the respective authorities, but they did not establish that the entire arrangement and movement of funds through the various entities had been examined and approved from the standpoint of Section 4 of FEMA.
The Court similarly held that the Income Tax proceedings concerned the liability and assessment of foreign Genpact entities and did not conclusively determine the separate question arising under FEMA in relation to the Indian company.
Key ruling on Rule 10 NOC
The more significant relief came in W.P. No. 16763 of 2026 concerning the NOC.
The Court examined whether the mere pendency of an ED investigation was sufficient to refuse an NOC under Rule 10.
It answered the issue in the negative.
The Court held that mere pendency of an investigation is not sufficient to refuse an NOC under Rule 10. The authority must have relevant, rational and disclosed reasons demonstrating a nexus between the investigation and the proposed investment.
The Court noted that Rule 10 itself contemplates a situation where a person under investigation seeks an NOC. Therefore, the existence of an investigation cannot automatically operate as a ground for rejection.
At the same time, the Court clarified that this did not mean the proposed investment was wholly unrelated to the investigation. The proposed GIFT City entity was intended to undertake treasury activities involving financing overseas Genpact entities, while the investigation concerned alleged movement of value from India through overseas entities.
Thus, according to the Court, the ED was entitled to examine whether the proposed investment had any bearing upon the matters under investigation.
ED’s January 13 rejection lacked reasons
The crucial defect identified by the Court was in the January 13, 2026 rejection communication itself.
The communication merely stated that the request for issuance of an NOC had been rejected. It did not explain why the proposed investment was objectionable or how it was connected with the pending investigation.
The Court held that the subsequent seizure order dated February 3, 2026 could not retrospectively cure the defect in the earlier NOC rejection.
The validity of the January 13 decision had to be examined on the basis of the reasons and material available when that decision was made. A subsequent order could not supply reasons that were absent from the original decision.
The Court applied the principle associated with Mohinder Singh Gill v. Chief Election Commissioner that an administrative order must stand or fall on the reasons contained in the order itself.
No deemed NOC merely because of 60-day period
Genpact had also argued that the NOC should be deemed to have been granted because Rule 10 provides a 60-day period within which the concerned agency must either furnish the NOC or state its objection.
The High Court rejected this contention.
It noted that Genpact’s application was filed on November 26, 2025, and the ED communicated its rejection on January 13, 2026, before expiry of the 60-day period.
Accordingly, there had been a response within the prescribed period. Although the response was found inadequate because it did not disclose sufficient reasons, that did not amount to a failure to respond for purposes of the deeming provision.
High Court’s final directions
In its final order, the Karnataka High Court adopted different approaches to the two writ petitions.
W.P. No. 7283 of 2026, challenging the Section 37A seizure order, was dismissed.
The interim order staying operation of the February 3, 2026 seizure order was vacated. However, the Court clarified that seizure of the head-office premises would not prevent Genpact from continuing its lawful business operations from the premises.
Genpact was restrained from creating third-party rights in the property or transferring, alienating, encumbering or otherwise dealing with the property inconsistently with the seizure order.
In contrast, W.P. No. 16763 of 2026 was allowed in part.
The Court set aside the January 13, 2026 communication rejecting Genpact’s application for an NOC under Rule 10 and remitted the matter to the Competent Authority for fresh consideration.
Genpact was granted liberty to place all relevant facts, documents and material before the Competent Authority within 10 days from receipt of the certified copy of the judgment.
The Competent Authority has been directed to consider the material and pass a fresh, reasoned and speaking order within 10 days from receipt of the complete submission.
If the application is rejected again, the order must disclose the basis for rejection and, to the extent permissible in law, the nexus between the pending investigation and the proposed investment. The Court clarified that sensitive or confidential material need not necessarily be disclosed in full, but the substance of the grounds relied upon must be communicated sufficiently to enable Genpact to understand the basis of the decision.
The Court also directed the concerned regulatory authority to consider, in accordance with the applicable regulatory framework, extension of the time available for Genpact to make, and the GIFT City entity to receive, the proposed investment. Any investment would remain subject to the requisite FEMA, RBI, IFSCA and other regulatory approvals.
Legal significance
The judgment draws an important distinction between an investigation itself and the legal consequences that may flow from it.
The Karnataka High Court has held that the existence of an ED investigation does not automatically prevent an Indian entity from seeking an overseas-investment NOC under Rule 10. The authority must examine the proposed investment and record relevant reasons establishing a rational connection between the pending investigation and the proposed transaction.
At the same time, the Court did not finally exonerate Genpact from the FEMA allegations forming the basis of the Section 37A proceedings. The Court expressly recognised that the connected transactions and movement of funds could be examined collectively and that the Competent Authority would have to consider the material in the statutory proceedings.
Thus, the judgment leaves the underlying FEMA investigation open while requiring the NOC decision to be reconsidered through a reasoned and legally sustainable process.
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