Genpact India Pvt. Ltd. Vs Assistant Director (Karnataka High Court)
Regulatory Approval of Individual Transactions Cannot Immunise the Entire Arrangement from FEMA Scrutiny: Karnataka High Court Upholds ED’s Section 37A Seizure Against Genpact
Summary: The Karnataka High Court has delivered an elaborate ruling concerning the powers of the Enforcement Directorate under Section 37A of the Foreign Exchange Management Act, 1999, in the context of an intricate cross-border corporate restructuring undertaken by the Genpact group. Though the judgment runs into more than 400 pages, its central principle is clear: approval or acceptance of individual components of a transaction by RBI, SEBI or the Income-tax Department does not prevent the ED from examining whether the connected arrangement, viewed as a whole, resulted in a contravention of Section 4 of FEMA.
Genpact’s Indian restructuring commenced in 2015. Empower Research Knowledge Services Pvt. Ltd., an Indian company belonging to the Genpact group, was chosen as the vehicle for consolidating the group’s Indian operations. In January 2015, the Singapore holding company borrowed approximately USD 660 million from Morgan Stanley and received another USD 77.50 million from its holding company. These funds were introduced into Empower India as foreign direct investment. Empower India then utilised approximately USD 737.50 million, equivalent to about ₹4,528 crore, to acquire 49 per cent of Old Genpact India.
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