Supreme Court and RBI Clarify that Payments Against Foreign Arbitral Awards do not Require RBI Approval

Introduction

In a significant development to India’s arbitration landscape, the Supreme Court on 26-8-2025 passed a notable order in GPE (India) Ltd. v. Twarit Consultancy Services (P) Ltd.¹, removing a regulatory hurdle that had threatened to complicate enforcement of foreign arbitral awards. The order addresses a fundamental question that sits at the intersection of international arbitration and foreign exchange regulations, providing much-needed clarity for cross-border commercial disputes.

The case arose from a complex investment arrangement gone awry. Two Mauritius-based companies and an Indian trustee of a Securities and Exchange Board of India (SEBI)-registered venture capital fund had invested in Haldia Coke and Chemicals (P) Ltd. through share subscription and shareholders agreements, executed in 2010. These agreements, which granted the investors various exit options, were followed by three share purchase agreements in 2015, under which the respondents agreed to buy back the shares for approximately INR 200 crores, payable in fourteen tranches.

When defaults occurred after the first payment, the investors-initiated arbitration proceedings. The Singapore International Arbitration Centre ruled in the favour of the investors, awarding damages of roughly INR 195 crores with interest, for breach of the share purchase agreements. However, when the investors sought to enforce this award in India, they encountered an unexpected obstacle.

Regulatory roadblock

The Madras High Court, while acknowledging that the award met the requirements for enforcement under the Arbitration and Conciliation Act, 1996, imposed a condition that would prove contentious. Passing an order dated 5-1-2023², the Madras High Court held that enforcement of the order would require prior approval from the Reserve Bank of India (RBI), citing concerns about compliance with the Foreign Exchange Management Act, 1999 (FEMA).

This condition stemmed from allegations by the respondents that the underlying investment structure violated the FEMA by providing guaranteed returns of 24 per cent internal rate of return to foreign investors, contrary to fair valuation requirements. The respondents invoked the doctrine of pari delicto, arguing that the entire commercial arrangement was fundamentally illegal and therefore unenforceable under Indian law.

The High Court’s reasoning reflected a cautious approach. While it accepted that technical FEMA contraventions do not render contracts void, particularly when such breaches are curable with RBI approval, it nonetheless required regulatory clearance before the award could be executed. This created uncertainty about whether compensatory damages awarded by international tribunals would invariably require regulatory approval in India.

The Supreme Court’s intervention

The Supreme Court’s decision turned on a critical distinction that the petitioners had emphasised throughout their arguments. The investors contended that the award did not seek to enforce any allegedly illegal guaranteed return mechanism. Rather, it represented compensation for breach of a contractual obligation to purchase shares, a fundamentally different proposition that fell outside the FEMA’s regulatory framework for capital account transactions.

This argument gained decisive support from RBI, through an affidavit-in-reply filed in the proceedings, clarifying that damages awarded for breach of contract constitute current account transactions under Section 5 FEMA, read with the Foreign Exchange Management (Current Account Transaction) Rules, 2000. Current account transactions, unlike capital account transactions, are liberalised under the FEMA and do not require specific regulatory approval.

Deferring to the RBI’s expert classification, the Supreme Court removed the regulatory approval requirement that the Madras High Court had imposed. The Court categorically held that “there is no impediment in law insofar as enforcement of the foreign award is concerned” and provided unqualified endorsement for the award’s expeditious execution.

Broader implications

This ruling carries significant implications beyond the immediate parties. GPE (India) Ltd. v. Twarit Consultancy Services (P) Ltd. ruling establishes principles that will, guide future enforcement proceedings, provide clarity on the regulatory treatment of different types of transactions, and demonstrate judicial deference to regulatory expertise.

At its core, the decision reinforces the distinction between enforcing contractual arrangements that may contravene regulatory provisions and enforcing compensatory awards for breach of such contracts. This distinction is crucial for international arbitration, where damages are a standard remedy for contractual breaches.

Moreover, the decision reinforces a consistent judicial trend that has evolved significantly over the past decade. Following landmark decisions in Vijay Karia v. Prysmian Cavi E Sistemi SRL³ and Cruz City 1 Mauritius Holdings v. Unitech Ltd.⁴, Indian courts have progressively narrowed the grounds for challenging foreign arbitral awards. This trajectory strengthens India’s effort to position itself as an arbitration-friendly jurisdiction. By removing unnecessary procedural impediments to enforcement, the Supreme Court has furthered India’s commitment to facilitating rather than obstructing international arbitration.

Conclusion

The Supreme Court has provided essential clarity at a time when cross-border investments and disputes are increasingly common. By distinguishing between the legality of underlying commercial arrangements and the enforceability of compensatory awards, the Court has created a framework that balances regulatory concerns with the need for efficient dispute resolution.

The decision signals that Indian courts will not lightly impose conditions on the enforcement of foreign arbitral awards beyond those expressly provided in the Arbitration and Conciliation Act, 1996. When regulatory issues arise, courts shall look to the relevant regulatory authority for guidance rather than imposing approval requirements based on judicial interpretation of regulatory law.

For investors and businesses engaged in cross-border transactions, this ruling offers reassurance that arbitral awards from recognised international tribunals can be enforced in India without being entangled in regulatory approval processes, provided the relief sought falls within liberalised transaction categories. This contributes to commercial certainty and reinforces confidence in India’s dispute resolution framework, making it a more attractive destination for international business and investment.