Reserve Bank of India
Legislation UpdatesNotifications


On 11-07-2022, Reserve Bank of India has issued guidelines on International Trade Settlement in Indian Rupees to promote growth of global trade, emphasizing exports, and to support the increasing interest of global trading community in INR.

According to this new mechanism an additional arrangement for invoicing, payment, and settlement of exports/ imports in Indian Rupees (‘INR') will be made. Authorized Dealer (‘AD') banks have to get approval from Foreign Exchange Department of Reserve Bank of India (‘RBI'), Central office, Mumbai.

Key Points:

  1. Broad Framework for cross-border transactions:

    • Invoicing in INR

    • Exchange Rate between currencies of two trading partner countries must be market determined.

    • Settlement of trade transactions must take place in INR

  2. Special Vostro Account: is an account that a correspondent bank holds on behalf of another bank. AD banks have been permitted to open such accounts under Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016. Th following measures have to be taken in order to allow such a transaction:

    • Indian importers must make payment in INR that will be credited into such account against the invoices.

    • Indian exporters must be paid in INR from the balances in such accounts of the correspondent bank.

  3. Documentation: Letter of credit and other trade related documents must be decided mutually between the banks of partner trading countries under the framework of Uniform Customs and Practice for Documentary Credits.

  4. Advance against exports must be received in INR through Rupee Payment Mechanism. Indian banks must ensure that the available funds in these accounts are used towards the payment obligations arising out of already executed export orders/ export payments in the pipeline and only then any further advance payment against exports must be accepted.

  5. Setting off of export receivables against import payables must be allowed through Rupee Payment Mechanism subject to the conditions under master Direction on Export of Goods and Services 2016.

  6. Bank Guarantee is permitted subject to adherence to the provisions of FEMA Notification No. 8 and the provisions of Master Direction on Guarantee and Co-acceptances.

  7. The Rupee Surplus balance has to be used for permissible capital and current account transactions. Such as:

    • Payment of projects and investments

    • Export/ Import advance low management

    • Investment in Government Treasury Bills, Securities

  8. Reporting of cross-border transactions to be done in adherence to guidelines under FEMA, 1999.

  9. Approval Process: The bank of the partner country can approach an AD bank for opening of Vostro Account. The AD bank has to seek approval from the RBI with details of arrangement. AD bank must ensure that the correspondent bank is not from a country or jurisdiction in the updated Financial Action Task Force (‘FATF’) Public Statement on High Risk & Non-Co-operative Jurisdictions on which FATF has called for counter measures.

Karnataka High Court
Case BriefsHigh Courts


Karnataka High Court: S G Pandit, J. declared the present writ petition filed by XIAOMI India under Article 226 of the Constitution of India as premature as Section 37 of Foreign Exchange Management Act (‘FEMA'), 1999 provides complete mechanism to decide the alleged contravention of Section 4 of FEMA, 1999.

XIAOMI Technology India Private Limited incorporated under the provisions of the Companies Act, 2013 engaged in the trading of mobile phones, electronic gadgets and other accessories under the brand name of Xiaomi. Petitioner is a beneficiary of Qualcomm Inc. and its proprietary and licensed intellectual property, particularly Standard Essential Patents (SEPs) which are patents essential for functioning of the mobile phone that are used in the mobile phones sold by it and therefore, pays royalty for it. Enforcement Directorate (‘ED') alleged that petitioner made certain foreign remittances in the name of royalty to foreign based entities in violation of the provisions of FEMA, 1999 and initiated investigation. Pursuant to which, the Authorized Officer passed seizure order under Section 37-A(1) of FEMA, 1999 which is impugned in the present writ petition.

Additional Solicitor General submitted that since the petitioner has not used any technology or IPR of the Qualcomm or Beijing Xiaomi Mobile Software Company Limited, petitioner could not have paid any royalty, thus violating provisions of Section 4 of FEMA, 1999.

The issue under consideration before the Court is with regard to its maintainability as Section 37 FEMA, 1999 has alternate remedy regarding the alleged violation.

Placing reliance on Raj Kumar Shivhare v. Directorate of Enforcement (2010) 4 SCC 772, the Court noted that FEMA, 1999 is a complete Code in itself and is an act to consolidate and maintain law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange management in India.

The Court observed that Section 37-A FEMA, 1999 provides special mechanism to determine the violation of Section 4 of FEMA, 1999. Thus, in light of the provision the moot question that whether the payments made by the petitioner to Qualcomm and Beijing Xiaomi Mobile Software Company Limited could be considered as royalty and attract Section 4 FEMA, 1999 is a question of fact which the Competent Authority has to decide appreciating or considering material placed by the petitioner as well as respondents. Thus, the Competent Authority could determine the same while passing order under Section 37-A (3) of FEMA, 1999.

The Court stayed the impugned order subject to operation of seized bank accounts only for the purpose of meeting daily expenses and held “At this stage, examining sufficiency of reason or otherwise under Article 226 of the Constitution of India would prejudice the case of either of the parties. It is best left to the Competent Authority to examine the same when it considers the entire issue under sub-Section (3) of Section 37-A of FEMA, 1999.”

The Court further directed the Competent Authority to dispose of the same expeditiously but not later than 60 days in light of halt of day to day activities of the petitioner due to seizure order.

[Xiaomi Technology India Private Limited v. Union of India, WP No. 9182 of 2022, decided on 05-07-2022]

Advocates who appeared in this case :

Senior Advocate Sajjan Poovaiah and Adv. Vikaram Bhat, Advocates, for the Petitioner;

ASG M B Nargund and CGC Madhukar Deshpande, Advocates, for the Respondent.

*Arunima Bose, Editorial Assistant has reported this brief.

Op EdsOP. ED.

The Enforcement Directorate (ED)  has seized INR 5551.27 crores from Xiaomi Technology India (Pvt.) Ltd. on account of alleged violation of Section 4[1] of the Foreign Exchange Management Act, 1999 (FEMA). The seizure has been done on account of involving the patent ban in the FEMA and in Section 4, which reads, “(sic) no person shall acquire, hold, own, possess or transfer foreign exchange (sic) situated outside India”. As per the press release by the ED dated 29-4-2022, Xiaomi has disguised its remittance in the form of “royalty” and providing misleading information to the banks.


A plain reading of the alleged crime being committed by Xiaomi may seem one that could be penalised through reparations, however a reading of the Section 37-A[2] of  FEMA, which was inserted in 2015 provides in sub-section (1) that “the authorised officer who has reason to believe (sic) is suspected to have been held in contravention…”. This is a spurious part of the legislation, which is being tested in the case of Xiaomi. The threshold for invoking the seizure and the intervention of the ED is at the stage of “suspicion of contravention”. Anyone can reasonably wonder as to whether the transaction that they are embarking upon as unmalicious as remitting to study abroad, etc. may be called to scrutiny due to the threshold of suspicion. As confusing as this may look, a further reading into sub-sections (2) and (3) of Section 37-A, the officer must submit the order of seizure to the competent authority (non-judicial and of a rank of Joint Secretary) and the competent authority can hold on to the seizure for up to 180 days to dispose it or to further it to a judicial body. This period of 30 to 180 days is internal and based on suspicion of guilt. It is a well-regarded theory in criminal jurisprudence that the person alleging a crime has to prove beyond reasonable doubt. However, the structure of Sections 37-A(2) and (3) gives autonomy to the ED to proceed on the basis of doubt alone. As of 2021, Xiaomi recorded INR 38,196 crores in turnover.


For a moment, if one were to assume that the crime indeed has been committed, one would wonder the proportionality of the suspicion and the consequences of such, versus the harm that may be caused to any company or person who is being investigated. Section 37-A is flawed for reasons more than the constitutional one. The invocation of the ED, widens the ambit of investigation as regarded in the Penal Code, 1860 (IPC)[3]. Neither the IPC nor the Criminal Procedure Code, 1973[4] (CrPC) define the term “police officer” but both of them have penal provisions indicating powers of a police officer. In FEMA, the ambiguity of whether an ED officer is a police officer is answered in Section 385 which empowers officers as may be authorised by the Government from time to time. This provides a wide range of powers to the officer of the Government of a non-judicial rank and squarely not independent, including arrest and investigation.


The question before the courts in interpreting the FEMA is what remedy a person would have during the interim period of the 30 days and 180 days during which the investigation and potential arrests are made at the behest of an itch of suspicion that an ED officer may have. This casts a burden on the suspect providing information to the ED officer who is investigating. Most likely than not, such information provided could be self-incriminating in nature. Article 20(3)6 of the Constitution of India expressly provides for the right of silence. The same is reflected in Section 1617 CrPC which provides for protection of such information so as to not incriminate themselves. However, the caveat in Section 161 CrPC is that this does not include information given on their own volition. The flaw in Section 37-A is further amplified as the information obtained during the period of 30 to 180 days after which it moves to a judicial fora can be misused against the suspect, thus opening the doors for corruption in the interim. The only relief for the suspect is to get a clean chit from the competent authority (government officer of the rank of Joint Director) as per Section 37-A(5). Especially in cases where there is a seizure, this circles within  the ED and never leaves the governmental control for a period of up to 180 days. By conferring the Section 37-A, the legislators have created a behemoth of a corruption engine which need not traverse outside the realm of “suspicion” to chase companies or individuals for any investment, even if it is eventually proven to be genuine. This undue vesting of power must be supplemented at the very least by a judicial forum or an independent oversight of the seizure. If we as legislators do not embark on this amendment, we may very well bid foreign direct investment an adieu.


† Professor of International Law and an alumnus of The Hague Academy, Netherlands. Author can be reached at <>.

†† Principal Counsel at Chambers of Dr Srikant Parthasarathy.

[1] Foreign Exchange Management Act, S. 4.

[2] Foreign Exchange Management Act, S. 37-A.

[3] Penal Code, 1860.

[4] Criminal Procedure Code, 1973.

5 Foreign Exchange Management Act, S. 38.

6 Constitution of India, Art. 20(3).

7 Criminal Procedure Code, 1973, S. 161.

Op EdsOP. ED.

1. Setting the stage

Cryptocurrency or virtual currency gained immense popularity after the 2008 financial crisis. Moreover, the sudden increase in the value of certain forms of virtual currency like Bitcoin has also made it a lucrative investment option. On the other hand, lack of accountability has also led to the employment of cryptocurrency for criminal and unethical activities. In light of this background, the Indian legislature has proposed a Bill banning all forms of private cryptocurrency in India which is pending before Parliament on the date of writing this paper.[1] Although the text of this proposed Bill is not available in the public domain, it is widely believed that the same is based upon a draft Bill which was proposed in 2019.[2]

This paper argues that instead of imposing a blanket ban on use or possession of cryptocurrency, appropriate regulatory framework would be a more suitable alternative. This regulatory framework maybe brought in by making suitable amendments to the existing legislation or by enacting a novel suigeneris legislation altogether. Furthermore, this short paper focuses on only one aspect of such regulation, namely, cross-border transactions through cryptocurrency. It is pertinent to mention here that though cryptocurrency is difficult to define and no universally accepted definition of cryptocurrency exists, however, cryptocurrency for the purposes of this paper would mean a financial instrument in intangible form produced and stored on servers using blockchain technologies and does not include digital currency or electronic currency like digital wallets, prepaid credit top-ups, loyalty points, etc.

Cross-border aspect of cryptocurrency regulation assumes importance as there is a growing consensus that there is an increase in cross-border trade via cryptocurrency. This is simply because in ordinary parlance, cryptocurrency can be understood as a private currency without backing of any sovereign guarantee. Thus, it overcomes the risk of failure of the entire payment system in case of any crisis wherein the sovereign is not able to fulfil its guarantee. One instance of such failure is the infamous 2016 demonetisation in India wherein the Government refused to honour its guarantee of payment in lieu of 500 and 1000 rupee bank notes. Such a unilateral revocation is not possible in case of cryptocurrency. Thus, by banning cryptocurrency instead of regulating it, India would be missing an opportunity on benefitting from this global currency.

In India, foreign trade, foreign investment and all forms of cross-border transactions are governed by the Foreign Exchange Management Act, 1999 (FEMA).[3] At the outset, it is pertinent to mention here that the applicability of FEMA and related rules on cross-border cryptocurrency transactions is still ambiguous as would be demonstrated in this paper. Therefore, even in the scenario that a blanket ban is imposed on cryptocurrency in India, short-term issues would arise pertaining to disposal of existing reserves of cryptocurrency in India. In other words, Indian entities currently possessing cryptocurrency would not be able to sell cryptocurrency amongst residents because of the ban and they might not be able to sell it across borders due to the looming ambiguity around FEMA.[4] Therefore, though the primary argument in this paper is to regulate cross-border transactions through FEMA, the suggestions and observations made in this paper would also be relevant to overcome the short-term problems in case of a blanket ban by providing an exit route to the existing holders of cryptocurrency in India.

2. Classifying cryptocurrency

The first step to proper regulation under FEMA is to adequately classify cryptocurrency within the framework of FEMA. This is important to determine applicable rules and regulations to cryptocurrency.

The first category of classification is “currency”. In this respect, Section 2(h) of FEMA5 prescribes an exhaustive definition of “currency” wherein a residuary power is given to Reserve Bank of India (RBI) to declare any instrument as currency. Historically, RBI has always maintained a sceptical attitude for classifying cryptocurrency as “currency” because the same would give it a status of fiat money or a legal tender. Moreover, this view is also supported by the Inter-Ministerial Committee Report6 because if cryptocurrency is considered as legal tender then it would have to be backed by sovereign guarantee which is very difficult given the volatile nature of cryptocurrency. Hence, as of today cryptocurrency cannot be classified as “currency”. At the same time, it is also pertinent to mention here that the Supreme Court in Internet and Mobile Assn. of India v. RBI7 had noted that RBI has abundant power to notify cryptocurrency as “currency” under FEMA. However, commentators have maintained that notifying cryptocurrency as “currency” is less likely as it would require complex framework, which would discourage use of cryptocurrency in India.8 Furthermore, as already noted above, one of the benefits of cryptocurrency is the lack of a sovereign guarantee that makes it arguably the most suitable medium of exchange for any cross-border transaction. In agreement with this observation, this paper does not support the argument that cryptocurrency should be conferred a status of “legal tender” rather it argues that there are alternative ways of regulating cryptocurrency under FEMA.

An allied argument with respect to the currency classification is classification as “foreign currency” or “foreign exchange”. Some authors have pondered on the possibility of cryptocurrency as “foreign currency”.9 To elaborate, Section 2(m) of FEMA10 defines “foreign currency” as any other currency except Indian currency. Nishith Desai Associates in their white paper have opined that where cryptocurrency creates a financial liability, it may amount to foreign currency as defined under FEMA.11 Similarly, the Supreme Court had opined that where cryptocurrency performs functions of money, it cannot be said that RBI has no power to regulate it merely because it is not a legal tender.12 Another argument put forth by supporters of this classification is that in case a foreign country recognises cryptocurrency as a legal tender then it would automatically come within the scope of “foreign currency” in India.13 In this respect, two arguments are put forth by the author. Firstly, till date no jurisdiction except El Salvador14 has notified cryptocurrency as a legal tender. Secondly, as it has already been established that cryptocurrency cannot be classified as “currency” unless until notified by RBI, therefore the question of it being regulated as a “foreign currency”, which is a subset of “currency”, becomes moot. Further, as per Section 2(n) of FEMA15, “foreign exchange” includes foreign currency and various instruments payable in foreign currency. Therefore, since it has been established that cryptocurrency is not “foreign currency”, by extension, cryptocurrency is also not “foreign exchange”.

Another alternative for classifying cryptocurrency under FEMA is by classifying it as “goods”. Although, FEMA does not define goods but it does talk about the import and export of goods.16 In this respect, Section 2(7) of the Sale of Goods Act, 1930 defines “goods” as “…every kind of movable property other than actionable claims and money….”17Again, Section 3(36) of the General Clauses Act, 1897 defines movable property as every kind of property except immovable property.18 Furthermore, Section 3(26) of the General Clauses Act, 1897 defines immovable property to include land and things attached to or fastened to land.19 Therefore, it can be easily said that cryptocurrency is not immovable property and given the broad definition of movable property, cryptocurrency would classify as movable property and by this extension “goods”. This would effectively mean that cryptocurrency transactions would be barter transactions. The implication of the same would be that these transactions would not be covered within the purview of Sale of Goods Act, 193020. This is because Sale of Goods Act, 1930 only applies to monetary transactions and not to barter transactions.21 Nevertheless, there is no prohibition in the Contract Act, 187222 pertaining to barter transactions and the parties to the crypto transaction? may contractually agree upon the exchange rate and other modalities of the transaction. Furthermore, this approach finds support in light of the fact that as per a recent news report, the Central Government is also considering classifying cryptocurrency as “commodity”.23

3. Regulating cryptocurrency under FEMA

From the above discussion it can be seen that cryptocurrency already falls within the regulatory ambit of import and export of goods under FEMA. However, the problem arises as there exists no specific regulations pertaining to import and export of cryptocurrency under FEMA which renders this “goods” classification as otiose. Moreover, as per Section 3 of FEMA24, only authorised persons or persons who have been permitted in this regard by RBI can deal in foreign exchange or cross-border transactions outside India.

a. RBI as the game changer

Theoretically, there can be two broad categories of cross-border cryptocurrency transactions. The first category would be purchase or sale of cryptocurrency itself from outside India. In simple words, currency or fiat money may be used to buy cryptocurrency from outside India or cryptocurrency already held may be sold outside India for foreign currency. The second category would involve using cryptocurrency like money i.e. for payment of goods and services across borders, for making investment, etc.

Regarding the first category of cases, there is nothing in FEMA which expressly prohibits purchase or sale of cryptocurrency through use of fiat money as long as such money is sent or received through authorised channels such as banks, etc. This is because these transactions can be considered akin to an ordinary transaction of buying and selling of goods for money. However, in respect of such transactions, it is imperative that necessary declarations are made while selling such cryptocurrency under the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015.25 These regulations do not contain any specific manner for disclosure of cryptocurrency but the general regulations regarding export disclosure are definitely applicable.

The real problem arises when cryptocurrency is sought to be used as a substitute for money. Cryptocurrency can be used for three broad purposes, namely, investment, purchase of assets/immovable property and for payment of goods. As already noted, it would not be expedient to classify or treat cryptocurrency as “currency” or legal tender. Therefore, it becomes imperative to analyse the relevant rules and regulations in respect of these transactions.

Investment by means of cryptocurrency can be a major inflow of cryptocurrency from outside India. This can be done to acquire shares, etc. One facet to be mentioned here is that in case of foreign investment, apart from RBI, Securities and Exchange Board of India (SEBI) also comes into the picture as it regulates the security market in India. The regulations provide that in case of both non-debt and a debt instrument including immovable assets, the mode of payment has to be through authorised bank channels and bank accounts.[5]26

Similarly, in case of payment for exports and imports, the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016, state that receipt and payment for exports and imports have to be made in appropriate foreign exchange or currency.27 Thus, this regulation ipso facto prohibits any transaction via cryptocurrency as crypto is neither foreign exchange nor currency. However, these regulations also provide a residuary power to RBI to permit transactions through any other instrument authorised by it.28 At this juncture, it is noteworthy to discuss here that some authors while interpreting Regulation 5(2)(b) of the said Regulations have opined that payment can be made in cryptocurrency for imported goods if the exporting country recognises cryptocurrency as a valid mode of payment.29 Regulation 5(2)(b) provides that payment of import in case of countries other than members of Asian Clearing Union can be made “… in a currency appropriate to the country of shipment of goods”30. In this author’s opinion, the supporters of this argument have misinterpreted the term “currency”. The real test is to see as to whether cryptocurrency falls within the definition of “currency” as per Indian laws (more specifically FEMA) and it is only after the satisfaction of the first test, it is to be seen as to whether such “currency” is recognised as a valid mode of payment by the exporting/shipment country. Since, it has already been established that cryptocurrency cannot be treated as “currency” under FEMA, thus, the argument that exporting countries can be paid in cryptocurrency when recognised by such exporting country, fails.

Another instance of cross-border payments is remittance to persons in India. As per RBI liberalised remittance scheme,31 a non-resident Indian can remit up to USD 250,000 through an authorised channel to a person in India. Theoretically, such a remittance can be made through cryptocurrency. However, at present there is no authorised agent for such transfers. Therefore, RBI may designate certain cryptocurrency exchanges, public or private or both, as authorised agents for such cross-border payments.

The above analysis shows that the real problem lies in the fact that cryptocurrency has not been recognised and notified as a valid mode of payment. It is imperative to mention here that the phrase “mode of payment” has been used here because it has not been argued that cryptocurrency should be notified as a legal tender. It appears that the ball is in RBI’s court which can easily notify cryptocurrency as a valid mode of payment and can bring out additional regulations to promote cross-border transactions via cryptocurrency. Such tinkering would not change the status of cryptocurrency as “goods” which will imply that the cross-border transactions done via cryptocurrency are essentially barter transactions.

b. Why Regulation

Once, it has been established that regulation of cryptocurrency under FEMA is plausible, the next question that arises as to whether regulation is the better alternative or not. In this respect, it is noteworthy to mention here that a few years ago; a similar concern arose regarding the regulation of payment instruments like Paytm wallets, etc. Admittedly, there is a difference between the nature of digital currency like Paytm credits and cryptocurrency. Nevertheless, the principal point to be noted here is that instead of completely banning such digital currency, RBI had introduced spending limit and other formalities under the FEMA.32 Today, subject to fulfilment of KYC norms, there is no spending limit and digital currency has become an integral part of the Indian financial market. Therefore, considering the infancy of cryptocurrency in India, it would be suitable that appropriate regulations be introduced under FEMA. Furthermore, there should be separate regulations for retail investors and ordinary businessmen, wherein RBI may consider imposing an accumulation limit for cryptocurrency for retail investor and prescribe additional compliance regulations for businessmen. These regulations maybe eventually relaxed as and when the Indian crypto market matures.

In support of the above suggestion, it is pertinent to mention here that cryptocurrency exchanges in IMAI case33 had submitted that they had put in place measures like avoidance of cash transactions, enhanced KYC measures and limiting to transactions in India.34 The problem with such regulation is that it is a case of self-regulation and therefore, non-binding and non-uniform. Nevertheless, in the proposed system, RBI can easily introduce uniform regulations for all crypto exchanges and users based on such self-regulations.

Lastly, by not regulating cryptocurrency, India would be extinguishing a unique opportunity for Indian industry. At the same time by banning cryptocurrency, no difference would be made in curbing cross-border crimes which is the primary motivation for this drastic move. To illustrate, in a case before the Karnataka High Court,35 the accused had ordered certain drug packets from Netherlands by placing an order through cryptocurrency. Now in such a case, imagine that there had been a ban on cryptocurrency. In such a scenario, tracing of transaction through any other mode of payment would have been easier but in the alternative, a mandatory disclosure under FEMA regarding cryptocurrency would have also served the purpose. Moreover, a ban on cryptocurrency would not necessarily imply that criminal activities through cryptocurrency would be curbed. Instead, the criminals would still conduct the transactions through cryptocurrency as cryptocurrency being legal or illegal is not their primary concern rather it is the lack of traceability which is the primary advantage here. On the other hand, legitimate users would be denied the benefits of this cryptocurrency in case of a blanket ban. Thus, it is imperative that proper regulations are enacted to effectively prevent such cross-border crimes.

4. Conclusion

The Preamble to FEMA36 states that one of its objectives is to facilitate and promote foreign trade. By opting to ban cryptocurrency instead of adopting a regulatory route, the legislature would be violating the objectives of FEMA. While the paper has not discussed the legal validity of the potential ban, such ban would undoubtedly affect India’s capability to engage in foreign trade.

The discussion in the paper has also shown that RBI has ample powers under FEMA to regulate cross-border transactions conducted through cryptocurrency. This can be done by classifying and normatively accepting cryptocurrency as “goods”. In fact, it appears that though the legislature may consider enacting a new regulatory code for regulating domestic and cross-border cryptocurrency transactions, nevertheless, RBI can easily issue relevant rules and regulations under FEMA without any need for a formal legislative amendment.

Lastly, imposing a blanket ban on cryptocurrency without first permitting regulation of cryptocurrency under the FEMA would result in denial of an exit route to the existing cryptocurrency holders. Therefore, in case the legislature goes ahead with a blanket ban, it would still be required to clear the air with respect to the regulatory framework under FEMA along with an adequate buffer period so that existing users can liquidate their crypto holdings (by selling the same in foreign countries) without completely losing upon the value of their investments.

* Associate, KN Legal, New Delhi.

[1]India to Reportedly Propose Cryptocurrency Ban, Penalising Miners & Traders, CNBC (15-3-2021, 11:35 a.m.), <,-Published%20Sun%2C%20Mar&text=India%20will%20propose%20a%20law,senior%20government%20official%20told%20Reuters>.

[2]Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019.

[3]Foreign Exchange Management Act, 1999 (hereinafter “FEMA”).

[4]Jaideep Reddy, The Case for Regulating Crypto-Assets: A Constitutional Perspective, 15 Indian Journal of Law and Technology 379, 413-14 (2020).


6Report of the Committee to Propose Specific Actions to be Taken in Relation to Virtual Currencies (28-2-2019).

7(2020) 10 SCC 274 (hereinafter “IMAI case”).

8Deepanshu Poddar and Advik Rijul Jha, Cryptocurrencies in Need of Regulation: A Primer to Bitcoins Regulation in India, 4 RGNUL Student Research Review 50, 65 (2018).

9Khyati Basant, RBI & Cryptocurrency: The Story so Far, IPleaders Blog (14-9-2020), <>.


11Nishith M. Desai, Vaibhav Parikh and Jaideep Reddy, Building a Successful Blockchain Ecosystem for India: Regulatory Approaches to Crypto-Assets, Nishith Desai Associates (December 2018), <>.

12IMAI case, (2020) 10 SCC 274.

13Hatim Hussain, Reinventing Regulation: The Curious Case of Taxation of Cryptocurrencies in India, 10 NUJS Law Review 792, 802 (2017).

14Jay L. Zagorsky, Finally, Bitcoin is becoming Legal Tender in a Country, (6-9-2021), <>.


16FEMA, Ss. 2(l) and (p).

17Sale of Goods Act, 1930, S. 2(7).

18General Clauses Act, 1897, S. 3(36).

19General Clauses Act, 1897, S. 3(26).


21Sale of Goods Act, 1930, S. 2(10).


23Saloni Shukla and Sachin Dave, Govt. Plans to Bring a Bill, Cryptocurrencies to be Treated as Commodity, The Economic Times (3-9-2021), <>.


25Foreign Exchange Management (Export of Goods and Services) Regulations, 2015,Gazette of India, Pt. II S. 3(i) (12-1-2016), Regn. 3.

26Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, Gazette of India, Pt. II S. 3(i) (17-10-2019), Regn. 3; Foreign Exchange Management (Debt Instruments) Regulations, 2019, Gazette of India, Pt. II S. 3(i) (17-10-2019), Regn. 2, Sch. 1.

27Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016, Gazette of India, Pt. II S. 3(i) (2-5-2016), Regns. 3 and 5.

29Amit K. Kashyap & Akanksha Goyal, India’s Discomfort with Blockchain Based Currency: A Vacuum on the Legality of Bitcoins, 6 GNLU Law Review216, 224 (2019).


31Master Direction–Reporting under Foreign Exchange Management Act, 1999, Reserve Bank of India (1-1-2016),<>.

32N.S. Nappinai, Technology Laws Decoded, S. 1.9(e) (1st Edn., 2017).

33(2020) 10 SCC 274.

34IMAI case, (2020) 10 SCC 274.

35Aayush Ajit v. Inspector of Customs, 2020 SCC OnLine Kar 1940.


Hot Off The PressNews

Opening of Current Accounts by Banks

On a review, it has been decided to permit banks to open specific accounts which are stipulated under various statutes and instructions of other regulators/ regulatory departments, without any restrictions placed in terms of the circular dated August 6, 2020. An indicative list of such accounts is as given below:

  1. Accounts for real estate projects mandated under Section 4 (2) l (D) of the Real Estate (Regulation and Development) Act, 2016 for the purpose of maintaining 70% of advance payments collected from the home buyers.
  2. Nodal or escrow accounts of payment aggregators/prepaid payment instrument issuers for specific activities as permitted by Department of Payments and Settlement Systems (DPSS), Reserve Bank of India under Payment and Settlement Systems Act, 2007.
  3. Accounts for settlement of dues related to debit card/ATM card/credit card issuers/acquirers.
  4. Accounts permitted under FEMA, 1999.
  5. Accounts for the purpose of IPO / NFO /FPO/ share buyback /dividend payment/issuance of commercial papers/allotment of debentures/gratuity, etc. which are mandated by respective statutes or regulators and are meant for specific/limited transactions only.
  6. Accounts for payment of taxes, duties, statutory dues, etc. opened with banks authorized to collect the same, for borrowers of such banks which are not authorized to collect such taxes, duties, statutory dues, etc.
  7. Accounts of White Label ATM Operators and their agents for sourcing of currency.

2. The above permission is subject to the condition that the banks shall ensure that these accounts are used for permitted/specified transactions only. Further, banks shall flag these accounts in the CBS for easy monitoring. Lenders to such borrowers may also enter into agreements/arrangements with the borrowers for monitoring of cash flows/periodic transfer of funds (if permissible) in these current accounts.

3. Banks shall monitor all current accounts and CC/ODs regularly, at least on a half-yearly basis, specifically with respect to the exposure of the banking system to the borrower, to ensure compliance with instructions contained in a circular dated August 6, 2020 ibid.

Please read the notification here: NOTIFICATION

Reserve Bank of India

[Notifications dt. 14-2-2020]

Op EdsOP. ED.

Backstage Theatrics of Economical Apparatus

India’s post-independent economic regime was governed by the principle of self-reliance, growth, modernisation and social justice. Colonial exploitation induced the State to reduce foreign interference in India’s economic decisions.

After independence, the Foreign Exchange Regulation Act, 1947 was implemented in consonance with the five-year plans with minor structural changes.

Indian Government approached towards the resurrection of economic growth by adopting the fundamentals of mixed economy. The State emphasised on the development and protection of domestic Indian industries with a wider State control over the operations of the businesses. Imports and investment in key industries from foreign countries were discouraged to reduce the dependence on the foreign countries except oil and petroleum. The public and private spheres were demarcated and were regulated by State.

India aimed import substitution and developed the national economy to become self-reliant. In this regard, the Nehru-Mahalanobis Model was constructed to capitalise heavy industries. This “creation of assets” was imperative to form basic infrastructure of other industries. But the assumption of a closed economy transformed into “export pessimism”.[1] Private industrialists were reluctant to capitalise on emerging industry due lack of funds and incentives to encourage investment. So, the concentration of power and wealth in the hands of the State manifested the socialistic pattern.

The second five-year plan and the Industrial Policy Resolution of 1956 underpinned the licence raj system.

(a) The categorisation of the industries into three schedules paved the way for the “system of licensing” by the virtue of the Industries Development and Regulation Act (IDRA), 1951. The repercussions of “licence raj” impacted the growth and expansion of private sector and investment as big industrialists juxtaposed with budding or prospective industrials misused the system. On the other hand, the foetus industries bore the brunt of the red-tapism and strict licence compliances with respect to region, capital, expansion and production.

(b) Imports were subjected to high tariff rates and quotas to protect the domestic industries. Foreign Direct Investment (FDI) was allowed on mutually advantageous agreements without any financial participation. It means on one hand; they restricted the participation of the foreign exchange in the national economy. On the other hand, India endeavoured to attract the foreign investments in lieu of capital and technology. For instance, strategic industries like power, oil, petroleum, mining, banking and airlines sought technical and financial assistance from Russia, Germany and the United Kingdom.

However, due to shortage of foreign exchange, the prices rose by 30% with growth at a staggering rate of 4.3%.[2] The bureaucratism and the State capitalism coupled with sheer ignorance of the interplay of market forces curtailed the flow of foreign exchange in India. In addition to it, the public borrowings were pegged at a low rate of interest further restraining the savings.

The focus of the State remained on the mobilisation of savings and investment even at the cost of generation and facilitation of investment. The State behaved as a conservative parent to protect the domestic industry like an infant instead of giving opportunity and incentivising the development in an open economy.

Subsequently, the failure of the third five-year plan led to the devaluation of money and inflationary recession. This ongoing foreign exchange crisis facilitated the liberalisation of FDI in the manufacturing sector to finance the foreign exchange.[3] The private foreign investment showed some increment in 1959. Companies like Cadbury Chocolates, Tube Investments, Reckitt and Coleman, Horlicks, Pfizer, Parke-Davis, Otis Elevator, Coke, Pepsi, Vicks, Nestle, Siemens, Pharmacia, Hoechst, BASF entered India.

However, this brief timeline of FDI inflow had ramifications which subdued private investment in India.

(a) Firstly, local industries bore the brunt of technological development. It failed to keep pace with the budding competitiveness from both foreign industries and domestically sound industries in terms of capital, technology, managerial skills and entrepreneur skills.

(b) Secondly, the concessions and incentives which initially profited and attracted the foreign companies led to the outflow on account of remittances of dividends, profits, royalties and technical fee abroad on account of servicing of FDI.

(c) Thirdly, the oil crisis[4] of 1973 worsened the geo-political scenario and adversely impacted the supply of oil due to rise in the prices from $3 per barrel to $12. The oil crisis severely impacted the balance of payments, ultimately leading to taking immediate action in order to conserve the foreign exchange.

Conservative Approach to Foreign Exchange Mechanism in India

The above panoramic view of the economic regime necessitated the legislation of the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP) and the Foreign Exchange Regulation Act, 1973 (FERA). The objective of FERA was to conserve and regulate the foreign exchange within the country in the backdrop of paucity of foreign exchange. It was to ensure proper utilisation of foreign exchange resources in the economic development of India. It aimed at boosting the capital market by regulating the foreign exchange reserves and placing restrictions on profits of MNC’s and helped local businesses to raise capital.

(a) Clause 29 of FERA restricted the establishment of a place of business and acquisition of undertaking in India subject to the permission of RBI. Ownership was pegged up to 40% which required prior permission for sale and pricing of shares.

The provisions of FERA were implemented according to the regulatory framework by the Department of Industrial Development.

According to the rules by the Ministry of Industry, in order to protect small-scale industries, technical and financial foreign collaboration was not considered where indigenous technology was fully developed. Foreign collaborations were only permitted in highly export oriented or sophisticated technological industries. However, it had to fulfil the export obligations by exporting a certain minimum part of annual turnover.

Foreign equity was allowed up to 74% in industries which complied with 60% of export obligations. On the other hand, firms producing goods using highly sophisticated technology for domestic use up to 75% were allowed to have foreign equity by 74%. Foreign firms were permitted to set up industries in the “core” and “heavy industries” except for industries reserved for the public sector. High priority industries which required highly advanced technology and large investments were given automatic permission with foreign equity allowed up to 51%. The decisions related to payments and foreign exchange vested with the RBI. Permissible range of royalty payments and technology transfer agreements were specified for different industries. Foreign investors were barred in trading and industries dealing with consumer goods.

As a result, the manufacturing sector, particularly chemical and metal-based industries, food and beverages industries attracted the foreign direct investment.

It has been observed that business either follows the law to the letter or leaves the country or negotiates or takes pre-emptive action[5] to comply with the regulatory framework of the foreign ownership. Such reaction is imperative to determine the behavioural changes in international business when the legislative regime becomes regulatory in nature.

(a) In response to the legal regime, big companies such as ITC, Ponds, Colgate-Palmolive diluted their foreign equity through public shares. Coca-Cola and IBM[6] decided to leave the Indian territory because they did not want to disclose the secrets behind their products’ formula.

(b) According to the RBI annual report 1977-1978, around 54 companies out of 841 cases had wound up.[7]

(c) Some companies negotiated with the Government to avoid divestment. The deliberations and tactics made by the business houses rendered the implementation of FERA tardy.

(d) Hindustan Unilever diversified its business by revamping the operations in a  technologically advanced fashion along with increasing exports sales in the 1970’s. On the other hand, the business of ITC which was susceptible to Indianisation due to the nature of its business, diluted equity in order to raise funds for diversification in new product lines and businesses.

The implication of the responses of business is significant to understand how the implementation of FERA deviated from the objective of its formation. FERA failed in restricting the activities of the MNCs in India. Moreover, the decrease in foreign reserves due to dividend payments accounted for only 4% on which restrictions of FERA were imposed while the major account of flow of foreign exchange (85%) was constituted by imports itself.[8]

The regulatory regime in pursuit of conserving the scarce foreign exchange, thus divorced itself from generating funds of investment from external sources. RBI was the sole authority to grant approvals and permissions to the dealers as well as rate of foreign exchange. Any violation would invite a criminal obligation with the offender being at sole mercy of the Enforcement Directorate.

The gap between the intent of FERA and actual implementation manifested the reasons behind the failure of the “regulative” and “prohibitive” legislative framework for FDI in India.

(a) Firstly[9], the foreign companies who were directed to dilute their share of equity to transfer the ownership to Indians became “domestic” enterprises. Such industries were granted licences which gave them an opportunity to diversify and expand. The capital generated from such dilution of equity was used to establish industries in which they were prohibited earlier as “foreign enterprise” displacing the small-scale enterprises.

(b) Secondly[10], the companies diversified and expanded by technological collaborations. So the additional royalty payments, technical fees, raw material import bills led to the outflow of foreign exchange.

(c) Thirdly, the myopic view in the generation of savings for investment by the public sector is the failure of the planning process. Instead, the savings were consumed by the public sector due to which the State had to borrow not only to meet the revenue expenditure but also to finance the deficit and investment.

(d) Fourthly, due to financial repression, the nationalisation of banks and restrictions of the capital market further hindered the growth of the economy.

(e) Fifthly, the reservation of the public sector and domestic industries led to the failure in the development of the domestic industries.

Due to these reasons, the gap between the public revenue and expenditure widened. This led to increased borrowing from IMF (International Monetary Fund) in the form of SAP (structural adjustment program)[11]. The economic and industrial landscape in India shook the international confidence and credit rating. The apparent mismanagement of the public sector and repercussions of FERA led to the liberalisation in industrial and trade policies. The pre-1991 liberalisation was at infancy stage which underpinned the formulation of the New Economic Policy, 1991 (NEP). The disequilibrium of the balance of payments (reduction in foreign exchange reserves) led to the structural reformation known as New Economic Policy, 1991.

FEMA (Foreign Exchange Management Act) as Protagonist of the Economic Liberalisation

NEP, 1991 centered around the reduction of State interference in the economy and delicensing of major industries without any investment limits. On the proposed recommendations of the Tarapore Committee, construction of a proper legislative framework was suggested. According to the recommendations, it was necessary to design a legislative framework compatible with “facilitative” or “liberal” ideas of structural reforms. The financial liberalisation came as a tool to promote and facilitate industrialisation in a mixed economy.

As an outcome, Foreign Exchange Management Act, 1999 (FEMA) was enacted to facilitate external trade and payments and to promote orderly maintenance of foreign exchange market in India. In simpler words, FEMA was enacted to remove the hindrances in the inflow of FDI in India. The role of FEMA was to make the business environment conducive to globalisation and to facilitate the incoming of foreign direct investment in India.[12] It governed the liberal aspect of cross-border transactions in the integration of the economies.

(a) Any violation of FEMA, 1999 now attracted civil liability instead of a criminal one as in FERA, 1973. FERA was portrayed as a draconian act and an impediment to the growth of investments in India.[13] The decriminalisation of FERA was a manifestation of a calibrated approach to make the foreign exchange regulations an effective legislation.[14]

(b) NRI and OCB were given the permission to invest 100% in the high priority areas.

(c) The distinction between the role of RBI and Central Government was made. The power to regulate the provisions of FEMA act vested with the RBI viz. Section 47, FEMA, 1999.

The FDI processes post 1991 were classified into automatic and governmental routes.

(a) The automatic routes allowed up to 51% FDI to the industries provided in Industrial Policy Resolution, 1991 after informing the RBI. Government route provided for Foreign Investment Promotion Board (FIPB). FIPB is a single window clearance mechanism for proposals which are not conventionally permitted under the automatic route. It was an amicable process with speedy and transparent mechanism divorced from the red-tapism to encourage FDI in India.

India’s agreement to the status and obligations of International Monetary Fund (IMF), Article VIII provides: … that members shall not impose or engage in certain measures, namely, restrictions on the making of payments and transfers for current international transactions, discriminatory currency arrangements, or multiple currency practices, without the approval of the Fund.

(a) This opened the gates for the market determination of the foreign exchange rate and paved the way for the current account convertibility in 1993.

(b) Since 1993 significant developments took place such as substantial increase in foreign exchange reserves, growth in foreign trade, rationalisation of tariffs, current account convertibility, liberalisation of Indian investments abroad, increased access to external commercial borrowings by Indian corporates and participation of foreign institutional investors in our stock markets.[15]

(c) At the same time, capital account convertibility (CAC) was not initiated due to the prospective ill-effects of CAC in the backdrop of low foreign exchange reserves and disequilibrium in the balance of payments in India.

(d) Adding to the miseries of the Indian economics, the crisis of Mexican and East Asia in 1997 hampered the capital inflow in a liberal capital market. It highlighted the significance of the capacity of the developing economy to prudentially regulate the capital inflow. The newly liberalised economy of India was thus cautioned by the repercussions arising out of the reversed capital inflow.[16]

(e) Consequently, the liberalisation of the capital accounts were effectuated cautiously. They realised the obligations of IMF were not to be construed mechanically, instead, must be subject to certain amount of control and procedural regulations.[17]

Foreign direct investments in India are regulated by Section 6(3)(b) and Section 47 of FEMA, 1999 read with Foreign Exchange Management (Transfer or Issue of a Security by a Person Resident Outside India) Regulations, 2000.

The enactment of FEMA was a tool of the phased liberalisation after 1999 to facilitate convertibility of the capital account transactions. Unlike its predecessor, FEMA did not put an umbrella prohibition on the inflow current account and capital account transactions. Instead, it facilitated the inflow of foreign capital and investments, except some reasonable restrictions in the interest of the public view. Capital account transactions, although liberalised to a certain extent, were regulated by RBI to limit the class of transactions which are to be permitted governed by the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000.

By the virtue of Section 2 of FEMA, the transactions which are explicitly permitted by the RBI in consultation with the Central Government are allowed except:

(a) transactions involving debt instruments; and

(b) durawall of foreign exchange for payments due on account of amortisation of loans or not depreciation of direct investments in the ordinary course of business.


It can be concluded that the transformation in the legislative regulatory framework from a socialist economy to mixed economy is a “gradualist” approach. The systematic structural reform was fundamental in the growth dynamics of capital inflow in India. The amalgamation of the private and public sector had a colossal implication on the investment climate. The participation in the financial globalisation accelerated growth by developing a competitive environment.

The de jure status of FEMA facilitated the robust inflow of investment in the period of economic liberalisation. The enactment of FEMA divorced itself from the conventional skepticism of socialist economy and robustly complemented the macromanagement of foreign exchange flow.

The transition from FERA to FEMA was a fundamental key to create the accessibility to the Indian market for foreign investors. The dawn of FEMA not only succeeded in facilitating the FDI but also generated ample opportunities of economic growth and development.

*Bhumesh Verma is Managing Partner at Corp Comm Legal and can be contacted at **Namrata Singhal, Third year BBA LLB student, Student Researcher and can be contacted at

[1]      Jalal Alamgir, India’s Open-Economy Policy: Globalism, Rivalry, Continuity.

[2]      <>.

[3]      Nagesh Kumar, Liberalisation and Changing Patterns of Foreign Direct Investments: Has India’s Relative Attractiveness as a Host of FDI Improved? Economic and Political Weekly, Vol. 33, No. 22 (30-5-1998 – 5-6-1998).

[4]      <>.

[5]      Dennis J. Encarnacion and Sushil Vachani, Foreign Ownership: When Hosts Change the Rules, Harvard Business Review, September 1985.

[6]      <>.

[7]      Sudip Chaudhuri, FERA: Appearance and Reality, Economic and Political Weekly Vol. 14, No. 16 (21-4-1979).

[8]      K.S. Chalapati Rao, M.R. Murthy and K.V.K. Ranganathan, Foreign Direct Investments in the post-liberalisation period: An Overview, Institute for Studies in Industrial Development, September 1999.

[9]      Yvonne Miller, India’s Regulation of Direct Foreign Investment: Article 29 of the 1973 Foreign Exchange Regulation Act, Boston College Third World Law Journal, January 1981.

[10]    Sudip Chaudhuri, FERA: Appearance and Reality, Economic and Political Weekly Vol. 14, No. 16 (21-4-1979).

[11]    Davinder Kumar Madaan, India’s New Economic Policy – A Macro Study, Indian Journal of Asian Affairs Vols. 8/9, Nos. 1/2 (1995-1996).

[12]    B.B. Tandon and A.K. Vashisht, Financial Sector Reforms: An Unfinished Agenda for Economic Development, 2002.

[13]    Shaji Vikraman, Express Economic History Series- 3: How “Draconian” FERA Clause Triggered Flush of Retail Investors, The Indian Express, 5-4-2017.

[14]    Bharat Vasani, Decriminalising our Company Law—Has the Pendulum Moved Too Far? India Corporate Law, A Cyril Amarchand Mangaldas Blog 5-12-2019.

[15]    K.A. Manshoor v. Govt. of India, 2009 SCC OnLine Mad 1839.

[16]    Revisiting Capital Account Convertibility in the Aftermath of the Currency Crises, Neil Dias Karunaratne, Intereconomics, October 2001.

[17]    Yaga Venugopal Reddy, Governor of the Reserve Bank of India, Point of View: Converting a Tiger, Finance and Development, March 2007, Vol. 44,
No. 1.

Op EdsOP. ED.


1. Part II of the Arbitration and Conciliation Act, 1996[1] (“the Act”) defines a foreign award and provides the manner/mode for the execution of a foreign award. Depending on the Convention and the framework agreed upon, foreign awards are separately defined under  Section 44 and Section 53, both of which are dealt with under Chapter I and Chapter II of Part II of the Act.

2. As per Section 44, (which is governed under the New York Convention[2]) foreign award is defined as follows:

“44. Definition.– In this Chapter, unless the context otherwise requires, “foreign award” means an award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law force in India, made on or after the 11th day of October, 1960 –

(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies.”

3. As per Section 53, (which is governed under the Geneva Convention) foreign award is defined as follows:

53. Interpretation.— In this Chapter “foreign award” means an arbitral award on differences relating to matters considered as commercial under the law in force in India made after the 28th day of July, 1924,—

(a) in pursuance of an agreement for arbitration to which the Protocol set forth in the Second Schedule applies, and

(b) between persons of whom one is subject to the jurisdiction of some one of such powers as the Central Government, being satisfied that reciprocal provisions have been made, may, by notification in the Official Gazette, declare to be parties to the Convention set forth in the Third Schedule, and of whom the other is subject to the jurisdiction of some other of the Powers aforesaid, and

(c) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made, may, by like notification, declare to be territories to which the said Convention applies, and for the purposes of this Chapter an award shall not be deemed to be final if any proceedings for the purpose of contesting the validity of the award are pending in the country in which it was made….”

4. According to Section 44 of Chapter I of the Act, a foreign award means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after 11th October, 1960 in pursuance of an agreement in writing for arbitration. The award has to be passed in one such territory with which India has a reciprocal treaty. Similar conditions are specified under Section 53 for the Geneva Convention Awards. The said Awards can be executed as if it was a decree passed by the civil court of original jurisdiction in India as envisaged under Section 36 of the Act. For execution of the award the format laid down in Order 21 Rule 11 (2) of the Code of Civil Procedure, 1908 for execution of decree is required to be followed.

5. Section 48 of the Act lays down conditions for the enforcement of foreign award. Section 48 of the Act reads as follows:

48. Conditions for enforcement of foreign awards.—(1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that—

(a) the parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or

(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(e) the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

(2) Enforcement of an arbitral award may also be refused if the court finds that—

(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or

(b) the enforcement of the award would be contrary to the public policy of India.

Explanation 1.– For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,–

(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2. — For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

(3) If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the Court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also , on the application of the party claiming enforcement of the award, order the other party to give suitable security.”

6. The grounds mentioned in Section 48 are watertight i.e. no grounds outside Section 48 can be looked at. The enforcement of a foreign award under Section 48 of the Act may be refused only if the party resisting enforcement furnishes to the Court proof that any of the stated grounds has been made out to resist enforcement. The grounds for resisting enforcement of foreign award under Section 48 may be classified into three grounds – (i) grounds which affect the jurisdiction of the arbitration proceedings; (ii) grounds which affect party interest alone; and (iii) grounds which go to the public policy of India, as explained by Explanation to Section 48(2).

7. Through the present article, the author has analysed/discussed the ruling of the Supreme Court in  Vijay Karia  v. Prysmain Cavi E Sistemi SRL[3] , wherein the Court has discussed/dealt with the enforcement of foreign award under Section 48 of the Act.


8. The brief facts of this case are as follows:

8.1 Appellant 1 i.e. Vijay Karia and Appellants 2 to 39 (who are represented by Appellant 1) (collectively referred to as “the appellants”) were non-cooperative shareholders of Ravin Cables Ltd. (“Ravin”). On January 19, 2010, the appellants and Ravin entered into a Joint Venture Agreement with Respondent 1 i.e. Prysmian Cavi E Sistermi SRL (“Respondent 1) (a company registered under the laws of Italy). By virtue of the JVA, Respondent 1 acquired a majority shareholding of Ravin’s share capital. Clause 27 of the JVA provided for dispute resolution, under which any dispute arising under the agreement, would be settled exclusively under the Rules of Arbitration of the London Court of International Arbitration (“LCIA”) and the seat of the Arbitration shall be London, United Kingdom.

8.2 On the same day, under a separate ‘Control Premium Agreement’ Respondent 1 (claimant in the arbitration) paid substantial consideration to the appellant (respondent in the arbitration) as ‘control premium’ towards the acquisition of the share capital of Ravin. As per the terms of the JVA, until the expiry of the integration period, Ravin was to be jointly managed by the CEO & Managing Director and after the efflux of the integration period, Managing Director was solely responsible for managing Ravin. However, during the integration period the existing CEO (earlier appointed by Respondent 1) was removed and replaced by the Board of Directors (at the instance of the appellants). Thereafter, the appellants’ directors opposed the appointment of a CFO whose appointment was assented to by Respondent 1. The interference in the management and control of Ravin led to disputes between the parties.

8.3 As a result, in February 2012, Respondent 1  invoked arbitration proceedings against the appellants, alleging that there have been material breaches committed under the JVA. As a result, the LCIA appointed a sole arbitrator to adjudicate the disputes between the parties. The parties filed their respective claims/counter-claims before the  sole arbitrator.

8.4 Considering the various issues were raised by the respective parties at different stages, the  sole arbitrator passed three (3) Interim arbitral awards and one (1) final arbitral award. After considering the facts and the pleadings, the  sole arbitrator passed the final arbitral award in favour of  Respondent 1 (claimant in the arbitration) and rejected the counter-claims of the appellants. The Arbitral Tribunal allowed all the reliefs sought by Respondent 1 and directed the appellants to transfer 10,252,275 shares held by them to  Respondent 1. The appellants were further directed to reimburse the legal costs of the arbitration as determined by the LCIA Court.

8.5 The final award was never assailed by the appellants before the English Courts and only when the award-holder brought the arbitral award to India for the purpose of its enforcement, the appellants raised certain objections under Section 48 of the Act. The  Single Judge of the  Bombay High Court after dealing with the objections raised by the appellants, stated that the final arbitral award must be recognised and enforced, and the objections raised by the appellants do not fall under the pigeonholes contained in Section 48 of the Act. Since Section 50 of the Act, does not provide an appeal when a foreign award is recognised and enforced by a judgment of a  Single Judge of a High Court, the appellants filed an appeal before the Supreme Court under Section 136 of the Constitution of India.


9. The appellants’ contentions can be categorised broadly into the three ‘pigeonhole’ grounds (para 25) viz. 

(i) that the party was unable to present its case before the Tribunal,

(ii) that the Tribunal failed to deal with the contentions raised by the appellants [under Section 48(1)(b)],

(iii) that the foreign award is against the public policy of India [under Section 48(2)(b)] in two respects viz. (a) that it would be in contravention to the fundamental policy of Indian law; and (b) that it would violate the most basic notions of justice.

10. The issues raised by the appellants were dealt/answered by the Supreme Court as follows –

I. Exercise of power under Article 136 while dealing with an order enforcing the foreign award (para 24):

i Section 37 of the Arbitration Act, which is contained in Part I of the said Act, provides an appeal against either setting aside or refusing to set aside a ‘domestic’ arbitration award. The legislative policy so far as recognition and enforcement of ‘foreign’ arbitration awards is that an appeal is provided against a judgment refusing to recognise and enforce a foreign award. The Act does not provide for an appeal against an order recognising and enforcing an award.

ii This is because the policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award on the extremely narrow grounds contained in Section 48 of the Act and which have been rejected. This is in consonance with the fact that India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“the New York Convention”) and intends – through this legislation – to ensure that a person who belongs to a Convention country, and who, in most cases, has gone through a challenge procedure to the said award in the country of its origin, must then be able to get such award recognised and enforced in India as soon as possible.

iii Bearing this in mind, it is important to remember that the Supreme Court’s jurisdiction under Article 136 should not be used to circumvent the legislative policy so contained. The Court should be very slow in interfering with such judgments, and should entertain an appeal only with a view to settle the law if some new or unique point is raised which has not been answered by the Supreme Court before, so that the Supreme Court judgment may then be used to guide the course of future litigation in this regard. Also, it would only be in a very exceptional case of a blatant disregard of Section 48 of the Arbitration Act that the Supreme Court would interfere with a judgment which recognises and enforces a foreign award however, inelegantly drafted the judgment may be.

II. Public policy post 2015 Amendment (paras 37- 40):

i. By the 2015 Amendment Act[4], Section 48 was amended to delete the ground of “contrary to the interest of India”. Also, what was important was to reiterate Renusagar Power Co. Ltd. v. General Electric Co.[5] position, that the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute [vide Explanation 2 to Section 48(2)].

ii. It will be noticed that in the context of challenge to domestic awards, Section 34 of the Arbitration Act differentiates between international commercial arbitrations held in India and other arbitrations held in India. So far as “the public policy of India” ground is concerned, both Sections 34 and 48 are now identical, so that in an international commercial arbitration conducted in India, the ground of challenge relating to “public policy of India” would be the same as the ground of resisting enforcement of a foreign award in India.

iii. Why it is important to advert to this feature of the 2015 Amendment Act is that all grounds relating to patent illegality appearing on the face of the award are outside the scope of interference with international commercial arbitration awards made in India and foreign awards whose enforcement is resisted in India[6]. This statement of the law applies equally to Section 48 of the Arbitration Act.

iv. Indeed, this approach has commended itself in other jurisdictions as well. Thus, in Sui Southern Gas Co. Ltd. v. Habibullah Coastal Power Co.[7], the Singapore High Court, after setting out the legislative policy of the Model Law that the ‘public policy’ exception is to be narrowly viewed and that an arbitral award that shocks the conscience alone would be set aside.

III. Pro-enforcement Bias (para 47):

i.  US cases show that given the “pro-enforcement bias” of the New York Convention, which has been adopted in Section 48 of the Arbitration Act, 1996 – the burden of proof on parties seeking enforcement has now been placed on parties objecting to enforcement. In the guise of public policy of the country involved, foreign awards cannot be set aside by second guessing the arbitrator’s interpretation of the agreement of the parties; the challenge procedure in the primary jurisdiction gives more leeway to the Courts to interfere with an award than the narrow restrictive grounds contained in the New York Convention when a foreign award’s enforcement is resisted.

IV. Discretion of the Court to enforce foreign awards (paras 48, 49, 50, 52, 55, 56):

i. Enforcement of a foreign award under Section 48 of the Arbitration Act may be refused only if the party resisting enforcement furnishes to the Court proof that any of the stated grounds has been made out to resist enforcement. The said grounds are watertight – no ground outside Section 48 can be looked at. Also, the expression used in Section 48 is “may”.

ii. When the grounds for resisting enforcement of a foreign award under Section 48 are seen, they may be classified into three groups – (i) grounds which affect the jurisdiction of the arbitration proceedings; (ii) grounds which affect party interest alone; and (iii) grounds which go to the public policy of India, as explained by Explanation 1 to Section 48(2).

iii. Where a ground to resist enforcement is made out, by which the very jurisdiction of the tribunal is questioned – such as the arbitration agreement itself not being valid under the law to which the parties have subjected it, or where the subject-matter of difference is not capable of settlement by arbitration under the law of India, it is obvious that there can be no discretion in these matters. Enforcement of a foreign award made without jurisdiction cannot possibly be weighed in the scales for a discretion to be exercised to enforce such award if the scales are tilted in its favour. In simpler words, if an objection made to the jurisdiction of the Arbitral Tribunal, and the parties are able to satisfy that the award was made without the Arbitral Tribunal having jurisdiction, then the Courts have said that they will not exercise its discretion to enforce an award.

iv. On the other hand, where the grounds taken to resist enforcement can be said to be linked to party interest alone, for example, that a party has been unable to present its case before the arbitrator, and which ground is capable of waiver or abandonment, or, the ground being made out, no prejudice has been caused to the party on such ground being made out, a Court may well enforce a foreign award, even if such ground is made out.

v. When it comes to the “public policy of India” ground, again, there would be no discretion in enforcing an award which is induced by fraud or corruption, or which violates the fundamental policy of Indian Law, or is in conflict with the most basic notions of morality or justice.

vi. The expression “may” in Section 48 can, depending upon the context, mean “shall” or as connoting that a residual discretion remains in the Court to enforce a foreign award, despite grounds for its resistance having been made out. What is clear is that the width of this discretion is limited to the circumstances pointed out herein above, in which case a balancing act may be performed by the Court while enforcing a foreign award “or was otherwise unable to present his case”, natural justice under Section 48 and failure to determine a material issue would fall under public policy (para 84).

vii. The expression “was otherwise unable to present his case” occurring in Section 48(1)(b) cannot be given an expansive meaning and would have to be read in the context and colour of the words preceding the said phrase. In short, this expression would be a facet of natural justice, which would be breached only if a fair hearing was not given by the arbitrator to the parties. Read along with the first part of Section 48(1)(b), it is clear that this expression would apply at the hearing stage and not after the award has been delivered, as has been held in Ssangyong[8] (supra).

viii. A good working test for determining whether a party has been unable to present his case is to see whether the factors outside the party’s control have combined to deny the party a fair hearing. Thus, where no opportunity was given to deal with an argument which goes to the root of the case or findings based on evidence which go behind the back of the party and which results in a denial of justice to the prejudice of the party; or additional or new evidence is taken which forms the basis of the award on which a party has been given no opportunity of rebuttal, would, on the facts of a given case, render a foreign award liable to be set aside on the ground that a party has been unable to present his case. This must, of course, be with the caveat that such breach be clearly made out on the facts of a given case, and that awards must always be read supportively with an inclination to uphold rather than destroy, given the minimal interference possible with foreign awards under Section 48.

ix. If a foreign award fails to determine a material issue which goes to the root of the matter or fails to decide a claim or counter-claim in its entirety, the award may shock the conscience of the Court and may be set aside, as was done by the Delhi High Court in Campos Brothers Farm v. Matru Bhumi Supply Chain Pvt. Ltd.[9] on the ground of violation of the public policy of India, in that it would then offend a most basic notion of justice in this country.

x. It must always be remembered that poor reasoning, by which a material issue or claim is rejected, can never fall in this class of cases. Also, issues that the tribunal considered essential and has addressed must be given their due weight – it often happens that the tribunal considers a particular issue as essential and answers it, which by implication would mean that the other issue or issues raised have been implicitly rejected.

xi. For example, two parties may both allege that the other is in breach. A finding that one party is in breach, without expressly stating that the other party is not in breach, would amount to a decision on both a claim and a counterclaim, as to which party is in breach. Similarly, after hearing the parties, a certain sum may be awarded as damages and an issue as to interest may not be answered at all. This again may, on the facts of a given case, amount to an implied rejection of the claim for interest.

xii. The most important point to be considered is that the foreign award must be read as a whole, fairly, and without nit-picking. If read as a whole, the said award has addressed the basic issues raised by the parties and has, in substance, decided the claims and counterclaims of the parties, enforcement must follow.

V. Violation of FEMA Rules and fundamental policy of Indian Law (paras 91, 93):

i. Based on the Non-Debt Instrument Rules[10], it was argued that that the transfer of shares from the Karias (appellants), who are persons resident in India, to  Respondent 1, who is a person resident outside India, cannot be less than the valuation of such shares as done by a duly certified Chartered Accountant, Merchant Banker or Cost Accountant, and, as the sale of such shares at a discount of 10% would violate Rule 21(2)(b)(iii), the fundamental policy of Indian Law contained in the aforesaid Rules would be breached; as a result of which the award cannot be enforced.

ii. The Supreme Court upheld the Delhi High Court judgment in Cruz City Mauritius Holdings v. Unitech Limited[11], wherein the Delhi High Court held that a contravention of a provision of law is insufficient to invoke the defence of public policy when it comes to enforcement of a foreign award. Contravention of any provision of an enactment is not synonymous to contravention of fundamental policy of Indian Law. The expression fundamental policy of Indian Law refers to the principles and the legislative policy on which Indian statutes and laws are founded. The expression “fundamental policy” connotes the basic and substratal rationale, values and principles which form the bedrock of laws in our country. The objections to enforcement on the ground of public policy must be such that offend the core values of a member State’s national policy and which it cannot be expected to compromise. The expression “fundamental policy of law” must be interpreted in that perspective and must mean only the fundamental and substratal legislative policy, not a provision of any enactment. The contention that enforcement of the award against Unitech must be refused on the ground that it violates any one or the other provision of FEMA, cannot be accepted; but, any remittance of the money recovered from Unitech in enforcement of the award would necessarily require compliance of regulatory provisions and/or permissions.

iii. The Supreme Court held (paras 91 and 93) that first and foremost, FEMA – unlike FERA – refers to the nation’s policy of managing foreign exchange instead of policing foreign exchange, the policeman being  Reserve Bank of India under FERA. It is important to remember that Section 47 of FERA no longer exists in FEMA, so that transactions that violate FEMA cannot be held to be void. Also, if a particular act violates any provision of FEMA or the Rules framed thereunder, permission of Reserve Bank of India may be obtained post-facto if such violation can be condoned.

iv. Neither the award, nor the agreement being enforced by the award, can, therefore, be held to be of no effect in law. This being the case, a rectifiable breach under FEMA can never be held to be a violation of the fundamental policy of Indian Law. Even assuming that Rule 21 of the Non-Debt Instrument Rules requires that the shares be sold by a resident of India to a non-resident at a sum which shall not be less than the market value of the shares, and a foreign award directs that such shares be sold at a sum less than the market value,  Reserve Bank of India may choose to step in and direct that the aforesaid shares be sold only at the market value and not at the discounted value, or may choose to condone such breach.

v. Further, even if Reserve Bank of India were to take action under FEMA, the non-enforcement of a foreign award on the ground of violation of   FEMA Regulations or Rules would not arise as the award does not become void on that count.

vi. The fundamental policy of Indian Law, as has been held in Renusagar [12](supra), must amount to a breach of some legal principle or legislation which is so basic to Indian Law that it is not susceptible of being compromised. “Fundamental Policy” refers to the core values of India’s public policy as a nation, which may find expression not only in statutes but also time-honoured, hallowed principles which are followed by the Courts. Judged from this point of view, it is clear that resistance to the enforcement of a foreign award cannot be made on this ground.


11. After considering the facts and pleading, the Supreme Court confirmed the ruling of the sole arbitrator and dismissed the appeals with heavy costs. The Court stated that their jurisdiction under Article 136 of the Constitution is very limited.

12. On a conjoint reading of the objective of Article V of the New York Convention along with the objectives of the Act, the Supreme Court through the present judgment, has ironed the wrinkles under Section 48 of the Act. The Supreme Court took a holistic view by not just limiting its scope of enquiry to the Indian judgments but has also relied on judgments of various other jurisdictions to arrive at a global consensus on various issues involved in challenging the enforcement of a foreign award. The Supreme Court has adopted a balanced approach while dealing with the scope of judicial interference at the time of enforcement of foreign award and exercising its jurisdiction under Article 136 of the Constitution.

*Alumni (2012-2017) of Government Law College, Mumbai, practicing Advocate at High Court at Mumbai and maybe reached out The views expressed herein are personal and do not represent views of any organisation. 

[1] Arbitration and Conciliation Act, 1996 

[2] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)

[3] 2020 SCC OnLine SC 177  

[4] Arbitration and Conciliation (Amendment) Act, 2015 

[5] 1994 Supp (1) SCC 644

[6] Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131 (paras 30 & 43)

[7] [2010] 3 SLR 1 : (2010) SGHC 62

[8] (2019) 15 SCC 131

[9] 2019 SCC OnLine Del 8350

[10] Foreign Exchange Management (Non-debt Instruments) Rules, 2019 

[11] 2017 SCC OnLine Del 7810  

[12] 1994 Supp (1) SCC 644

Case BriefsSupreme Court

Supreme Court: The bench of AM Sapre and Indira Banerjee, JJ has held that the appellate forum for deciding the appeals arising out of the order passed by the Adjudicating Officer under Section 51 of Foreign Exchange Regulation Act, 1973 (FERA) whether filed prior to 01.06.2000 or filed after 01.06.2000 must be the same, i.e., Appellate Tribunal under Foreign Exchange Management Act, 1999 (FEMA)

Going into the legislative intent behind Section 49 (5)(b) of FEMA, that deals with repeal and saving in relation to the action taken and to be taken under FERA, 1973, the Court noticed that the legislature has equated the Appellate Board constituted under FERA with the Appellate Tribunal constituted under FEMA for disposal of the appeals filed under Section 52(2) of FERA against an order passed under Section 51 of FERA which were   pending   before   the   Appellate   Board   which was dissolved on 01.06.2000.  Such appeals stood transferred from the Appellate Board to the Appellate Tribunal for their disposal in accordance with law.

The Court noticed that the Special Director (Appeals) is subordinate in hierarchy to the Appellate Tribunal prescribed under Section 49(5)(2) of FEMA and hence, said that if the argument that the appellate forum in this case for filing appeal is ­ “Special Director (Appeals)” and not the “Appellate Tribunal” under FEMA is accepted, then it will result in anomalous situations which will again be incongruous. The Court explained:

“the orders passed by the Appellate Tribunal in the appeals, which stood transferred to the Appellate Tribunal by virtue of Section 49 (5)(b), are appealable to the High Court under Section 35 of FEMA whereas the orders passed by the Special Director (Appeals) in the   appeals   filed   after   01.06.2000 are not appealable to the High Court under Section 35 of FEMA. So, against the same order, one appellant has a right of appeal to the High Court but the other appellant has no such right of appeal because he suffered   dismissal   of his appeal from Special Director (Appeals) against whose order appeal does not lie under Section 35 to the High Court.”

It was, hence, held that it was not possible to hold that one appeal would be maintainable before the Appellate Tribunal and the other appeal arising out of similar order would be maintainable before the Special Director (Appeals),  who is subordinate in hierarchy to the Appellate Board.  [Union of India v. Premier Ltd., 2019 SCC OnLine SC 95, decided on 29.01.2019]