Summary: The old question of whether RBI approval is required for payment of damages under FEMA has been recently re-looked at in two recent decisions of the Supreme Court arising from decisions of the Madras High Court and the Delhi High Court. We consider these cases as well as the jurisprudence leading up to them to comment on the issue.  

Introduction

Recent judgments by various High Courts and the Supreme Court have brought back focus on the old question surrounding the interpretation of the Foreign Exchange Management Act, 1999 (“FEMA”), about whether remittance of damages/compensation from residents to non-resident requires RBI approval.

Since the issue involves the heady mix of contractual provisions, public policy, and foreign exchange management, these judgments and their implications on contract enforcement need consideration.

In the simplest of terms, India is not freely capital-account convertible and as such a capital account transaction, “which alters the assets or liabilities… outside India, of persons resident in India or assets or liabilities in India of persons resident outside India”,[1] is prohibited unless expressly permitted, whereas a current account transaction, or any transaction other than a capital account transaction, is permitted unless expressly prohibited.[2]

In the context of contractual remedies, the critical question is whether damage payments constitute current account transactions, or if RBI approval is required before remittance.

The issue surfaced in NTT Docomo Inc. v. Tata Sons Limited(“Docomo”), where the Court held that the RBI could not step in and impose conditions in an outbound payment of damages.[3] While this position implied that such a payment was a current account transaction, the court didn’t go into the question of whether the payment of damages to the claimant was a capital or a current account transaction, specifically in the context of a foreign arbitral award for breach of a put option agreement. In this case, larger macroeconomic considerations, such as Indo-Japanese trade ties, likely weighed on the decision.

This debate has revived following recent judgments, where courts directed parties to take appropriate RBI approval before remitting the damages payments granted under their foreign arbitral awards, which we consider below.

The Cases That Followed

Cruz City 1 Mauritius Holdings v. Unitech Limited

Merely a fortnight before Docomo, in Cruz City 1 Mauritius Holdings v. Unitech Limited,[4] the Delhi High Court enforced a foreign arbitral award ordering transfer of securities and related consideration pursuant to a put option agreement. While characterising the payment as damages for breach, the Court held that remittance would be subject to regulatory compliance and RBI permissions. Subsequent judgements have followed this reasoning.

Vijay Karia v. Prysmian Cavi E Sistemi Srl

In 2020, in Vijay Karia and Ors. Vs. Prysmian Cavi E Sistemi Srl and Ors.[5] (“Vijay Karia”), the Supreme Court observed that enforcement is possible even if a foreign award directs share sales violating FEMA pricing guidelines, but RBI may intervene at the remittance stage to require market value pricing or condone the breach. The Court noted:

“Even assuming that Rule 21 of the Non-Debt Instrument Rules requires that 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, the 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.”[6]

This clarified that (a) RBI may exercise approval powers post-award enforcement; and (b) such powers extend to imposing conditions on the price payable under the award to ensure FEMA compliance.

Banyan Tree Growth Capital L.L.C. v. Axiom Cordages Limited

Soon after, in Banyan Tree Growth Capital L.L.C. v. Axiom Cordages Limited.,[7] the Bombay High Court ruled that while remittance of damages under an arbitral award may require RBI approval, it does not imply enforcement should be refused. The Court noted:

“It certainly cannot be accepted as a legal proposition that the provisions of FEMA or the regulations made there under would invalidate or render void a contract like the put option deed. In the facts of the present case, it may concern Banyan Tree when it remits the award money outside India, which Banyan Tree intends to comply, however this would not mean that merely as some future permissions, may be required to be obtained by Banyan tree under FEMA, it should be held that the enforcement of the foreign award should be refused.”[8]

This sanctified the Court’s recognition of enforcement of awards while acknowledging that payments may warrant RBI approval.

Recent Supreme Court Orders

GPE (India) Ltd. v. Twarit Consultancy Services Private Limited

In August 2025, the Supreme Court heard an appeal[9] against the Madras High Court’s enforcement of a foreign arbitration award granting damages for violation of a put option agreement in GPE (India) Ltd. and Ors. Vs. Twarit Consultancy Services Private Limited and Ors.[10] (“GPE (India)”). The High Court had relied on Vijay Karia to enforce the award, stating that mere violation of FEMA did not amount to a breach of India’s public policy, but observed that the damages payment constituted remittance of consideration on sale of shares, which made it a capital account transaction requiring RBI approval. The court noted:

“Given that FEMA is a statute aimed at regulating foreign exchange, in my view, the receipt of damages equivalent to the entire unpaid sale consideration of INR 195 crore pursuant to the Foreign Award for breach of contracts to buy shares at an aggregate sum of INR 200 crore, when the market value of the shares at the time of breach was zero, requires the prior approval of RBI.”[11]

On appeal, the Supreme Court requested an RBI affidavit on whether approval was required. After the RBI submitted that compensatory damages payment not involving equity instrument transfer was a current account transaction that requires no approval, it upheld the enforcement.

Nine Rivers Capital Ltd. v. Gokul Patnaik

In September 2025, soon after the GPE (India)order, the same Supreme Court bench in Nine Rivers Capital Limited v. Gokul Patnaik[12](“Nine Rivers Capital”)addressed enforcement of an arbitral award granting specific performance of a put option agreement, rather than damages for breach. The Delhi High Court had previously held that FEMA did not render the award void under public policy and that regulatory approval for remittance was a procedural issue not invalidating the award.[13] The Supreme Court has presently requested an RBI affidavit on approval requirements, with the matter listed for December 2025.

Implications

These judgments have laid down the following key principles:

• There is a distinction between accrual of liability to pay arising from a contract and the procedure required for remitting such payment, which is regulated by FEMA.[14] Mere non-compliance with FEMA does not constitute a violation of India’s public policy that could render an arbitral award liable to be set aside.

• RBI approval for remittance may be required post-enforcement of an award. However, this is procedural and shall not interfere with the substantive entitlements/obligations of parties under the contract or the enforcement of the award itself.

• Post-enforcement approval may also involve imposition of a condition on the price of the securities to be transferred to ensure compliance with FEMA.[15]

Unresolved Issues: Nevertheless, the following remaining issues require regulatory guidance:

• The courts and the RBI have not differentiated between outbound payments arising from capital account transactions (requiring permission) and current account transactions (which are not prohibited).

• Differential treatment is necessary for enforcement procedures involving awards directing damages payments under current account transactions.

Recommendations for RBI and Foreign Investors

• The RBI must ensure formal regulatory clarity on the exemption available for payment of damages arising from current account transactions.

• Similarly, for payment of damages arising from capital account transactions, regulatory prescription must be accompanied by clear, fast-tracked approval mechanisms to enhance enforcement certainty and foreign investor confidence in cross-border transactions with Indian parties.

• Despite RBI restrictions on remittance of damages under capital account obligations, foreign investors may safeguard their contractual entitlements through FEMA-compliant structures, such as classifying the damages payment as current account transactions or identifying resident affiliates to whom damages payments can be made.

The December 2025 order in Nine Rivers Capital may provide much-needed clarity on these unresolved issues, potentially enabling investors to recover awarded sums without navigating painful enforcement hurdles on frivolous grounds such as FEMA non-compliance. Clear regulatory guidance may, hopefully, emerge from RBI’s affidavit and submissions. Distinguishing current from capital account transactions would restore investor confidence and ensure that successful claimants can realise their money – the fundamental premise of any arbitral award.  

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[1] Section 2(1)(e) read with Section 6 of the Foreign Exchange Management Act, 1999.

[2] Section 2(1)(j) read with Section 5 of the Foreign Exchange Management Act, 1999.

[3] Para 50 of NTT Docomo Inc. v. Tata Sons Limited MANU/DE/1164/2017.

[4] Cruz City 1 Mauritius Holdings Vs. Unitech Limited MANU/DE/0965/2017.

[5] Vijay Karia and Ors. Vs. Prysmian Cavi E Sistemi Srl and Ors. MANU/SC/0171/2020.

[6] Paragraph 83 of Vijay Karia and Ors. Vs. Prysmian Cavi E Sistemi Srl and Ors. MANU/SC/0171/2020. 

[7] Banyan Tree Growth Capital L.L.C. Vs. Axiom Cordages Limited and Ors. MANU/MH/0552/2020.

[8] Paragraph 88 of Banyan Tree Growth Capital L.L.C. Vs. Axiom Cordages Limited and Ors. MANU/MH/0552/2020.  

[9] Supreme Court order dated August 26, 2025 in Special Leave to Appeal (C) No. 6856/2023.

[10] GPE (India) Ltd. and Ors. vs. Twarit Consultancy Services Private Limited and Ors. MANU/TN/0041/2023.

[11] Paragraph 41 of GPE (India) Ltd. and Ors. vs. Twarit Consultancy Services Private Limited and Ors. MANU/TN/0041/2023.

[12] Supreme Court order dated September 25, 2025, in Special Leave to Appeal (C) No. 21109/2025.

[13] Nine Rivers Capital Ltd. v. Gokul Patnaik and Anr. MANU/DE/3102/2025.

[14] Commissioner of Income Tax Vs. Super Scientific Clock Co. (1999) 154 CTR (Guj) 424: Commenting on the earlier Foreign Exchange Regulation Act, 1973, the Gujarat HC observed that provisions of the FERA had nothing to do with the accrual of liability for an outbound payment for technical know-how, which arose under terms of the contract independent of the provisions of the FERA.

[15] Paragraph 83 of Vijay Karia and Ors. Vs. Prysmian Cavi E Sistemi Srl and Ors. MANU/SC/0171/2020.