The Karnataka High Court has upheld the Enforcement Directorate’s (ED) move to seize the property of Genpact India’s head office in Gurugram. However, it set aside the agency’s rejection of the company’s application for a No Objection Certificate (NOC) for a proposed $100 million investment in GIFT City.
In an order dated September 16, the court said the ED can seize the property but the seizure of the head-office shall not prevent Genpact from continuing its lawful business operations from the premises.
The case relates to a series of transactions involving loans granted by Morgan Stanley worth $737.5 million to Genpact entities in Bermuda, Luxembourg, and Singapore more than a decade ago.
The ED alleged that the transactions were interconnected steps in an arrangement through which funds moved into India and were subsequently transferred back to an overseas Genpact entity.
It also said this round-tripping of funds started from the lender to Genpact entities in Bermuda and Luxembourg, Empower India against subscription to non-convertible debentures (NCD), Headstrong Singapore towards acquisition of shares, Genpact Bermuda, and finally back to Morgan Stanley.
The ED also alleged that between 2018 and 2023, about ₹7,800 crore was paid by Genpact India to Genpact Luxembourg towards repayment of the NCD principal and interest. “The consequence of the arrangement was the eventual movement of substantial amounts of the free reserves of the Indian company to the foreign group entity, thus foreign exchange,” the ED said.
Genpact, however, argued that that the transactions formed part of a business reorganisation and did not constitute round-tripping. It also argued the seizure of its head office was disproportionate to the objectives ED wanted to achieve.
The company did not immediately respond to a request for comment.
The High Court said the transactions cannot, at this stage, be viewed only as isolated borrowings, share acquisitions, or an independent NCD investment. “The connected sequence of transactions, the movement of funds, the immediate onward transfer of the NCD proceeds, the financial position of Empower India and the subsequent discharge of the NCD liability provide sufficient material for the exercise of jurisdiction under Section 37A,” it observed.
The High Court also said Section 37A of Foreign Exchange Management Act (Fema) permits seizure of the property representing the value of the alleged contravention and that Genpact has not been able to prove that the property’s value is disproportionate to that contravention.
The court, however, said the seizure will not prevent the company from continuing its business operations from the premises. “Any interpretation of the seizure which prevents the petitioner from using the premises for its ordinary business operations would travel beyond the immediate purpose of securing the property and would have consequences which are distinct from the seizure itself.”
Similarly, the issue of the NOC has been passed to a competent authority for fresh consideration and the authority needs to pass an order within 10 days from receiving all the documents.
