Clarity On Requirement of RBI Approval for Payments Against Foreign Arbitral Awards: GPE (India) Ltd v. Twarit Consultancy Services Pvt. Ltd
Brief Facts:
The petitioners, GPE (India) Limited (“GPE”) were Mauritius-based investors and shareholders who had invested approximately INR 125 crore in Haldia Coke and Chemicals Private Limited in 2010 (“Haldia Coke”). The investment by way of purchase of securities was governed by two Share Subscription and Shareholders’ Agreements (“SSHAs”) dated 31.05.2010. The SSHAs provided numerous exit options to the petitioners, i.e. IPO, strategic sale, and the exercise of a put option. In 2015, the promoters of Haldia Coke, i.e. Twarit Consultancy and its affiliates agreed to purchase the petitioners’ securities for a total consideration of INR 200 crore in fourteen tranches. This arrangement was formalised through three Share Purchase Agreements (“SPAs”). However, the promoters paid only INR 5 crore against the purchase of these shares and defaulted on all remaining tranches, leading to purchaser payment breach. The petitioners thus invoked arbitration under the Singapore International Arbitration Centre (“SIAC”) Rules in December 2017.
Findings of the Arbitral Tribunal constituted under the SIAC Rules:
The arbitral tribunal constituted under the SIAC Rules (“Tribunal”) held that the promoters had breached the SPAs and awarded damages of INR 195 crores to the investors. The investors (petitioners herein) had initially claimed INR 401 crore, being internal rate of return of 24% on INR 125 crore (“IRR”) on exercise of the put option (IRR was provided under the SSHAs). The Tribunal rejected this claim, holding that such a guaranteed return was a penalty barred by Section 74 of the Indian Contract Act. Instead, relying on Section 73 of the Act, the Tribunal calculated damages on the standard principle, i.e. Damages = Agreed price − Market value on the date of breach. The date of breach was fixed as 11 July 2017. On the evidence, Haldia Coke was found to be commercially defunct and its shares were worth zero. Accordingly, the Tribunal awarded INR 195 crore (Damages= INR 200 crore minus the INR 5 crore already paid). The Tribunal noted that this was not a guaranteed return but compensation for a failed sale of shares.
Proceedings in the High Court
This foreign award was sought to be enforced by the petitioners in Madras High Court (“HC”) under Sections 47 and 49 of the Arbitration and Conciliation Act, 1996. However, the respondents cited violation of public policy as a ground to deny enforcement of the arbitral award. This was based on Foreign Exchange Management Act, 19991(“FEMA”) and RBI pricing rules. They argued that the exit structure guaranteed the investors a 24% IRR, which is impermissible. Under FEMA, foreign equity investment is treated as risk capital, not debt, and non-residents must exit at fair market value and not at a certain agreed price. Thus, a contractual arrangement to pay INR 200 crore in exchange of securities, irrespective of the company’s value, is violative of this framework. Consequently, the SPAs were alleged to be illegal.
In January 2023, the HC enforced the award, holding that refusal of enforcement is permitted only for fraud, violation of fundamental policy of Indian law, or basic morality and justice. FEMA breaches do not meet this threshold. Drawing on Vijay Karia and Others v. Prysmian Cavie Sistemi SRL1, the HC held that FEMA is regulatory in nature and violations do not render contracts void.
The HC also noted that since no shares were transferred, no foreign exchange moved out of India. The SSHAs’ put options were never exercised, so they never triggered FEMA. The SPAs resulted only in a failed share sale and breach of contract and therefore Tribunal awarded the damages. However, the HC held that although the payment is labelled as “damages”, in economic substance it is identical to paying the full share price and therefore is a capital account transaction. Therefore, RBI approval would be required before remittance abroad. The award was thus enforceable, subject to RBI clearance.
Issue for Consideration:
GPE challenged the requirement of RBI-approval before the Supreme Court (“SC”). The SC had to decide whether RBI approval was needed before remitting the awarded damages outside India.
Ruling of the SC:
RBI filed an affidavit before the SC stating that payment of compensatory damages pursuant to an arbitral award is a current account transaction under Section 5 of FEMA read with the Current Account Transaction Rules, 2000. Since no equity instruments were being transferred, no capital account transaction was involved, and therefore no RBI approval was required. In effect, entire unpaid consideration under SPAs was directed to be paid as damages by HC. It is important to note that this is in the nature of damages and not the sale price of shares. In essence, the quantum mirrors a capital account transaction, yet its legal character is that of a current account payment for breach of contract.
The SC dismissed Twarit’s review petition on 29 October 2025, effectively endorsing this position.
Our Thoughts:
This judgment is doctrinally significant. Although the damages arose from breach of what would have been a capital account transaction (a share sale), the payment itself was treated as a current account transaction because it involved no transfer of securities. The same amount of ₹195 crore became legally permissible requiring no RBI approval simply because it was paid as compensation rather than consideration.
The SC did not clarify or substantiate on the principle distinguishing outbound payments arising out of underlying capital account transactions and ordinary current account remittances. Currently, the same bench of SC in the matter of Nine Rivers Capital Limited v. Gokul Patnaik2 has sought RBI affidavit on whether investors seeking specific performance of put option rather than seeking damages is a current or a capital account transaction. The matter is listed for hearing on 26 February 2026.
GPE v. Twarit is a pivotal pro-enforcement and pro-investment judgment. The policy logic underlying this classification is that current account transactions are generally permitted unless expressly prohibited; channeling such payments through this framework avoids unnecessary regulatory friction that would otherwise impede enforcement of foreign arbitral awards. This directly advances ease of doing business for foreign investors.
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