Sanctions 2026

INDIA Law and Practice Contributed by: Ayush Mehrotra, Upkar Agrawal and Varsha Goel, Khaitan and Co

3. Recent and Future Legal Developments 3.1 Significant Court Decisions or Legal Developments The most significant court decisions and legal devel - opments in the past three years have been outlined below. Insolvency Proceedings by Sanctioned Indian Entity In January–February 2026, an Indian chemicals trader (ICT) designated on the US OFAC SDN List initiated insolvency applications under the Insolvency and Bankruptcy Code 2016 (IBC) before regional benches of the National Company Law Tribunal (NCLT). These applications were directed against Indian subsidiar - ies and affiliates of US multinational coatings and chemicals companies (US Affiliates). The US Affiliates had withheld contractual payments to ICT following its SDN designation, apprehending that continued performance could expose their US parent entities, group companies and directors to secondary sanc - tions liability. The NCLT declined to accept US sanctions exposure as a valid basis for non-performance. In arriving at this conclusion, the Tribunal placed determinative weight on the wholly domestic character of the underlying transactions: both contracting parties were Indian, the supply of goods occurred entirely within Indian terri - tory, payment obligations were denominated in Indian Rupees and the governing law of the contracts was Indian law. On this basis, the NCLT held that the extra - territorial application of a foreign sanctions regime could not displace enforceable domestic contractual and insolvency obligations. On 12 June 2026, the Gauhati High Court examined a bank’s refusal to process certain foreign exchange transactions arising out of merchant trade transac - tions where the vessels used for transportation of goods were owned by an Iranian company designated under OFAC sanctions list. The Court observed that mere existence of a foreign sanctions regime does not, by itself, render such sanctions enforceable as part of municipal law in India. However, the bank’s refusal was accepted on the grounds that:

• the contractual documentation incorporated sanctions-compliance requirements; and • the incorrect disclosures by the entity violated Indian laws including FEMA, RBI and anti-money laundering norms. The Court also observed that sanctions-related con - cerns may have significant commercial and opera - tional consequences for banks and financial institu - tions facilitating international payments and part of correspondent banking networks. On 6 August 2024, the Delhi High Court quashed the DGFT’s order invoking catch-all export control pro - visions on the export of parts of aircraft. The court observed that the Defence Research and Develop - ment Organisation (DRDO) inspection had confirmed the civil application of the relevant parts of an aircraft, type certificates and end-user certificates had been provided. That rationality must guide the implementa - tion of export controls to balance economic interests with national security concerns. It establishes that the DGFT cannot invoke catch-all powers arbitrarily where competent technical authorities have certified the civil nature of goods and appropriate end-use documenta - tion has been furnished. The decision is significant for exporters of dual-use goods and technologies seek - ing clarity on the boundaries of regulatory discretion. 3.2 Future Developments The decision of the Hon’ble Delhi High Court is await - ed in the matter concerning an energy sector entity (CS(COMM) 1006/2025) wherein the court is to decide the issue of whether a foreign jurisdiction’s (EU) sanc - tions can override the contractual obligations of an Indian entity operating under a contract governed by Indian law. This decision is expected to provide much- needed guidance on the extent to which extraterrito - rial sanctions can be given effect within the Indian legal system.

4. Delisting Challenges 4.1 Process

The procedure for challenging a sanctions designation depends on whether the designation arises under the UNSC Act or the UAPA, as set out below:

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