The Foreign Exchange Management Act, 1999 (FEMA) governs foreign investments in India, with its enforcement agency – the Directorate of Enforcement (ED) acting as its able-bodied sentinel.

Despite the necessity of such a law, to what extent can the regulator intrude into private lives, daily workings, and the business of entities to ensure compliance with foreign investment rules?

Instances of ED conducting search and seizure operations and accessing laptops and mobiles without judicial warrants are not uncommon.

The power to carry out search and seizure operations are provided for under Section 37(3) of the FEMA. This provision in turn vests the officers of the ED with the same powers of search and seizure as conferred on the income tax authorities under the Income Tax Act, 1961 (IT Act).

Sections 131-132 of the IT Act (which authorise income tax officers to (i) enter and search of “any building, place, vessel, vehicle or aircraft”, (ii) break open “the lock of any door, box, locker, safe, almirah or other receptacle”, and (iii) seize “documents, books of accounts, money, bullion, jewellery, or other valuable article or thing”), as such also apply to investigations by the ED under FEMA.

While evidently the powers available to the ED are wide, they provide a narrow funnel of restriction in not expressly permitting officers with the power to seize and/or search digital devices. Despite this, the recent trend suggests the exercise of powers whereby, expansive search and seizure of digital devices is being carried out.

In fact, such exercise of powers of search and seizure by the ED is the subject matter of various proceedings pending before the Supreme Court.

This issue assumes significance, given that in today’s day and age, digital devices are vast repositories of sensitive personal data and information such as medical, travel and insurance records, bank details, passwords, private media, family photographs and other details about family and friends, to name a few.

Gross infringement

As such, any intrusion into such intimate personal details of individuals may amount to gross infringement of the privacy of such individuals. Moreover, such intrusion may not even be necessary for the investigation being carried out.

Relevantly, the Supreme Court, in its seminal decision in K.S. Puttaswamy v. Union of India, has recognized the right to privacy to be a fundamental right guaranteed under Article 21 of the Constitution.

Seen in this light, any intrusion into such fundamental right to privacy (including by way of search of and access to digital devices), must necessarily be authorised by procedure established by law. Interestingly, by way of the new Income Tax Bill, 2025 (Bill), recently tabled in Parliament, the legislature seeks to overhaul the provisions relating to search and seizure set out under the IT Act.

Towards this end, Clause 247 of the Bill specifically proposes to introduce the power to search and seize digital devices as well as impose an obligation on the users of such devices, to share passwords to access such devices.

As such, it now appears that the legislature intends to expressly arm authorities with the power to seize and access such devices. Since the officers of the ED have been conferred the same powers as income tax officers (while conducting investigations under FEMA), such powers would also be made applicable to investigations carried out by the ED under FEMA.

Civil proceedings

However, unlike criminal statutes, investigations under FEMA are in the nature of civil proceedings. Therefore, a question arises as to whether law enforcement agencies such as the ED should at all be armed with such drastic powers to invade the privacy of individuals, while investigating what is primarily a civil contravention under the FEMA.

Consider this – key personnel of corporate houses that have received foreign investment in India may now potentially be at the risk of their digital devices being searched, all without a judicial warrant, during an investigation under FEMA.

This may impact the “Ease of Doing Business” in India, as well the country’s desire to position itself as a hub of foreign investment.

Given the sensitivity surrounding such issues, judicial oversight is all the more essential to regulate exercise of power by law enforcement agencies. The legal landscape surrounding search and seizure operations is fraught with challenges, particularly in balancing the investigative powers of the ED with fundamental rights of individuals.

Additionally, now with the introduction of the new Bill, it remains to be seen whether the Supreme Court does indeed lay down a marker, delineating clearly the powers and limitations of the ED, while conducting search and seizure operations in investigations under the FEMA.

Mukherjee is Partner, Krishna Tangirala is Principal Associate, and Sankalp Udgata is Associate at Shardul Amarchand Mangaldas

Published on March 26, 2025