A London commercial court has delivered a reminder to cross-border lenders and Indian guarantors – regulatory non-compliance does not automatically make a guarantee void. In Bank of India v Firestar Diamond FZE & Ors, court held that Nirav Modi remains liable under a personal guarantee despite the absence of prior RBI consent, and that the bank’s move from LIBOR to SOFR under the contract’s fallback language was valid.
The judgment matters well beyond the parties. It strengthens the proposition that FEMA operates as a regulatory overlay, and it gives lenders comfort that carefully drafted fallback clauses will be enforced even in contentious cross-border recoveries.
The dispute in brief
The case arose from a 2013 facility agreement under which Bank of India lent money to Firestar Diamond FZE, a Dubai-based entity linked to Nirav Modi. Around the same time, Modi signed a personal guarantee governed by Indian law; when the borrower defaulted, the bank sought to enforce that guarantee for the unpaid principal of USD 4.1 million, plus interest.Modi raised three key defences. He said that the guarantee was unenforceable under Indian law because prior RBI approval under Regulation 3 of FEMA had not been obtained. He further argued that the 2025 demand notice was not properly served. He also submitted that the shift from LIBOR to SOFR amounted to an impermissible change, relieving him of liability for interest accruing thereafter.
The court rejected each defence. It held that the guarantee remained legally effective because RBI approval could, in principle, still be granted retrospectively; that the October 2025 demand was validly served at the Indian address nominated in the guarantee and was also received in fact at HMP Thameside; and that the SOFR transition fell squarely within the contract’s own fallback wording.
“The expert testimony given by Bank of India’s expert and the acceptance of such an argument with respect to the retrospective RBI approval under the Foreign Exchange Management (Guarantees) Regulations, 2000 is a watershed moment not only for Indian jurisprudence but also in terms of its wider impact on cross-border guarantee enforcement,” said Amir Bavani, founder, AB Legal. “The UK court ruled that the said defect was per se curable rather than being fatal to a Bank’s interest in recovery of the sums due to it otherwise.”
Why FEMA did not save Modi
The most important part of the judgment is its treatment of Regulation 3 of FEMA. The court accepted the expert evidence that the obligation to seek RBI consent lay on Modi, not on Bank of India, and that the absence of prior consent did not render the guarantee void or inherently unenforceable if consent remained capable of being granted later.”The key takeaway is that the court treated RBI approval requirements as a matter of regulatory compliance rather than a condition affecting the underlying validity of the guarantee itself,” says Tanuj Sud, founder and partner at Gravitas Legal. “This aligns with the settled principle that regulatory infractions do not automatically invalidate a contract unless the statute expressly so provides.”
Chirag Bhavsar, associate partner at Vis Legis Law Practice Advocates, says the ruling confirms that RBI consent is not a knockout defence: “For cross-border guarantees governed by Indian law and caught by Regulation 3 of FEMA, the absence of RBI consent at the time of execution or enforcement is not, by itself, a knockout defence.”
“Indian foreign exchange control laws work as a regulatory overlay on contracts, not as a precondition to their formation or validity. The court accepted that FEMA non-compliance is a “rectifiable breach” rather than a fundamental defect. The court has enforced a principle of enormous significance in cross – border commercial disputes; a regulatory approval issue does not necessarily destroy a lender’s contractual right. Now, the Guarantors cannot use regulatory irregularities as a shield,” saidB. Shravanth Shanker, managing partner, B. Shanker Advocates LLP.
The judgment also leaves little room for a guarantor to rely on his own default. The court accepted the proposition that the RBI could grant permission retrospectively, which makes the approval issue curable rather than fatal.
“The court’s observation that Reserve Bank of India’s approval could potentially be obtained retrospectively is significant because it recognises that certain regulatory defects may be capable of cure,” says Sud. “From an enforcement perspective, this reduces the scope for guarantors to rely on procedural non-compliance as a complete defence.”
“If RBI consent can be obtained later, then the absence of prior consent does not automatically destroy the lender’s recovery rights,” said Alay Razvi, managing partner at Accord Juris. “The stronger legal point is that a party cannot usually rely on its own failure to obtain approval to defeat enforcement of the very obligation it signed. For lenders, that is important because it keeps the guarantee commercially meaningful even if a regulatory step was missed.”
Service and notice
The court disregarded technical objections on service. The personal guarantee specified an Indian address for service, and the court held that the October 2025 demand was validly served there even though Modi had not returned to India since 2018.
The judge went further, finding as a matter of fact that Modi had also received the demand at HMP Thameside and that both he and his lawyers were plainly aware of its contents. That dual basis matters because it shows the court was willing to look at both the contractual notice mechanism and the practical reality of receipt.
“The original address remained his contractual address for service as a matter of law irrespective of his personal absence from India. The contractual notice clause allocates the risk of non-receipt to the party who fails to keep their nominated address current, and an addressee cannot defeat valid contractual service simply by relocating without notifying the other party. Failure to notify the changes of address means the last notified address remains valid,” said Shanker.
“If the contract fixes an Indian address for service, courts are likely to treat delivery there as valid even if the guarantor is abroad or in custody,” said Razvi. “For lenders, the drafting lesson is clear: build in multiple, workable methods of notice so that a claim does not fail on a procedural point. For guarantors, it means arguments based only on defective service are weak if the record shows they actually received the demand. In cross-border enforcement, service mechanics are not a side issue; they are central to enforceability.”
“The court’s approach shows that tightly drafted notice clauses and a designated contractual address for service will be strictly applied,” adds Bhavsar, “and that actual receipt through alternative channels can bolster enforcement of demands in cross-border guarantees.”
SOFR after LIBOR
The court also upheld the bank’s interest calculation after the end of synthetic LIBOR. The facility agreement expressly provided that if LIBOR was unavailable, the bank could determine an equivalent rate from sources it selected, and the bank used SOFR from 30 September 2024 onward.
The court held that the lender was simply applying the contract as written, so Section 133 of the Indian Contract Act was not engaged.
“The UK court rejected the objections on the post-LIBOR interest on two grounds: the loan was clearly repayable on demand, and more importantly, the contract itself allowed the bank to move to a new benchmark, SOFR. It’s a signal that fallback clauses are being read straightforwardly and in the lender’s favor, provided the contractual wording actually contemplates the transition,” said Bavani.
“As financial markets continue to adapt to the post-LIBOR environment, the decision provides reassurance that courts are likely to give effect to contractual fallback mechanisms,” said Sud.
