In the modern world, international sanctions have become one of the key instruments of foreign policy wielded by the major powers. The United States, the European Union, and the United Kingdom actively deploy financial, trade, and personal sanctions to exert pressure on states and individuals. India, occupying a unique geopolitical position and pursuing strategic autonomy, finds itself in a difficult situation: on one hand, the country is bound by close economic ties with Western partners; on the other, it maintains traditionally friendly relations with Russia and has a complex history of engagement with Iran.
This article analyzes the legal regime of sanctions as applied to India: how Indian legislation governs compliance with international sanctions, the mechanisms of interaction with Western sanctions regimes, and how Indian companies navigate compliance under conditions of legal uncertainty.
India’s Legal Position: What Is Recognized as Binding
India’s official legal doctrine on the sanctions question has been consistent and unchanged for decades — yet it is precisely the collision of this doctrine with economic reality that gives rise to the most acute practical conflicts.
The Principle of Sovereign Immunity from Extraterritorial Sanctions
It is of fundamental importance to understand that India does not recognize the binding force of unilateral sanctions imposed by individual states or groups of states. Under Indian law, only sanctions adopted by the UN Security Council under Chapter VII of the UN Charter are legally obligatory. All other sanctions — American, European, British — are treated as extraterritorial in nature and as having no direct legal force on Indian territory.
This position is reflected in a number of official statements by the Indian government and is consistent with the doctrine of sovereign equality of states, one of the cornerstone principles of Indian foreign policy. It is equally consonant with the traditional concept of Indian legal philosophy regarding the impermissibility of external coercion — a concept with deep roots in the Hindu law tradition.
De Facto Compliance: The Gap Between Law and Practice
In practice, the official position of rejecting extraterritorial sanctions does not translate into their complete disregard. Indian companies and banks with assets or operations in the jurisdictions of sanctioning states are compelled to observe the relevant restrictions in order to avoid secondary sanctions and disconnection from international payment systems. The gap between the official legal position and actual business practice generates legal uncertainty and creates risks for both the state and the private sector. Indian lawyers and compliance specialists are required to navigate several competing legal regimes simultaneously.
Sanctions Against Russia: A Test of Sovereignty
The Russia-Ukraine conflict and the Western sanctions that followed served as a stress test of sorts for the Indian legal system: the existing norms proved manifestly unprepared for the scale of the legal and financial contradictions that arose.
Geopolitical Context and Economic Consequences
The imposition of sweeping Western sanctions against Russia in 2022 confronted India with an extremely serious legal and economic challenge. India declined to join the sanctions regime and continued purchasing Russian oil, taking advantage of significant discounts. By 2024, Russia had become India’s largest oil supplier — a development that vividly illustrates the scale of trade flow reorientation.
From a legal standpoint, this position created a complex situation in the sphere of banking settlements. India’s largest banks — State Bank of India, Punjab National Bank, and others — introduced informal restrictions on settlements with Russian counterparties, fearing U.S. secondary sanctions. This compelled India and Russia to seek alternative settlement mechanisms.
Legal Obstacles to Alternative Settlement Mechanisms
Discussions on a rupee-ruble settlement mechanism revealed substantial legal conflicts: accumulated rupee balances in the accounts of Russian entities could not be freely converted due to FEMA restrictions. In effect, Indian foreign exchange legislation — designed to protect the national economy — became an unintended barrier to the implementation of the state’s own policy. The principal legal instruments employed in managing Russian-Indian settlements included:
- Special Rupee Vostro Accounts — introduced by authorization of the Reserve Bank of India in July 2022 for settlements with Russia in national currency.
- Mutual offset mechanism — used to settle debts without direct currency transfers, reducing the risk of falling under OFAC secondary sanctions.
- Trade through third jurisdictions — a number of Indian companies used intermediaries in the UAE, Turkey, and CIS countries, raising questions about compliance with sanctions circumvention prohibitions.
- Shift to UAE dirham settlements — adopted as a temporary measure, this payment currency gradually became the de facto settlement currency for a range of trade operations.
The Iranian Precedent: Lessons of Legal Capitulation
The story of Iranian sanctions remains an unhealed wound in the Indian legal consciousness — a precedent in which the country’s economic interests were sacrificed under external pressure without any legal shield.
Timeline: From Exemptions to Complete Cessation
India’s engagement with Iran under Western sanctions has a longer and more instructive history. During the period 2012–2015, India initially reduced its Iranian oil imports under U.S. pressure, but secured a partial exemption from the sanctions regime by invoking the special character of its oil agreements.
After the reimposition of U.S. sanctions against Iran in 2018, India initially received a temporary waiver; however, in 2019 the United States revoked these exemptions. Indian oil refiners were forced to halt Iranian oil imports entirely, resulting in substantial economic losses.
The Legal Gap: Absence of a Compensation Mechanism
From the perspective of Indian law, the Iranian episode raised a fundamental question: who bears responsibility for the losses suffered by companies that incurred damages as a result of compelled compliance with foreign sanctions legislation? No legal instruments for such compensation have been created in Indian law to this day. This gap is one of the most pressing unresolved challenges in the sphere of Indian public economic law.
Interpol and the Sanctions Complex: Points of Intersection
The interaction between sanctions mechanisms and Interpol instruments is one of the least studied yet practically most significant areas of Indian law — one where legislative gaps are felt particularly acutely.
Dual Status: Sanctions List and Interpol Notice
Sanctions regimes and Interpol activities intersect in a number of practically significant respects. Individuals included in OFAC sanctions lists or analogous European registries are frequently also the subjects of Interpol notices. For Indian law enforcement authorities, this creates an ambiguous situation: the detention of a sanctioned individual pursuant to an Interpol request necessitates consideration of both an extradition request and the question of asset confiscation under the PMLA.
In a number of cases, Indian law enforcement authorities receive information through Interpol channels regarding the whereabouts of wanted individuals, enabling the acceleration of asset freezing procedures. This informal information-sharing mechanism is not regulated by Indian legislation, raising questions about its legal basis and the evidentiary value of information obtained in this manner.
Legal Basis for Asset Freezing: What Takes Precedence?
Inclusion on a sanctions list does not in itself provide automatic grounds for detention or asset freezing under Indian law. Either an Interpol notice or an independent case initiated by Indian law enforcement authorities under the PMLA is required. This distinction is of fundamental practical significance, as it determines which authority is empowered to act and under which procedural regime.
Prospects: Does India Need Its Own Sanctions Legislation?
The question of national sanctions legislation is not merely a technical legal choice, but a reflection of a deeper dilemma: whether India is prepared to definitively abandon the role of neutral observer and become an active participant in global sanctions policy.
Arguments For and Against
The question of whether India should adopt its own sanctions legislation is being discussed with increasing frequency in expert and policy circles. A national sanctions toolkit would allow India to take a more active stance in global geopolitics — using sanctions as an instrument for advancing strategic interests, rather than merely being the object of others’ pressure.
Critics, however, point to the risk of undermining the doctrine of strategic autonomy and the potential damage to relations with traditional partners. The adoption of sanctions legislation would represent an institutional shift in the very philosophy of Indian foreign policy.
Key areas of reform of Indian sanctions legislation under discussion among experts include:
- Adoption of a dedicated law on the implementation of UN Security Council sanctions, with a clear procedure for placing individuals on national sanctions lists and a mechanism for their removal.
- Establishment of a compensation fund for Indian companies that have suffered losses as a result of compelled compliance with foreign sanctions regimes.
- Development of official compliance guidelines for Indian banks and companies when dealing with counterparties in sanctioned jurisdictions.
- Introduction of a general licence mechanism modeled on the U.S. OFAC system — to legitimize certain categories of transactions with sanctioned persons.
- Legislative codification of the procedures governing law enforcement cooperation with Interpol channels in matters involving sanctioned individuals.
Current State of Legislation
As of 2025, India confines itself to implementing UN Security Council sanctions, transposed through the Foreign Contribution Regulation Act and the Narcotic Drugs and Psychotropic Substances Act with respect to specific categories of conduct. No comprehensive sanctions law exists, and this gap is increasingly felt as a systemic deficiency in the context of escalating geopolitical turbulence.
India exemplifies a unique — and increasingly strained — model of engagement with international sanctions regimes: legally rejecting their extraterritorial binding force, while de facto accounting for their impact in shaping economic policy. This approach reflects a deep-seated tension between sovereignty and interdependence in the contemporary world order. For Indian law, the central challenge is the creation of a transparent regulatory framework that enables companies and banks to navigate the complex sanctions environment without prejudice to national economic interests. Meeting this challenge will require political will, legal creativity, and a readiness for dialogue with both Western partners and traditional allies.