Supreme Court refuses to stay FDI policy in retail, asks RBI to amend FEMA

MDT/PTI 15 October 2012

While refusing to stay the decision to allow FDI in retail, the apex court asked RBI to amend the FEMA regulations to allow implementation of the policy

New Delhi: The Supreme Court on Monday refused to stay the Centre's decision to allow foreign direct investment (FDI) in retail sector, reports PTI.

A bench of justices RM Lodha and AR Dave, however, said that the policy suffers from 'curable' irregularity of want of legal sanction and asked the Reserve Bank of India (RBI) to amend the Foreign Exchange Management Act (FEMA) regulations to allow implementation of the government's policy.

The bench said the RBI should have amended the FEMA regulations before the implementation of FDI policy and asked the banking regulator to take steps to remove the lacunae in the way of giving a final shape to the policy.

The court observed that the regulations should have been amended before the Centre issued the notification, but clarified that the irregularity can now be cured with RBI amending FEMA regulation.

"At least it can be said that it is an irregularity that is curable and as soon as amendment is brought, it would be cured," the bench said.

During the argument, the court said the policy cannot be stayed just because of this irregularity.

Attorney General GE Vahanvati submitted that he would talk to the RBI Governor to take immediate steps for bringing amendment in the FEMA regulations.

The bench after hearing his submission adjourned the matter for further hearing on 5th November.

The court was hearing a public interest litigation (PIL) filed by lawyer ML Sharma, who has said that RBI's nod was missing from the Centre's policy allowing FDI in retail sector.

The apex court on 5th October had sought the assistance of top law officers in hearing the PIL filed by Sharma against opening the multi-brand retail sector to the FDI saying there was a need for clarification since some link is missing pertaining to the RBI regulation on the issue.

Sharma has said in his petition that that retail trading is strictly prohibited under the law of FEMA under which the power to come out with a circular is vested with the RBI which has not issued any regulation after 2008.

He has alleged in his PIL that the Centre's notification was issued without the authority of law as approval of neither the President nor the Parliament was secured.

The apex court had, however, rejected the allegation saying "this assumption that the policy has to be in the name of the President is flawed and unfounded."

"The Constitution does not provide that the policy should be in the name of the President."

It further said a policy is never required to be placed before Parliament.

The apex court had also said that correctness of the policy has to be challenged on the touch stone of the circular whether it is ultra vires of the law or not.

Comments

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M G WARRIER

1 decade ago

Will someone clarify:
â€¢ Even if it was an ‘omission’, does it not sound a little odd to ask/order RBI to initiate an amendment to FEMA to regularize an executive order which could have been issued after due diligence? was RBI consulted?
â€¢ The position that a ‘policy’ need not be in the name of the President or need not be placed before parliament is a legalistic view and coming from the Apex court, must be the right view. But enforcing measures which need legislative sanction through executive order and then going to parliament for passing Bills to regularize them where there was no ‘emergent’ situation warranting such action getting the tacit approval sends disturbing signals. In the absence of necessary numbers in both the houses, this method is being resorted to more often. Should not this tendency be discouraged?