Bengaluru: In a significant legal development, the Karnataka High Court has instructed Google India to submit bank guarantees for 50% of a substantial fine related to alleged violations of the Foreign Exchange Management Act (FEMA). This directive underscores the ongoing scrutiny faced by global corporations for their financial transactions within the Indian market.
The core of the issue centers around a penalty of Rs 5 crore imposed on Google India, alongside a collective penalty of Rs 45 lakh on three of its senior executives. The case hinges on alleged infractions of section 6(3)(d) of FEMA, involving transactions valued at a considerable Rs 364 crore. Specifically, these transactions pertain to distributor fees paid to Google Ireland and equipment purchases from Google US.
The Enforcement Directorate (ED) contends that these transactions should be categorized as commercial loans, which would require prior approval from the Reserve Bank of India (RBI). According to the ED, a substantial amount of Rs 363 crore owed to Google Ireland remained unpaid for over four years until May 2014. Similarly, a payment of Rs 1 crore for equipment sourced from Google US was unsettled for more than seven years until January 2014.
Google India has challenged these allegations, asserting that the transactions in question do not constitute foreign exchange borrowings. The company emphasizes the absence of loan agreements, deferred payments, or interest charges, while also referencing compliance with an RBI circular from July 1, 2014.
In response to these developments, the Karnataka High Court has mandated that Google India provide bank guarantees covering half the total penalties within a fortnight. This decision follows earlier legal proceedings, including a stay on penalties granted by the Appellate Tribunal for FEMA in Delhi, which the ED subsequently challenged.
