The Supreme Court on Monday refused to stay the Centre’s decision to allow Foreign Direct Investment (FDI) in the retail sector. A bench of justices R M Lodha and A R Dave, however, said the policy suffers from “curable” irregularity of want of legal sanction and asked the RBI to amend the Foreign Exchange Management Act (FEMA) regulations to allow implementation of the government policy.
The bench said the RBI should have amended the FEMA regulations before the implementation of the FDI policy and asked the banking regulator to take steps to remove the lacunae in the way of giving a final shape to it.
“At least it can be said that it is an irregularity that is curable and as soon as an amendment is brought, it would be cured,” the bench said. To drive home the point, Justice Lodha told Attorney General G E Vahanvati, “If your regulations say 49 per cent FDI is permitted in civil aviation and in your circular you say 100 per cent, will it not be in direct conflict? We can defer the matter by another 10 days. Follow the legal course.”
At this, Vahanvati said, “I’ll speak to the RBI Governor to take immediate steps for bringing amendment in the FEMA regulations.”
Petitioner M L Sharma told the Bench that licences are going to be issued in FDI. To this, Justice Lodha said, “RBI has already issued a circular amending the FDI. They’ve not formally amended the regulations. We are only concerned with the amendment. That seems to be necessary.” “We can call upon the Central government to file an affidavit. (But) that is not required,” Justice Lodha added.
When Sharma raised a query saying, “Whether the licences will be valid,” Justice Lodha said, “The moment the amendment is made, it will be cured,” and posted the matter to November 5.
Sharma in his petition had averred that retail trading is strictly prohibited under FEMA under which the power to come out with a circular is vested with the RBI which has not issued any regulation after 2008.