Submit bank guarantees for 50% of Rs 5cr fine for Fema violations, HC tells Google

BENGALURU: Karnataka HC has directed Google India and three of its top officials to submit 50 per cent of the penalties imposed on them for alleged Foreign Exchange Management Act (Fema) violations in the form of bank guarantees . The penalties include Rs 5 crore on Google India and Rs 45 lakh collectively on three officials.

On Jan 11, 2019, the appellate tribunal for Fema cases in Delhi stayed penalties, noting Google India's appeal prospects favourable. ED challenged this through second appeals.

ED alleged violations under Fema Sec 6(3)(d), involving Rs 364 crore in transactions, specifically distributor fees to Google Ireland and equipment purchases from Google US. The agency noted that Rs 363 crore owed to Google Ireland remained unpaid for over four years until May 2014, while Rs 1 crore in assets from Google US stayed outstanding for over seven years until Jan 2014. These, it claimed, were commercial loans requiring RBI approval.

Google India argued these were not foreign exchange borrowings under Fema, as there were no loan agreements, no deferred payments, and no interest involved. It cited compliance with RBI's circular dated July 1, 2014.

A division bench of Justices V Kameshwar Rao and S Rachaiah said the tribunal's stay was only a prima facie view and directed the respondents to furnish bank guarantees for 50% of the penalties within two weeks.