In a significant legal development, the Karnataka High Court has issued an order to Google India and three of its top executives, directing them to furnish bank guarantees amounting to 50% of the penalties imposed on them for alleged violations under the Foreign Exchange Management Act (FEMA). This order comes in light of a dispute involving transactions totalling Rs 364 crore.
The Enforcement Directorate (ED) had previously imposed a penalty of Rs 5 crore on Google India, along with an additional Rs 45 lakh in fines on the three executives involved. These actions were taken following accusations of contravening section 6(3)(d) of FEMA. The allegations center around payments made by Google India to Google Ireland as distributor fees and the purchase of equipment from Google US.
The ED highlighted that a significant sum of Rs 363 crore, which was due to Google Ireland, was not settled for over four years until May 2014. Additionally, a payment of Rs 1 crore for equipment sourced from Google US was reportedly unresolved for more than seven years, up to January 2014. The ED treated these transactions as commercial loans, arguing that they should have received prior approval from the Reserve Bank of India (RBI).
In response, Google India has denied any wrongdoing, asserting that the transactions were not foreign exchange borrowings but were commercial operations within the legal frameworks. The company pointed out that there were no loan agreements, deferred payments, or interest involved, referencing compliance with an RBI circular dated July 1, 2014.
The matter escalated when the Appellate Tribunal for FEMA in Delhi, on January 11, 2019, granted a stay on the penalties, suggesting that Google India’s appeal might be justified. This decision was later contested by the ED through second appeals, leading to the current directive from the Karnataka High Court.
