Setback to Google India, Karnataka High Court directed to deposit 50% of the fine in FEMA violation case

The Karnataka High Court has asked Google India and its three senior officials to deposit 50% of the fine imposed for alleged violation of the Foreign Exchange Management Act (FEMA) as a bank guarantee.

Earlier, the Enforcement Directorate (ED) had imposed a fine of Rs 5 crore on Google India and a joint fine of Rs 45 lakh on the three officials. The case is related to an alleged violation of Section 6(3)(D) of FEMA and involves transactions worth about Rs 364 crore.

According to the ED, payments made by Google India to Google Ireland as distributor fees and equipment acquisition from Google US have been tampered with.

The agency contended that Rs 363 crore due to Google Ireland was not paid for over four years till May 2014, while equipment worth Rs 1 crore received from Google US was not paid for over seven years till January 2014.

The ED classified these as commercial loans, which would require prior approval from the Reserve Bank of India (RBI). However, Google India denied these allegations, saying the said transactions were not foreign currency loans.

The company stressed that no loan agreement, deferred payment, or interest was involved and claimed to have complied with the RBI circular issued on July 1, 2014.

Earlier, on January 11, 2019, the Appellate Tribunal for FEMA in Delhi had stayed the penalty, saying that Google India's appeal had merit. Following this, the ED filed a second appeal challenging the stay.

A division bench of Justices V Kameswara Rao and S Rachaiya said that the tribunal's stay was based only on a preliminary opinion. They have now directed Google India and the relevant authorities to provide a bank guarantee for half the amount of the total penalty within two weeks.