Karnataka HC directs Google India to furnish 50% bank guarantee in FEMA violation case

Bengaluru: The Karnataka High Court has directed Google India and three of its senior executives to deposit 50 per cent of the penalties imposed, for alleged Foreign Exchange Management Act (FEMA) violations, as bank guarantees. The Enforcement Directorate (ED) had earlier levied a penalty of Rs 5 crore on Google India, along with a combined penalty of Rs 45 lakh on the three officials.

The case pertains to alleged violations of section 6(3)(d) of FEMA, involving transactions worth Rs 364 crore. According to the ED, the violations relate to payments made by Google India to Google Ireland as distributor fees and for the acquisition of equipment from Google US. The agency contended that Rs 363 crore, payable to Google Ireland, remained unpaid for over four years until May 2014, while payment for Rs 1 crore worth equipment sourced from Google US remained unsettled for more than seven years until January 2014. The ED classified these as commercial loans, which would require prior approval from the Reserve Bank of India (RBI).

Google India, however, contested these allegations, asserting that the transactions in question were not foreign exchange borrowings. The company emphasized that there were no loan agreements, deferred payments, or interest involved, and claimed adherence to an RBI circular issued on July 1, 2014. Earlier, on January 11, 2019, the Appellate Tribunal for FEMA in Delhi had granted a stay on the penalties, citing that Google India's appeal appeared to have merit. The ED subsequently filed second appeals challenging the stay. A division bench comprising Justices V Kameshwar Rao and S Rachaiah observed that the tribunal's stay was based only on a preliminary view. They have now instructed Google India and the concerned officials to provide bank guarantees for half the total penalties within two weeks.