Google's FEMA Violation: Karnataka HC Directs Furnish 50% Bank Guarantee Against ₹5 Crore Penalty
In terms of the ED, the alleged contraventions are payments that Google India is making to Google Ireland for distribution services and for purchases of equipment from Google US.
Google – FEMA – Violation – TAXSCAN
Google – FEMA – Violation – TAXSCAN
The Karnataka High Court has directed Google India and three of its senior executives, requiring them to furnish bank guarantees and cover 50% of the fines levied by the Enforcement Directorate ( ED ) for suspected infractions of the Foreign Exchange Management Act ( FEMA ), 1999.
The ED had earlier imposed a ₹5 crore fine on Google India and an aggregated fine of ₹45 lakh against three senior management executives. The case involves allegedly contravening Section 6(3)(d) of FEMA by having entered into about ₹364 crore worth of transactions. In terms of the ED, the alleged contraventions are payments that Google India is making to Google Ireland for distribution services and for purchases of equipment from Google US.
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The Section 6(3)(d) of FEMA prohibits some financial transactions between residents and non-residents, specifically those that might be interpreted as commercial loans or ECBs. Such transactions usually involve express approval by the RBI to provide regulatory control over foreign exchange flows.
As per ED, ₹363 crore due to Google Ireland was outstanding for more than four years until May 2014, and ₹1 crore for the equipment imported from Google US was outstanding for over seven years, until January 2014. The ED categorized these outstanding dues as "commercial loans," which under Indian law need prior sanction from the Reserve Bank of India (RBI).
Google India has vigorously contested the ED's description of the transactions. The company insists that the payments in question were not foreign exchange borrowings and did not entail any loan agreements, deferred payments, or interest.
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Google India also insists that it acted in accordance with an RBI circular dated July 1, 2014, which, the company says, regulated the nature of such transactions at the time.
A division bench of Justices V Kameshwar Rao and S Rachaiah ordered Google India and the three executives to furnish bank guarantees for half the total amount of penalties within two weeks. The court also made it clear that these guarantees should be valid until the appeals pending before the tribunal are disposed of.
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