The Karnataka High Court has mandated that Google India, along with three of its senior officials, provide bank guarantees amounting to 50 percent of the penalties levied against them due to alleged infractions of the Foreign Exchange Management Act (Fema), ToI reported on April 15. The imposed penalties consist of Rs 5 crore for Google India and a total of Rs 45 lakh for the three officials combined.
On January 11, 2019, the appellate tribunal responsible for Fema-related cases in Delhi put a hold on the penalties, observing that there were favorable prospects for Google India’s appeal. However, the Enforcement Directorate (ED) responded by filing second appeals to contest this decision.
The ED has accused the company of breaching Fema Section 6(3)(d), which pertains to transactions amounting to Rs 364 crore, specifically concerning distributor fees paid to Google Ireland and equipment acquisitions from Google in the United States.
The agency highlighted that an outstanding sum of Rs 363 crore owed to Google Ireland was unpaid for more than four years, lasting until May 2014, while Rs 1 crore related to Google US had remained unsettled for over seven years until January 2014.
The ED claimed that these amounts constituted commercial loans that necessitated approval from the Reserve Bank of India (RBI).
In its defense, Google India contended that these transactions did not qualify as foreign exchange borrowings under the Fema regulations, arguing that there were no formal loan agreements, no deferred payment terms, and no interest charges involved. The company referenced its adherence to the RBI’s circular issued on July 1, 2014.
A division bench comprising Justices V Kameshwar Rao and S Rachaiah stated that the tribunal’s stay on penalties was merely a preliminary viewpoint.
They instructed the involved parties to secure and submit bank guarantees covering 50 percent of the penalties within a two-week timeframe.
