M A I N   N E W S

SC refuses to stay FDI in retail
R Sedhuraman
Legal Correspondent

New Delhi, October 15
The Supreme Court today virtually gave the green signal for the implementation of the new foreign direct investment (FDI) policy by clearing FDI proposals in multi-brand retail trading, civil aviation and broadcasting.

A Bench comprising Justices RM Lodha and Anil Dave refused to stay either the policy, announced last month as part of big ticket economic reforms, or its impending implementation, observing that “these are matters which will have a huge impact.”

“Heavens will not fall” if the government cleared FDI proposals without waiting for the Reserve Bank of India (RBI) to amend the investment regulations framed under the Foreign Exchange Management Act (FEMA) 2000, the Bench remarked.

The SC, however, asked the government to have the investment regulations amended by the RBI soon to provide legal sanctity to the new policy under which 51 per cent FDI was allowed in multi-brand retail, 49 per cent in civil aviation and 74 per cent in broadcasting.

The Bench was hearing a PIL challenging the new FDI policy. The petitioner, advocate ML Sharma, contended that the RBI regulations specifically barred FDI in multi-brand retail trade. Since the RBI had framed the regulations using the powers given to it under FEMA, the government could not undo this by issuing an executive order. Further, under Section 48 of FEMA every rules and regulations framed under it required Parliamentary approval, he said.

Acknowledging that the government should follow the legal process on such major issues, the Bench noted that the RBI had already begun the process for amending the regulations. But it had not formally amended the regulations so far for giving “legitimacy” to the new FDI policy.

Quoting a media report that the government would be issuing 50 licences tomorrow under the new FDI policy, the petitioner asked “will it be legal?” “At best, it may be an irregularity which is a curable one. Once the amendments are made by the RBI, the irregularity will be cured,” the Bench remarked.

Pointing out Attorney General GE Vahanvati’s assurance that the RBI would try to amend the regulations within two weeks, the Bench told the petitioner that the heavens would not fall if the meeting on FDI proposals took place tomorrow. “Please see the matter in proper perspective.”

The AG informed the court that the government had been modifying the FDI policy time and again since 2000 the same way and invariably the necessary amendments by the RBI in the regulations had followed the policy decisions.

At one stage, the Bench agreed to issue notice to the government seeking its response to the PIL, but the AG persuaded the court not to do so. “I have already talked to the RBI Governor and I will come back in two weeks. RBI can work fast. There is no difficulty,” he said.

The petitioner contended the government did not want to go for Parliamentary approval as it did not have majority there. At this, the Bench told him, “Don’t alter the course of the debate.” There was no need for placing policies before Parliament, it clarified.