The Supreme Court on Monday declined a plea to stay FDI in the retail sector but, at the same time, told the government that its policy lacked legal sanction.
A bench of Justices RM Lodha and AR Dave told attorney general GE Vahanvati that FDI in retail cannot be introduced until the Reserve Bank of India (RBI) amends regulations in the Foreign Exchange Management Act (FEMA).
On Vahanvati’s request, the bench gave the Centre two weeks’ time to amend the regulation, and fixed November 5 for further hearing. It told the law officer that the legal requirements should be completed before implementing the policy.
The court’s observation came during the hearing of a PIL filed by one ML Sharma, challenging the FDI policy on the technical grounds that retail trading was strictly prohibited under FEMA. Only RBI had the power to come out with a circular permitting the trade, and no such regulation has been brought out by the institution since 2008, he said.
Noting that the irregularity was fixable, the bench said: “It is a legal process that has to be taken to its logical conclusion. It is a routine thing that has to be done.”
Though the court agreed with Sharma’s contention, it said alleging that the RBI wasn’t aware of the policy would be improper. “This (FDI policy) is done by the Centre, it is not that the RBI has been kept in the dark. The RBI has already issued a circular amending the FDI limit, but it has not formally amended the regulations. We want to know from the attorney general when this amendment will formally take place,” it observed.
Vahanvati assured the court that he would ask the RBI governor to take immediate steps for bringing the required amendment in FEMA regulations – expediting the process.