The Karnataka high court has directed Google India and three of its senior executives to deposit 50% of the over ₹5 crore penalty imposed on them by the Enforcement Directorate (ED) for alleged violations under the Foreign Exchange Management Act (FEMA).
In an order passed last month, justices V Kameswar Rao and S Rachaia directed Google and its officials to deposit the money as bank guarantee while allowing a petition filed by ED.
ED had approached the court earlier this year claiming that between the years 2007 and 2010, Google India had entered into an agreement with Google Ireland and Google US, agreeing to pay them over ₹364 crore towards distributor fees and equipment acquisition, respectively. It however, failed to pay such amount within the six-month period as per the agreement, ED told the Court.
The central agency then investigated the transactions and the default of payment and found Google India guilty of having contravened provisions of Section 6(3)(d) of FEMA.
ED then directed Google India to pay ₹5 crore as penalty. It had also imposed a penalty totaling around ₹45 lakh on the three senior officials of the company.
However, Google and its officials filed an appeal challenging the ED’s findings and the penalty imposed, before the Appellate Tribunal for FEMA violations in New Delhi. While the appeal is yet to be decided by the Tribunal, in 2019, it had stayed the payment order saying that “chances of success” of Google’s appeal were “more than the failure of appeal.”
The high court, however, held that the stay order granted by the tribunal was based on a prima facie view.
The court further said that in permitting Google and its officials to not pay any percentage of the penalty, not even a bank guarantee, the tribunal had failed to protect the ED’s interest. It said that the Tribunal should not have stayed the order of the penalty without at least imposing some conditions on Google and its officials.
“The complete stay of the penalties shall not safeguard the interest of the appellant (ED), if the appellant finally succeeds in the appeal. So it follows, that tribunal even if dispenses with the pre-deposit, it shall impose such condition to safeguard the realization. Surely, it can be argued, if the penalty is upheld, the realization from the GIPL shall not be difficult. But, that cannot be the consideration for the Tribunal to stay the order of penalties, without imposing conditions,” the high court said.
The court also dismissed Google’s submissions that the transactions in question were not foreign exchange borrowings and that the dispute with Google Ireland and Google US had been settled in accordance with the Reserve Bank of India’s ‘Master Circular’ guidelines.
It agreed with ED’s submissions that the settlement approval had been granted by RBI only to Google’s authorised dealer bank and the settlement did not wipe out the original contravention or the offence under FEMA.
The court accordingly directed that Google and the three officials must deposit the bank guarantee amount.