Karnataka HC asks Google to furnish 50% of FEMA penalties as bank guarantee

The Karnataka High Court has directed Google India and three of its senior executives to provide bank guarantees covering 50 per cent of the penalties imposed on them by the Enforcement Directorate (ED) for alleged violations of the Foreign Exchange Management Act (Fema).

Earlier, the ED had slapped a ₹5 crore penalty on Google India, along with a combined fine of ₹45 lakh on the three officials. The case pertains to suspected infractions of Section 6(3)(d) of Fema, related to transactions totaling ₹364 crore.

According to the ED, the alleged violations arise from payments made by Google India to Google Ireland for distributor services and to Google US for equipment purchases.

The probe agency claims that ₹363 crore owed to Google Ireland remained unpaid for over four years until May 2014, while ₹1 crore worth of equipment from Google US went unpaid for more than seven years, until January 2014.

The ED has classified these as “commercial loans,” which, under Indian law, require prior approval from the Reserve Bank of India (RBI).

Google India, however, has refuted the charges, stating the payments were not foreign exchange borrowings and did not involve loans, deferred payments, or interest. The company added that it operated in accordance with an RBI circular dated July 1, 2014.

In January 2019, the Appellate Tribunal for Fema in Delhi had stayed the penalties, observing that Google India’s appeal appeared to have merit. However, the ED subsequently filed second appeals challenging this stay order.

A division bench of the Karnataka High Court, comprising Justices V Kameshwar Rao and S Rachaiah, pointed out that the tribunal’s order was based on a preliminary assessment. The court has now directed Google India and the three executives to furnish bank guarantees for half the total penalty amount within two weeks.