New Delhi, Oct 15: The Supreme Court Monday gave the Reserve Bank of India (RBI) two weeks to amend its regulation to lift the cap on FDI in retail (both in single and multi brand), aviation, broadcast and power sectors.
An apex court bench of Justice R.M. Lodha and Justice Anil R. Dave gave the RBI two weeks’ time after Attorney General G.E. Vahanvati told the court that the federal bank had already set into motion the process of amending its regulation on permitting foreign direct investment (FDI) in these sectors.
While not allowing the plea of lawyer M.L. Sharma, who filed a public interest litigation to restrain the government from taking any action in pursuance of its decision to ease FDI norms till the RBI amended its regulation, the court said: “It is not as if they (central government) have kept the RBI in dark” about the decision.
The court also took note of the submission by Vahanvati that Sep 21, the RBI issued a circular to a category of banks in pursuance of the government decision to permit FDI in new areas. These banks are in the list of authorised dealers category-I.
The Section 6(3) of Foreign Exchange Management Act (FEMA) empowers the reserve bank to make regulations to prohibit, restrict or regulate, inter alia, the transfer or issue of any security by a person residing outside India.
In exercise of these powers, the RBI framed the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. These regulations have been framed under section 6(3) read with section 47 of the FEMA, which empowers the reserve bank to make the regulations.
“The regulations put a cap (on the FDI in retail and aviation sector), then how can by a policy decision or a circular you can amend a subordinate legislation,” observed Justice Lodha.
“Unless it is done, how can a decision be taken or can the central government decision be implemented?” he asked.
The court said this when Vahanvati told the court that amending the 2000 regulations was a legislative process which would take time and the same was not a precondition for opening up the single or multi-brand retail sector or the aviation sector, broadcast or power sectors for FDI.
The attorney general told the court: “I have asked them (RBI). They are expediting. Once exercise under Section 6(2) of the FEMA was done, then it becomes an authorised list.”
The court appeared accommodative on the government’s position when it brushed aside the suggestion to stay the government’s decision easing FDI norms till the mechanism giving it legal backing was in place.
“There is no problem, it is a legal process which has to be taken to its logical conclusion,” Justice Lodha said, adding “we want the compliance of legal requirement”.
As Vahanvati pointed to the time-consuming process of effecting the amendment, Justice Lodha said: “Legislation that is necessary can be done in minutes and hours. It has been done in the past. It will be done in future.”
Petitioner Sharma sought suspension of the government’s decision in the interregnum period but the court said that “at best it would be an irregularity, which will be curable after regulations are amended”.
The court would next hear the matter Nov 5.