Karnataka HC Directs Google India, Executives To Furnish 50% Of FEMA Penalties As Bank Guarantee

Karnataka High Court

The Karnataka High Court on Tuesday directed Google India and three of its senior executives to furnish 50% of the total penalties imposed on them as bank guarantees, in connection with alleged violations under the Foreign Exchange Management Act (FEMA).

Penalty Details & Allegations

The Enforcement Directorate (ED) had earlier slapped a ₹5 crore penalty on Google India, along with an additional ₹45 lakh combined penalty on three company officials. The case stems from alleged contraventions of Section 6(3)(d) of FEMA, involving foreign transactions totalling ₹364 crore.

According to the ED, the violations relate to payments made by Google India to two foreign arms of the company: Google Ireland and Google US. Specifically, it claimed that around ₹363 crore, owed to Google Ireland as distributor fees, remained unpaid for over four years until May 2014. Additionally, another ₹1 crore, meant for equipment purchased from Google US, was allegedly unpaid for over seven years, until January 2014.

The ED argued that these payments qualified as commercial loans, which would require prior approval from the Reserve Bank of India (RBI)—approval the agency contends was not sought.

Google India Denies FEMA Breach

Google India has firmly disputed the ED’s classification of these transactions as foreign exchange borrowings. The company stated that there were no loan agreements, no deferred payments, and no interest involved, which are typical indicators of a loan.

It further asserted that the company had complied with an RBI circular issued on July 1, 2014, and maintained that these transactions did not violate FEMA provisions.

Previous Stay

Back in January 2019, the Appellate Tribunal for FEMA in Delhi had granted a stay on the penalties, noting that Google India’s appeal “appeared to have merit.” However, the ED challenged this by filing second appeals, arguing against the tribunal’s interim relief.

A division bench of the Karnataka High Court, comprising Justices V Kameshwar Rao and S Rachaiah, reviewed the matter and observed that the tribunal’s earlier decision was based only on a preliminary assessment of the facts.

The High Court has now instructed Google India and the three senior executives involved to submit bank guarantees equivalent to 50% of the total penalties—amounting to ₹2.725 crore—within two weeks.