St of Problem: Notification passed amending FEMA, to allow 51% FDI

in multi retail brands and treating the amendment as law of the land,
before getting parliamentary approval.
Foreign Exchange Management Act (FEMA), 1999:
FEMA was passed in the winter session of parliament in the year 1999 to replace Foreign
Exchange Regulation Act. FEMA was an act to consolidate and amend the law relating to
foreign exchange with the objective of facilitating external trade and payments and also for
promoting the orderly development and maintenance of foreign exchange market in India.
Apart from being applicable all over India, the Act also applies to all branches, offices and
agencies outside India owned or controlled by a person residing in India and also to any
contravention there under committed outside India by any person to whom this Act applies.
To ensure that the provisions of the Act are carried out correctly, certain rules and
regulations have to be made from time to time
According to Section 46 of FEMA, 1999 the Central Government, and- according to Section
47 of FEMA, 1999- the RBI, respectively have the power to make rules and regulations to
carry out the provisions of the said Act.
FDI:
FDI is the abbreviation for Foreign Direct Investment. FDI is direct investment into
production or business in a country, by a company in another country, either by buying a
company in that country or by expanding operations of an existing business in that country.
In India, The Government has put in place a policy framework on FDI, which may be updated
from time to time to keep up with the changing environment. The Department of Industrial
Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India makes
policy pronouncements on FDI through Press Notes or Press Releases which are notified by
the Reserve Bank of India as amendments to the Foreign Exchange Management (Transfer
or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No.
FEMA 20/2000-RB dated May 3, 2000). Unless specified otherwise, these notifications take
effect from the date of issue of Press Notes or Press Releases. In case of any conflict, the
relevant FEMA Notification will prevail. The instructions are issued by the Reserve Bank of
India vide A.P. Dir. (series) Circulars.
Notification allowing 51 per cent FDI in Multi Brand Retail Trading:
Retail: The High Court of Delhi defines the term retail as a sale for final consumption in
contrast to a sale for further sale or processing i.e. a sale to the ultimate consumer.
In RBI/2012-13/217 A.P. (DIR Series) Circular No.32 September 21, 2012, FDI up to 51 per
cent was permitted in Multi Brand Retail Trading under the government route, subject to
the terms and conditions specified in Press Note No. 5 (2012 series) dated September 20,
2012 issued by the Department of Industrial policy & Promotion, Ministry of Commerce &
Industry, Government of India. Also, the notifications were tabled before both houses of the
parliament, under Section 48 of FEMA, on 30
th
November 2012.
This notification about 51 per cent investment in FDI operationalises the decision taken by
the cabinet on 14
th
September 2012. It comes with the important clauses like,- the State
Governments and Union Territories would be free to take their own decisions in regard to
implementation of the policy, Fresh agricultural produce may be unbranded and
Government will have the first right to procurement of agricultural products.
.The notification also released a list of States and Union Territories which have given their
approval for allowing 51 per cent FDI in multi-brand retail. All the applications would be first
processed by the Department of Industrial Policy and Promotion (DIPP), after which they
will be placed before the Foreign Investment Promotion Board (FIPB) for approval. The
notification states that retail trading in any form, by means of e-commerce, would not be
permitted for companies with FDI, engaging in multi-brand retail trading. The States and
Union Territories which have given their approval for allowing 51 per cent FDI in Multi Brand
retail trading are:
Delhi
Assam
Maharashtra
Andhra Pradesh
Rajasthan
Uttarakhand
Haryana
Manipur
Jammu and Kashmir
Union Territory of Daman and Diu and Dadra and Nagar Haveli.
VIEW OF THE SUPREME COURT:
Advocate M.L Sharma filed a Public Interest Litigation (PIL) in the Supreme Court of India
challenging the new policy decision which allowed 51 per cent FDI in Multi Brand Retail
trading. The petitioner stated that the new policy was against the law as it had been taken
without the approval of the parliament or the president of India and he further stated that
the policy lacked the approval of RBI, which made it illegal according o FEMA, 1999.
The Supreme Court, on November 5
th
, posted the matter to 22
nd
January 2012. In previous
hearings of the said case, the bench consisting of R M Lodha and A R Dave had stated that
policy making is the sole prerogative of the executive and hence it is not necessary to place
policies before the parliament. The bench had also said that it is not constitutionally
required that a policy should be in the name of the President.
On the last hearing on October 15
th
, the Supreme Court had refused to stay the Centre's
decision to allow FDI in retail sector saying that the policy suffers from "curable" irregularity
of want of legal sanction and asked the RBI to amend the FEMA regulations to allow
implementation of the government's policy; during the hearing on November 5
th
, the
Attorney General informed the bench that RBI has amended the Foreign Exchange
Management Act (FEMA) regulations according to Section 47 of FEMA, 1999 to allow
implementation of the government's policy and that it has also been notified and published
in the Gazette of India no.795 (E) on October 30, 2012.
The bench also stated that presumption that the amendment would not be placed in the
winter session of the parliament is immature, since Section 48 of FEMA, 1999 requires the
amendment to be tabled before the Parliament, and they will have to do it.
TABLED FOR APPROVAL OF THE PARLIAMENT:
The Government on November 30, 2012 tabled the amendments made to FEMA, 1999
allowing 51 per cent FDI in multi-brand retail. The notifications were tabled as per the
Section 48 of the 1999 Act which requires their acceptance by both Houses of Parliament.