Bengaluru: In a significant legal setback for Google India, the Karnataka High Court has overturned the interim relief previously granted to the tech giant by an appellate authority, effectively reinstating a penalty of Rs 5.25 crore imposed by the Enforcement Directorate (ED) for violating provisions under the Foreign Exchange Management Act (FEMA).
Background: FEMA Violation by Google India
The case involves allegations that Google India conducted financial transactions worth hundreds of crores with its parent entities—Google Ireland and Google Inc. (USA)—without obtaining the necessary approvals from the Reserve Bank of India (RBI) or the central government, as mandated by FEMA. Specifically, the ED had found that Google India made payments of Rs 363.79 crore to Google Ireland and Rs 1.08 crore to Google Inc. in relation to advertising and purchase of intellectual property.
The ED had levied penalties totaling Rs 5.25 crore, including Rs 5 crore on Google India, Rs 20 lakh on its directors Kent Walker and Lloyd Hartle Martin, and Rs 5 lakh on former CFO Hariraju Mahadevu (currently Vivek Chhabra).
Appellate Tribunal Relief
Following the ED's penalty, Google India approached the appellate authority under FEMA in New Delhi. The tribunal had stayed the ED’s order, reasoning that enforcing a deposit of the penalty amount could cause hardship to the petitioners. It had observed that, based on the documents submitted, Google’s appeal appeared to have merit and required further consideration before enforcing any deposit.
High Court Overrules Stay, Mandates Partial Payment
The division bench comprising Justice V. Kameshwar Rao and Justice S. Rachaiah set aside the appellate tribunal's interim order. The High Court ruled that the tribunal’s stay on ED’s directive lacked sufficient justification, particularly considering the Supreme Court’s interpretation of the balance between undue hardship and protecting public interest.
The court has now directed Google India to furnish a bank guarantee for 50% of the penalty amount—approximately ₹2.62 crore—within two weeks. This guarantee must be maintained until a final decision is rendered in the case. The court clarified that the guarantee is subject to the outcome of the appeal and does not amount to final settlement.
Court Cites Supreme Court’s Stand on ‘Undue Hardship’
The High Court also referred to past Supreme Court rulings, which elaborated on what constitutes "undue hardship" and emphasized that financial inconvenience alone does not suffice to override statutory obligations. The bench stressed that the tribunal's interim order, which had granted blanket relief from payment, did not adequately balance the ED’s right to enforce compliance with FEMA.
ED's Concerns About Revenue Recovery Addressed
In its ruling, the High Court also noted that if the ED’s appeal is ultimately successful, its ability to recover the full penalty from Google India could be compromised. Hence, the court found it necessary to impose conditional safeguards such as the partial bank guarantee, to protect the interests of the revenue.
What Lies Ahead
The matter will now continue before the appellate authority for final adjudication. However, this High Court order represents a legal blow to Google India, signaling judicial endorsement of ED’s concerns regarding large-scale financial transfers without regulatory approval.
Google India has not yet responded to the High Court’s latest directive.
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