The Centre may have to defer till November 5 implementation of its decision allowing FDI in retail trading with the Supreme Court on Monday pointing to a technical glitch.

A bench comprising Justices R M Lodha and A R Dave agreed with PIL petitioner M L Sharma that the decisions relating to 51% FDI in multi-brand retail trading and 49% in civil aviation sector and power exchanges were not in consonance with the Foreign Exchange Management (Transfer of Issues of Security by a Person Resident Outside India) Regulations, 2000.

Attorney general G E Vahanvati pleaded that amendments to the regulations to support the new FDI decisions were a mere technicality and showed to the court RBI's circular drawing attention of authorized dealer banks about the change in policy relating to receiving foreign direct investments.

Though it refused stay on implementation of the FDI decision, the bench asked, "Can the policy decision be in conflict with express provisions made in the regulations? The regulations provide a certain cap on foreign direct investments in various sectors. Will changing the limit of FDI not be in direct conflict? The government has to follow the legal process. These are matters which have huge impact."

Sharma in his PIL had pointed out that Regulation 5 read with provisions of FEMA strictly prohibited FDI in retail trading (except in single-brand retailing), atomic energy, lottery, gambling and betting, business of chit funds, Nidhi company, trading in transferable development rights (TDRs) and activities/sectors not opened to private investment.

The bench said, "Amendment to the regulations is a must before the policy is implemented. We will issue notice and seek an affidavit from the Union government." This buoyed Sharma to seek a stay on the implementation of the new FDI decisions till the court took a final view on it.

Dissuading the bench from formally taking note of the PIL, Vahanvati said he had already spoken to the RBI governor and the process for amendment had commenced. "The RBI has started the process and has drafted amendments to the regulations. It will soon be sent to the legislative department for formal notification. I will tell them to expedite the process. We need just two weeks to complete the process," he said.

The AG succeeded in dissuading the court from issuing notice to the government and passing any interim order based on Sharma's request. The court gave time till November 5 for amendments to the Regulation after Vahanvati said, "The government has taken a decision to boost the economy. At this juncture, we cannot give a signal contrary to what the government has done."

When Sharma pressed for a stay on implementation of the policy till November 5 by citing a media report that on October 19, the government was going to consider 50 proposals for FDI in various sectors, the bench said, "At best (non-amendment of regulations) may be an irregularity which can be cured. As soon as the amendment is carried out, the policy decision will have legal sanctity."

But the court did express concern over the way RBI issued a circular intimating authorized dealers, who receive the foreign direct investment, but did not take steps to amend the regulations. "Can the RBI by issuing a circular amend a subordinate legislation like regulations," it asked.

The AG explained that amendment of the regulations was not a pre-condition for the government's policy decision on widening FDI and it was an action consequential to the Union Cabinet's policy decision.

The bench said, "Unless the amendment is done, can the policy take effect? That is the only issue for scrutiny before the court." (Times of India)