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Supreme Court refuses to stay FDI policy in retail, but points out legal mis-step

New Delhi, Oct 15 (PTI): The Supreme Court on Monday refused to stay the Union government’s decision to allow foreign direct investment or FDI in the retail sector, but pointed out that the government had skipped a legal step required before announcing it.

A bench of justices R M Lodha and A R Dave said the policy suffers from “curable” irregularity of want of legal sanction and asked the Reserve Bank of India to amend the regulations under the Foreign Exchange Management Act (FEMA) to allow implementation of the government's policy.

The bench said the RBI should have amended the FEMA regulations before the implementation of FDI policy and asked the banking regulator to take steps to remove the lacunae in the way of giving a final shape to the policy.

The court observed that the regulations should have been amended before the Centre issued the notification, but clarified that the irregularity can now be cured with RBI amending the FEMA regulations.

“At least it can be said that it is an irregularity that is curable and as soon as amendment is brought, it would be cured,” the bench said.

During the argument, the court said the policy cannot be stayed just because of this irregularity.

Attorney General G E Vahanvati submitted that he would talk to the RBI Governor to take immediate steps for bringing amendment in the FEMA regulations.

The bench, after hearing his submission, adjourned the matter for further hearing on November 5.        The court was hearing a public interest litigation or PIL filed by lawyer M L Sharma, who has said that RBI's nod was missing from the Centre's policy allowing FDI in retail sector.

On October 5, the apex court had sought the assistance of top law officers in hearing the PIL filed by Sharma against opening the multi-brand retail sector to the FDI, saying there was a need for clarification since some link is missing pertaining to the RBI regulation on the issue.

Sharma has said in his petition that that retail trading is strictly prohibited under the law of FEMA under which the power to come out with a circular is vested with the RBI, which has not issued any regulation after 2008.

He has alleged in his PIL that the Centre's notification was issued without the authority of law as approval of neither the President nor the Parliament was secured.

The apex court had, however, rejected this stand, saying “this assumption that the policy has to be in the name of the President is flawed and unfounded.”

“The Constitution does not provide that the policy should be in the name of the President,” the bench said.

It further said a policy does not have to be placed before Parliament.

The apex court had also said that correctness of the policy has to be challenged on the touchstone of the circular --whether it is ultra vires the law or not.