K’taka HC Directs Google India To Deposit 50% Penalty For Flouting Forex Rules

The Karnataka High Court (HC) has reportedly directed Google India and its three senior executives to deposit half of the fines imposed by the Enforcement Directorate (ED) for allegedly flouting forex rules. 

As per Economic Times, the HC, in a judgement passed last month, directed the company and the executives to deposit the penalties in the form of bank guarantees. 

It is pertinent to note that the ED had imposed a penalty of INR 5 Cr on Google India and additional cumulative fines worth INR 25 Lakh on its three executives for flouting certain provisions of the Foreign Exchange Management Act (FEMA), 1999. 

As per the report, the HC bench, comprising Justice V Kameswar Rao and Justice S Rachaiah, set aside a previous order of the FEMA appellate tribunal in Delhi, while allowing the ED’s appeal against Google India. 

In its order, the HC directed the big tech major to “keep the bank guarantees alive till the decision of the appeals before the Tribunal. The furnishing of bank guarantees shall be subject to the outcome of the appeals which are pending before the tribunal”.

The ED had accused Google India of flouting forex provisions for undertaking two transactions worth INR 363.79 Cr and INR 1.08 Cr with Google Ireland and Google US, respectively. 

As per the report, Google Ireland granted a right to Google India to distribute (or sell) online ad space under the ‘Adwords Programme’ (now Google Ads) to advertisers in India, in return for a distributor fee. The big tech major’s Indian subsidiary had a similar purchase transaction with its US parent, too.

Arguing before the HC, the ED contended that Google India should have paid a distribution fee to market the “Adwords” of Google Ireland. The agency argued that the deal was a commercial loan in the form of supplier’s credit as defined in the external commercial borrowings (ECB).

These transactions, as per the ED, were categorised as commercial loans and required the RBI’s prior approval.

However, Google India’s counsel challenged the interpretation on the grounds that there were “no loan agreements stipulating a drawdown and repayment schedule and that there had been no understanding, express or implied, between the parties”.

The ED also argued that INR 363 crore owed to Google Ireland remained outstanding for over four years until May 2014, while INR 1 Cr for services from Google US had been unpaid for more than seven years until January 2014. 

Meanwhile, Google India claimed that it had complied with existing norms. 

The latest HC order comes more than five years after a FEMA appellate tribunal, in January 2019, suspended the penalties. At the time, the tribunal noted that the chances of the success of Google India’s appeal were more than its failure. Subsequently, the ED filed a second appeal against the tribunal’s order.

This is not the first time that Google has landed in choppy regulatory waters in the country. The big tech major is also contesting more than INR 2,200 Cr in fines imposed by the Competition Commission of India (CCI) for allegedly abusing its dominance in the Android devices market and with regards to its Play Store policies. 

The company is also being probed by the competition watchdog for abusing its dominant position in the app store and digital advertising markets.