Retail FDI can go ahead with RBI nod: SC

The Supreme Court today refused to stay the government's decision to allow foreign direct investment policy in the retail trade, even as it largely upheld the contention of a litigator saying that rules were not properly followed before announcing the decision.

A bench of justices R M Lodha and A R Dave said that the policy suffers from "curable" irregularity, which could be cleared by bringing the Reserve Bank of India into the picture. The central bank needs to amend the Foreign Exchange Management Act (FEMA) before the new FDI norms can be implemented, the bench ruled.

The judges pulled up the government on the politically controversial issue, saying the RBI should have amended the FEMA regulations before the government announced the FDI policy. It directed the regulator to remove the lacunae so as to give final shape to the policy.

The case was filed as a public interest litigation filed by a petitioner, M L Sharma. He pointed out that the central bank's approval was needed before the centre could enact its policy of allowing FDI in the retail sector.

The court observed that the regulations should have been amended before the centre issued the FDI notification. But refusing to grant any stay on the matter, it said that the irregularity can be cured by an RBI amendment of FEMA.

 "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. It added that the policy cannot be stayed just because of this irregularity. The case will be heard further on 5 November.