New Delhi, Oct. 5: The Supreme Court has sought the assistance of the government's top law officers to provide "clarity" on administrative procedures allowing foreign direct investment in multi-brand retail.
However, the court took care to underscore that the retail decision was "a policy matter" and "policy is exclusively in the domain of the government of the day".
The court did not issue a notice to the Centre on a petition challenging the liberalisation of multi-brand retail. The bench, which posted the next hearing for October 12, directed the petitioner to delete the name of the Prime Minister.
A bench of Justices R.M. Lodha and A.R. Dave asked the petitioner to serve the copy of the petition to attorney-general G.E. Vahanvati or solicitor-general Rohinton Nariman, saying it needs some clarification.
"We are concerned and want a clarification that in the absence of a regulation of the RBI, can this circular have legal sanction? We just want to have little clarity on the issue because some link is missing," the bench said.
The hour-long hearing was marked by the sensitivities the question of policy decisions had acquired in the light of another bench's decision to cancel 2G licences. A recent Supreme Court opinion on a presidential reference had also upheld policy as the government's exclusive preserve.
The bench said today that opening the retail sector to FDI was a policy matter and "policy is exclusively in the domain of the government of the day. Some may say it is good and some may say it is bad but nothing is ultra vires (beyond the legal power)."
"These are matters dealt with exclusively by ministries," the bench said, adding that policy is never required to be placed before Parliament.
The bench said the correctness of the policy had to be challenged on the touchstone of the circular whether it is ultra vires of the law or not.
The court was hearing a PIL filed by advocate M.L. Sharma, who alleged that the notification was issued without the authority of law as approval of neither the President nor Parliament was secured.
The bench, however, observed that "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".
While seeking the assistance of law officers, the bench told the petitioner that "there may be some provisions which you are unable to show. Do one thing, for little clarification serve this writ petition to the attorney-general or the solicitor-general."
The bench wanted to know from Sharma whether after the government's circular on FDI in retail, any follow-up circular was issued by the Reserve Bank of India (RBI) as there is some missing link in the petition.
The advocate said the RBI had not issued any regulation after 2008.
The advocate contended that the recent FDI policy decision was not in consonance with the RBI regulations under Fema (the Foreign Exchange Management Act).
When the advocate said the opening of FDI in retail sector would affect the livelihood of 35 crore families as they were self-employed in kirana, food, vegetables and other small businesses and more than 20 crore people were trading on footpaths, the bench asked him to refrain from making such submissions.
"Do not bring all these submissions. The government perspective is different from your perspective. They feel differently and think that it will give more livelihood. Your concept may not be correct. We are on the legality and constitutionality of the policy," the bench said.
FDI policy has always been shaped by the department of industrial policy and promotion (DIPP) in the Union commerce ministry with periodic announcements through press notes on sectoral policy changes.
FDI is treated as a "capital account transaction", which is regulated by Fema of 1999. Fema is the underlying legislation for the conduct of the FDI policy. Before Fema was enacted, the overarching legislation that governed FDI was the draconian Foreign Exchange Regulation Act (Fera).
Whenever an FDI press note is issued by the department, the RBI follows up with a simultaneous notification in the form of amendments to the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000.
These notifications take effect from the date that the press note is issued. If there is any conflict, the relevant Fema notification prevails.
On March 31, 2010, the government decided to consolidate all the press notes issued till then (many of them overrode investment ceilings and sectoral policy attributes outlined in earlier press notes) into a 103-page circular issued by the DIPP. It was called Circular 1 of 2010 and came into effect from April 1 that year.
Initially, the government planned to issue a consolidated circular every six months to update the FDI policy. Now, it usually updates it once a year in April as there have been very few policy changes in the recent past.
The flurry of press notes issued last month (which included the contentious one of multi-brand retail) will be consolidated in the FDI circular next April.