This article on the validity of Press Notes issued by DIPP in absence of subsequent amendments is written by Sanjna Vijh from Bharati Vidyapeeth University, Pune & student of NUJS Diploma in Business laws & Entrepreneurship Administration.

The Government of India, through its various organs, releases Press Notes to make announcements or as a policy document for the information of general public. These press notes attain validity without undergoing any legislative process. The Department of Industrial Policy and Promotion (DIPP) is empowered by law to make such policy pronouncements for Foreign Direct Investment (FDI) Policy through press notes. However, since the FDI Policy has major economic consequences, it is required that the Reserve Bank of India (RBI) provides its sanction to the press notes before the suggested changes are incorporated in the Foreign Exchange Management Act, 1999 (FEMA). Owing to the delays of procedure, RBI’s sanction may take some time after the release of press notes. This article aims to examine the legality of press notes without the sanction of RBI and the need for compliance of such press notes right after they are released by the DIPP.

• DO PRESS NOTES HAVE THE FORCE OF LAW?

The DIPP is constitutionally empowered to make executive policy on FDI as per the Government of India (Allocation of Business) Rules, 1961[1] framed by the President of India.

Issuing Press Notes and Policy circulars is a part of the executive action of Union Government. Article 73 of the Constitution of India states that the executive power of Union shall extend to the matters with respect to which Parliament has the power to make laws.

In addition, FDI falls under the residuary Entry 97 of the Union List which makes it subject to executive action. Therefore, the Union Government through DIPP makes policy pronouncements on FDI through Press Notes/Press Releases/Policy Circulars as an executive action.

The Supreme Court in Ref. By President[2] while examining questions of law with respect to actions of the Election Commission of India, defined what are the executive powers of the Union Government saying, “It is the executive that has the main responsibility for formulating the government policy by “transmitting it into law” whenever necessary. “The executive function comprises both the determination of the policy as well as carrying it into execution. This evidently includes the initiation of legislation, the maintenance of order, the promotion of social and economic welfare, the direction of foreign policy, in fact, the carrying on or supervision of the general administration of the State”.

In Ram Jawaya Kapur v. State of Punjab [3], the court adjudicated upon a dispute regarding the validity of executive orders by the State Government and whether the executive requires the sanction of legislation to exercise its functions. It was observed by the Supreme Court that, “However, the Executive can never go against the provisions of the Constitution or of any law, but it does not follow that in order to enable the executive to function there must be a law already in existence and that the powers of executive are limited merely to the carrying out of these laws.”

Thus, it can be concluded from the above stated judicial decisions and constitutional provisions that the Press Notes/Releases/Clarifications and FDI Policy Circulars released by DIPP in an exercise of the executive functions have the force of law.

 

• JUDICIAL REVIEW OF PRESS NOTES (EXECUTIVE ACTIONS):

Since Executive Actions have the force of law, they are also subject to judicial review as legislations. The extent of judicial review has been explained by the Courts in various decisions over a period of time.

The Supreme Court has defined the extent of judicial review with respect to executive actions in M.P. Oil Extraction & Anr. V. State of M.P. and Ors. It has been observed that, unless the policy framed is absolutely capricious, unreasonable & arbitrary and based on mere assertion without proof of the executive or is unconstitutional or invalid in the statutory mandate, court’s interference is not called for.

The above has been reiterated recently by the Supreme Court in Manohar Lal Sharma v. Union of India[4]. The Petitioner, in this case, challenged the validity of Press Notes 4,5,6,7,8 (2012 Series) allowing FDI in retail in the absence of subsequent amendments by RBI to FEMA Regulations, 2000. The Petitioner also argued the Press Notes were against provisions of FEMA Regulations in force.

In this case, the Supreme Court directed the RBI by an interim order to correct this irregularity (emphasis added) and make required amendments to the Regulations, 2000 within two weeks of the order. With that order, the Court refused to stay executive decision for FDI in retail as introduced by the Press Notes. The Court called it a “curable irregularity” and not a reason enough to stay the FDI in retail policy pronouncement (emphasis added). Consequently, the amendments were made by RBI to the FEMA Regulations enforcing the policy in Press Notes.

In addition, the Court reiterated the principle from M.P. Oil Extraction judgment as, “On matters affecting policy, this Court does not interfere unless the policy is unconstitutional or contrary to the statutory provisions or arbitrary or irrational or in abuse of power.”

The Delhi High Court in, “Federation of Associations of Maharashtra, and Ors. v. Union of India and Ors.[5] wherein the case was regarding interpretation of the term ‘wholesale sale’ in the FDI Policy, held that “it is for the Government and not for the courts to interpret the term as the matter is one of policy decision and allocation of businesses and the FIPB functions as part of the concerned Ministry. It is the said concerned Ministry which has issued a clarification and, thus, the aspect is one of the internal functioning of the Government.”

This was reiterated by the Karnataka High Court in Radio House and Ors. v. Union of India[6] wherein the Court refrained from interfering in the task of defining term ‘cash and carry wholesale trade’ and held it was best to be left to Government which had formulated the policy of FDI.

 

• VALIDITY OF PRESS NOTE NO. 3 (2016 Series):

The DIPP has issued Guidelines for Foreign Direct Investment (FDI) on E-commerce through Press Note No. 3 (2016)[7] Series in March 2016. However, the RBI has not made consequent amendments to the Regulations as mentioned in the Press Note.

The Consolidated FDI Policy circular issued every year by Government of India through DIPP consolidates and supersedes all Press Notes/Press Releases/Clarifications/Circulars issued by the DIPP. The FDI Policy Circular 2016[8] which holds the force of law states in its Chapter 1: Intent and Objectives as follows:

1.1.2 The Government has put in place a policy framework on Foreign Direct Investment, which is transparent, predictable and easily comprehensible. This framework is embodied in the Circular on Consolidated FDI Policy, which may be updated every year, to capture and keep pace with the regulatory changes, effected in the interregnum. The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India makes policy pronouncements on FDI through Press Notes/Press Releases which are notified by the Reserve Bank of India as amendments to the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No. FEMA 20/2000-RB dated May 3, 2000). These notifications take effect from the date of issue of Press Notes/ Press Releases unless specified otherwise therein. In case of any conflict, the relevant FEMA Notification will prevail. The procedural instructions are issued by the Reserve Bank of India vide A.P. (DIR Series) Circulars. The regulatory framework, over a period of time, thus, consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc.

 As per the Policy, the Press Notes released by DIPP take the force of law from the date of issue. The regulatory framework for regulation of Foreign Investment includes the Press Notes, Clarifications issued by DIPP along with the Acts & Regulations. However, the Press Notes achieve a legal sanction by RBI notifications. In case of a conflict, the relevant FEMA Notification (notified by RBI) will prevail.

Also, it has been held by the Hon’ble Supreme Court that executive actions cannot prevail over existing legislations in Rajasthan State Industrial Development and Investment Corporation v. Subhash Sindhi Cooperative Housing Society Jaipur[9] as,

“Executive instructions without statutory force, cannot possibly override the law; consequently, any notice, circular, guideline etc. contrary to statutory laws cannot be enforced.”

Therefore, it can be concluded from the above information, that complying with Press Note 3 of 2016 issued by DIPP is a valid action unless there is a provision to the contrary in the FEMA Regulations or law in force.

 

• CONSEQUENCES OF NON-COMPLIANCE:

The FDI Policy Circular 2016[10] has also provided the penalty for violation or non-compliance of the Press Notes in Annexure 6 (3.1) as follows:

If a person violates/contravenes any FDI Regulations, by way of breach/nonadherence/non-compliance/contravention of any rule, regulation, notification, press note, press release, circular, direction or order issued in exercise of the powers under FEMA or contravenes any conditions subject to which an authorization is issued by the Government of India/FIPB/Reserve Bank of India, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contraventions where such amount is quantifiable, or up to two lakh Rupees where the amount is not quantifiable, and where such contraventions is a continuing one, further penalty which may extend to five thousand Rupees for every day after the first day during which the contraventions continues.

Hence, observing the judiciary’s opinion and legislative intent, it is advisable to comply with the directions issued in Press Note 3 of 2016 even in absence of subsequent amendments by the RBI which shall be notified in future.

 

References-

[1] http://cabsec.gov.in/writereaddata/aobarchieve/english/1_Upload_915.pdf

[2] MANU/SC/0891/2002

[3] AIR 1955 SC 549

[4] MANU/SC/0520/2013

[5] MANU/DE/1200/2004

[6] MANU/KA/498/2007

[7] http://dipp.nic.in/English/acts_rules/Press_Notes/pn3_2016.pdf

[8] http://dipp.nic.in/English/policies/FDI_Circular_2016.pdf

[9] MANU/SC/0115/2013

[10] supra