ED's probe against BBC India: How it questions the validity of FEMA over its own rules

The recent case for allegedly violating foreign exchange norms registered against British Broadcasting Corporation (BBC) by India’s Enforcement Directorate has brought to the fore the validity of clarification issued by the commerce ministry under FEMA (Foreign Exchange Management Act) over its own rules and regulations.

Ministry of Commerce through DPIIT (Department for Promotion of Industry and Internal Trade) in a press note on September 18, 2019, reviewed Foreign direct investment (FDI) policy and amended the same wherein one sector was added i.e., uploading/streaming of news and current affairs through digital media under the head of broadcasting content services wherein 26 per cent FDI cap was introduced that too with prior Government approval.

There was no evidence in foreign direct investment policy for uploading news through digital media until August 2019. Earlier TV channels were only covered with respect to news and current affairs. Therefore, companies engaged in uploading/streaming of news and current affairs through digital media was falling under residual sector which means 100 per cent FDI was allowed under automatic route earlier to amendment.

Through the press release followed by amendment in NDI rules, the Govt. decided to restrict FDI in said sector and introduced a cap on foreign investment up to 26 per cent under approval route. It is a general supposition that any new law introduced is presumed to be prospective in nature unless expressly stated to be retrospective. Apparently, questions were raised as to the scope of entities sought to be covered and applicability of said amendment to existing companies (i.e., companies engaged in uploading/Streaming of news and current affairs and having foreign investment was more than 26 per cent) as there was no clarity provided in the notification dated December 5, 2019 amending Non-debt Instruments (NDI) rules.~

Subsequently on October 16¸, 2020, Ministry of Commerce and Industry clarification mandated existing companies to adhere to these norms in one year time and enlarged the meaning of companies who are uploading and streaming news and current affairs through digital media. Along with such entities, news agency which gather, write and distribute/transmit news, directly or indirectly, to digital media entities were also covered as per clarification.

The issue related to applicability to existing companies as well as entities to which new FDI policy will be applicable is made clear by commerce ministry by issuing clarification dated October 16¸, 2020. So, whether the ministry of commerce has any power to issue clarification/circular under FEMA and whether circular shall have same validity as to rules/regulation is a question come to forth. Consequently, there is an ambiguity whether on the part of BBC is it mandatory to reduce its holding in Indian entity to 26 per cent or not and whether to secure government approval on it or not.

There can be two arguments with respect to issues raised above, whether such clarification issued by ministry really enlarges the scope and hence to be checked for validity of the same or whether FEMA has to be interpreted by intention and not in verbatim and therefore it is not expanding the scope and clears the ambiguity.

With reference to first argument, if we check supreme court’s view on circulars issued by Department of Company Affairs in matters of Company law, In Bhagwati Developers V. Peerless General Finance and Investments Co. Ltd. the Supreme Court held that circular does not gave any mandatory effect. These circulars are merely advisory in character.

Therefore, in future if the matter reaches to the court, the court may determine whether clarification is to clear the ambiguity, or it is expanding the meaning to include matters which are not falling within main provision and accordingly decide the validity of said clarification.~

As stated earlier, there can be two arguments, with respect to the second argument whether FEMA has to be interpreted in verbatim or by intention, if we consider the objective behind enacting FEMA, 1999 it is mainly w.r.t protection of national interest. So, while deciding the validity of circulars, if such matter reaches the court, the court may consider the facts and decide accordingly.

There is also a principle of interpretation ‘what you cannot do directly cannot do indirectly’, the cognizance of the same is also required to be taken while arriving at the conclusion to said issue, therefore if the said enlarged meaning/scope of entities are indirectly included under head of Broadcasting Content services, the view may be taken that the clarification is not enlarging the meaning of entities covered considering the intent of said amendment.

If at all the matter reaches court in this case of BBC, the court will throw some light in abovementioned issues.

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