19 February 2014

Employees seconded to liaison office in India - FEMA not applicable

Delhi High Court has held that expatriate employees of the Head Office (HO) of foreign company, posted in India with the Liaison Office (LO) in India, continue to be employees of the HO. The court negated the findings of the Appellate Tribunal that employees of the HO, seconded to the LO, are its "borrowed employees". In the present case, these deputed employees continued to receive their salaries from the HO. However, in order to meet their day-do-day expenses while they are in India, the LO paid the Indian component of their salaries from the amount remitted to it by the HO for that purpose. Show cause notice was issued to the LO-appellant on the ground that salaries paid abroad were actually salaries payable by the LO in India and the same were being paid by the HO without proper permission of the RBI and hence causing of the payment overseas without the previous permission/exemption of RBI, was a contravention of Sections 8 and 9 of FERA.

The court, however, held that the liability to pay salaries to such employees continued to be that of the parent corporation and since there was no privity of contract between the LO and the expatriate employees of the HO, there was no liability on the LO to pay their salaries.

Relying upon Kerala High Court order in the case of Abdul Mohammed - ILR 1988 (1) Kerala 378, it was held that there was no question of the LO having acquired or borrowed from the parent company any foreign exchange to meet any liability owed by the LO to the expatriate employees, seconded to it by the parent company. It was also held that there was further no question of the LO “repaying” its HO the sum paid as salaries. [Mitsubishi Corporation v. Directorate of Enforcement - Delhi High Court decision dated 3-2-2014 in CRL. A. No. 40 of 2008]


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