The apex court made this observation while hearing a Public Interest Litigation that was filed by Advocate ML Sharma. He argued that retail trading is barred under the existing FEMA regulations.
Attorney General GE Vahanvati admitted that the government had erred since the RBI had not effected any change in the regulations after 2008.
The Supreme Court bench of Justice RM Lodha and Justice AR Dave then said that "it is an irregularity that is curable and as soon as amendment is brought, it would be cured."
Stating that this irregularity is not enough to warrant a stay on the policy, the court emphasised that RBI must amend the rules without delay.
"This is a must before the policy is given a legal shape," the judges said. They demanded to know when the RBI will take the necessary steps. Vahanvati assured that he will ask the RBI governor to immediately amend the FEMA regulations.
The court, however, rejected the petitioner's other contention that prior approval from the President or Parliament was needed for the Centre's notification on FDI in retail.
"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," the judges said.
Pointing out that Parliament does not look into policies, the court said that a policy can be deemed as incorrect only if the relevant notification is ultra vires of the law.
The court has given the government time till the next hearing on Nov 5 to amend the FEMA regulations.
It is to be noted that the Trinamool Congress walked out of the ruling coalition just days after the UPA allowed 51 per cent FDI in retail. The exit of the Mamata Banerjee-led party meant that the government was reduced to a minority.