A bench of justices R M Lodha and A R Dave, however, said that the policy suffers from "curable" irregularity of want of legal sanction and asked the RBI to amend the Foreign Exchange Management Act (FEMA) regulations to allow implementation of the government's policy.
The bench said the RBI should have amended the FEMA regulations before the implementation of FDI policy and asked the banking regulator to take steps to remove the lacunae in the way of giving a final shape to the policy.
The court observed that the regulations should have been amended before the Centre issued the notification, but clarified that the irregularity can now be cured with RBI amending FEMA regulation.
"At least it can be said that it is an irregularity that is curable and as soon as amendment is brought, it would be cured," the bench said.
During the argument, the court said the policy cannot be stayed just because of this irregularity. Attorney General G E Vahanvati submitted that he would talk to the RBI Governor to take immediate steps for bringing amendment in the FEMA regulations.
The bench after hearing his submission adjourned the matter for further hearing on November 5.
The court was hearing a PIL filed by lawyer M L Sharma, who has said that RBI's nod was missing from the Centre's policy allowing FDI in retail sector.