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Introduction:
Exchange control:
In India, foreign exchange business is governed by the foreign exchange regulation act 1973. The reserve bank of India administers the exchange control. A study of exchange control regulations forms a part of the study of foreign. The types of transaction which are affected by the foreign exchange regulation act are, in general, all those having international financial implications. The regulation framed by the reserve bank in regard to foreign exchange are contain in the exchange control manual. The manual sets forth the authority granted to banks to buy and sell foreign exchange and to do other thing incidental there to, as also the procedures to be followed by them. It also contains exchange regulation act and notification issued by central government and reserve bank relating to exchange control.
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market, vegetable market etc. it may not be an actual meeting place for the participants(sellers & buyers ). The term foreign exchange market is used in an abstract sense only, meaning a number of buyers and sellers systematically in contact with each other for the purpose of transacting foreign exchange business. This is the sense in which the term market is used in economics. In fact, it is said that the foreign exchange market is fit example of Prof. Marshalls definition of a perfect market.
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passed to replace FERA to manage the Indian Foreign Exchange Market in a better manner.
FOREIGN (FEMA)
EXCHANGE
MANAGEMENT
ACT,
1999
A bill based on the recommendations of the Task Force, was introduced in the Lok Sabha on 4 August, 98. The Bill was referred to the standing committee on Finance which submitted its report to the House on 23 December' 98 with suggestion and modifications. The 12th Lok Sabha was dissolved before any decision could be taken on the bill. The Bill subsequently lapsed. The bill was again introduced in the 13th Lok Sabha on 25th Oct'99. The presidential Assent was received on 6th Jan 2000. Finally the FEMA came into operation w.e.f. 1st June 2000.
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If a request is made from the overseas for cancellation of Inward Remittances, Authorized Dealers may do so without referring to Reserve Bank, if refunds are not to compensate for a loss. APPLICATION FOR REMITTANCES IN FOREIGN CURRENCY: A person firm or bank may apply to an Authorized Dealer for remittances in any foreign currency to a beneficiary abroad. Application should be made in FORM -A1, if the purpose of remittance is import of goods into India. For any other purpose in Form -A2 The Authorized Dealer may sell the foreign Exchange applied for if he think fit provided it is within his powers, and the purpose of remittance is an approved one. MODE OF PAYMENT OF RUPEES AGAINST SALE OF
FOREIGN EXCHANGE: In case of sale of foreign Exchange or remittance foreign Exchange amounting to Rs. 20,000 or more the payment received by the Authorized Dealer, from the applicant should be through a crossed cheque drawn on the applicant bank account or on the bank account of the Firm/ Company. Payment can also be accepted in the form of a Banker's cheque / Pay Order / Demand Draft. Receipt of Payment in cash in case of such sale of foreign Exchange or remittance in foreign Exchange is strictly prohibited. EXCEPTION: However where purpose of sale of foreign exchange is for travel abroad for business etc, cash may be received by Authorized Dealer from Applicant upto Rs. 50,000/Where the rupee equivalent for drawing foreign exchange exceeds Rs. 50,000 either for any single installment or for more than one installment reckoned--- together for a single journey / visit it should
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be paid by the traveler by means of a gross cheque / demand draft/ pay order as stated above. TRAVELERS CHEQUE NEGOTIABLE ONLY IN INDIA: Rupee Travelers cheque cannot be encashed outside India, if they are issued solely for use within India. In such a case they cannot be taken or sent out of India. Reimbursements should be strictly refused where such travelers cheques have been encashed outside India. REIMBURSEMENT OUTSIDE INDIA: Rupee Travellers cheque, which are issued by authorized dealers, encashable outside India, may be reimbursed by Authorized Dealers or by their selling Agent. IMPORT OF FOREIGN CURRENCY NOTES: When the stock of foreign currency notes with Authorized Dealer is not adequate for meeting their normal business requirement they could import foreign currency notes from their overseas branches or correspondents. RECONVERSION OF INDIAN CURRENCY: Foreign currency may be sold against Indian Rupees held by persons who are not resident of India but are passing through or leaving India after a visit, at the time of their departure from India. For this purpose, a Bank or Encashment certificate issued by Authorized Dealer, exchange bureau or Authorized Money changer in form BCI, ECF OR ECR, is required to show that the rupee had been acquired by sale of foreign Exchange to an Authorized Dealer or money changer in India. Such a certificate is valid for such reconversion i.e. a period of three months is not over from the date of sale of the foreign currency by the traveller.
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RATES OF EXCHANGE: Authorized dealers and their Exchange bureau may buy from and sell to public foreign currency notes and coins at rates of exchange determined by market conditions. Dealings in foreign currency notes and coins between authorized dealers and between authorized dealers and money changers would also be at rates determined by market conditions.
DIFFERENCES
FERA
FEMA
1 PROVISIONS
FERA consisted of 81 FEMA is much simple, sections, and was more and consist of only complex 49 sections. presumptions Rea and have in Mens
2 FEATURES
Presumption of negative These intention (Mens Rea ) of and joining hands offence
in abatement
(abatement) been
excluded
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existed in FEMA 3 NEW TERMS IN Terms FEMA Account current Transaction, defined in FERA. 4 DEFINITION AUTHORISED PERSON OF Definition like FEMA Capital Terms Account current person, Transaction etc., like Capital account person, have
person
FERA was a narrow one has been widened to include banks, money changes, (c) off shore banking Units etc. (2
OF There
was in FERA,
provision are
of in with
and income Tax Act, in the the definition of term " criteria of "In India for 182 days" to make a person resident has been brought under FEMA. Therefore a person who qualifies to be a non-resident under the income Tax Act, 1961 will also be considered a non-
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resident purposes for the of
application of FEMA, but a person who is considered to be nonresident under FEMA may not necessarily be a non-resident the Income under
Tax Act, for instance a business man going abroad and staying therefore a period of 182 days or more in a financial year will become 6 PUNISHMENT Any offence with per offence , a nonresident under FEMA. under Here, the offence is offence only FERA, was a criminal considered to be a punishable civil of imprisonment code as punishable with some a penalty. is
procedure, 1973
prescribed only when one fails to pay the penalty. 7 QUANTUM PENALTY. OF The monetary penalty Under FEMA the payable was times involved. under the the FERA, quantum of penalty five has been decreased to three amount considerably nearly
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times the amount involved. 8 APPEAL An appeal against the The appellate order of "Adjudicating authority under FEMA office", before " Foreign is the special Director Exchange Appellate Regulation ( Appeals)Appeal Board went against the order of Adjudicating Authorities and special Director (appeals) lies before "Appellate Tribunal for Foreign Exchange. An appeal from an order of Appellate Tribunal would lie to the High Court. (sec 17,18,35) 9 RIGHT ASSISTANCE OF FERA did not contain FEMA expressly any express provision recognises the right the right of on of appellant to take to assistance of legal practitioner or chartered accountant (32) 10 POWER SEARCH SEIZE OF FERA conferred wide AND powers on a police officer not below the rank of a Deputy Superintendent of Police to make a search The scope and power of search and seizure has been curtailed to a great extent person
DURING LEGAL on
PROCEEDINGS. impleaded
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RESIDENTIAL STATUS The definition of "Residential Status" under FEMA has gone through considerable change. It has now been made compatible with the definition provided under "Income Tax" Act. The residential status is now based on the physical stay of the person in the country. The period of 182 days as provided, indicates that it is not necessary that there should be a continuous period of stay. The period of stay would be calculated by adding up all the days of stay of the individual in the country. An Indian resident becomes a non-resident when he goes abroad and takes up a job or engages in business. A major change in the definition of residential status of partnerships and firms in worth noticing. Earlier, under FERA, a branch was considered a resident of a place where it was situated. Now, under FEMA, an office, branch or agency outside India owned or controlled by a person resident in India will be considered a resident in India for the purposes of this Act. For example, a person residing in India has a branch in Mauritius; such branch will be considered a resident in India. IMMOVABLE PROPERTY OUTSIDE INDIA Earlier, under FERA, there was no restriction placed on foreign citizens who were residents of India, for acquiring immovable property outside India. Now FEMA prohibits a resident to acquire, own process, hold or transfer any immovable property situated outside India. This restriction applies irrespective of whether the resident is an Indian citizen or foreign citizen. With this provision being effective a foreign citizen who is a resident in India has to take approval of Reserve Bank of India for selling or buying any immovable property situated outside India. IMMOVABLE PROPERTY IN INDIA
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Earlier, under FERA, a foreign citizen could acquire or transfer immovable property in India only after seeking permission from the Reserve Bank. Now, under FEMA, the control of Reserve Bank is determined by the residential status of a person. Only a nonresident as defined within the meaning of FEMA would require permission of the Reserve Bank to acquire or transfer an immovable property in India. The distinction based on citizenship has been abolished and that based on residentship has been introduced. EXPORT OF SERVICES FERA had no provision for export of services. Now, FEMA has included payment received by an Exporter of Services in its ambit. Every Exporter, who receives payment from outside India, for his services rendered is obliged to furnish details of payment to the 'Reserve Bank. For example; a Doctor, or Engineer or Lawyer or Accountant or any other professional may give opinions or consultation to people outside India, via internet or mail, and his fees may be credited to his credit account. Then he is obliged to furnish details of such payment to Reserve Bank. INCLUSION OF NEW TERMS Some new terms like "Capital Account Transactions, Current Account Transactions"; have been included in FEMA. Reserve Bank has been confirmed with powers and with consultation with central government to specify maximum permissible limit upto which exchange is admissible for such transactions.
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Reserve Bank and in such manner as may be specified by the Reserve Bank. AUTHORISED PERSON An "Authorised Person" under FEMA, is a person who is authorised by Reserve Bank to deal in Foreign Exchange. For being registered as an "Authorised Person", a necessary application alongwith relevant document has to be furnished to Reserve Bank. An "Authorised Person" is also, not given a free hand to deal in foreign Exchange. He has to furnish details and information, to Reserve Bank from time to time as may be required by it. PROSECUTION OF OFFENCES COMMITTED Before detailing the procedure for prosecution, it is important to mark out the Adjudicating Agencies. They are: ADJUDICATING AUTHORITY The inquiry of any contravention of FEMA is conducted by an Adjudicating Authority appointed by the Central Government. APPEAL TO SPECIAL DIRECTOR (APPEALS) The special Director (Appeals) is authorised to hear the appeals arising out of in order of the Adjudicating Authority. APPEAL TO THE APPELLATE TRIBUNAL The Appellate Tribunal is entitled to hear appeals made in accordance, from an order made by Adjudicating Authority or special Director (Appeals). DIRECTOR OF ENFORCEMENT The Director of Enforcement and other officers has power to conduct investigation, search and seize any articles. PROCEDURE INQUIRY BY ADJUDICATING AUTHORITY (14)
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The inquiry of any contravention of FEMA is conducted by an Adjudicating Authority. When, an inquiry is to be conducted against a person for any contravention; the Adjudicating Authority shall issue a notice to such person. The notice will also indicate the date on which the offender is required to appear before authority, and will also mention the nature of offence committed by him. Such person (offender) will have a right to give reasons or explanation, and then a date will be fixed for his appearance. He can appear either personally or through an Advocate or chartered accountant. On the date of appearance, the Adjudicating Authority shall present its case, and explain the reason and type & implications of offence committed by offender. Then in turn, such person will also be given an opportunity to put up his case, and to produce documents and evidence. Finally, if Adjudicating Authority is convinced, that the offender has committed an offence, then it will impose such fine and penalty, as it thinks fit. APPEAL TO SPECIAL DIRECTOR (APPEALS) (17) Appeal from an order of "Adjudicating Authority" lies before" special Director (appeal)" The appeal shall be made in "Form No. 1", along with three copies of the order appealed against and the requisite fees. The appeal should be filed within 45 days, from the date of receipt of receipt of impugned order. On the date of hearing the appeal the applicant may appoint a legal practitioner or a chartered accountant to appear, plead and act on their behalf before the special Director (Appeal)
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The order of the special Director (Appeals) made at the conclusion of the proceedings shall be in writing and shall state briefly the grounds for the decision. APPEAL TO THE APPELLATE TRIBUNAL (19) "Appellate Tribunal" is entitled to hear appeal arising out of an order from "Adjudicating Authority" and "special Director (appeal)." The appeal shall be made in Form No. 2, along with three copies of the impugned order and requisite fees. The appeal shall be made within 45 days, from the date on which copy of the impugned order is received. A copy of the order and appeal shall be sent to the opposite party, i.e. "Director of Enforcement," and a date shall be fixed for hearing of the appeal. The appellant shall have the right to present his case / appeal through a legal practitioner or chartered Accountant. On the fixed date of hearing, the "Appellate Tribunal" shall pass its order in writing and the reasons therefore. APPEAL TO HIGH COURT (35) An appeal from the decision of "Appellate Tribunal" lies before High Court. The appeal shall be filed within "60 days" from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising from the impugned order. AMOUNT OF PENALTY Any contravention, under FEMA, may invite following kinds of penalties: If, the amount against which offence is quantities, then penalty will be "THRICE" the sum involved in contravention.
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Where the amount cannot be quantified the penalty may be imposed upto two lakh rupees. If, the contravention is continuing everyday, then Rs. Five Thousand for every day after the first day during which the contravention continues. Further in addition to the penalty, any currency, security or other money or property involved in the contravention may also be confiscated.
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