Prof.

Gurpartap Singh

 Statutory Basis for Exchange Control

The Foreign Exchange Regulation Act, 1973

(FERA 1973), as amended by the Foreign Exchange Management (Amendment) Act, 1999, forms the statutory basis for Foreign Exchange Control in India.

The Foreign Exchange Management Act (1999) or in short FEMA has been introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA). FEMA came into force on the 1st day of June, 2000. FEMA

consolidate and amend the law relating to foreign exchange facilitating external trade and payments promoting the orderly development and maintenance of foreign exchange market in India 49 sections in the Act

Authorized Person:
Authorized under the Act to deal in foreign exchange

Capital account transaction: Alters the assets or liability Currency: Currency notes, Money order, cheque, drafts etc

Currency Notes:
Coin and bank notes

Currency Account Transaction: Transactions other than capital account transactions Indian Currency: Indian rupees

Export:
Goods and services from India to outside

Foreign Currency: Other than Indian currency Foreign Exchange: Means foreign currency Foreign Security: Security expressed in foreign currency Import: Goods and services from outside to India Security: Shares, Stock etc as defined in the Public Debt Act of 1994

 Repatriate to India: Realized foreign exchange to India Service: Banking, Financing, insurance etc Transfer: Sale, Purchase, Exchange etc Non-Resident Indian (NRI): Citizen of India residing outside Overseas Corporate Body (OCB): A company, firm etc.. Owned at least 60% by NRIs Person of Indian Origin (PIO): Citizen of country other then Bangladesh and Pakistan, if
Any time held Indian passport or Either of his parents or grandparents was citizen of India The Person is spouse of an Indian citizen

 The FEMA, is applicable To the whole of India. Any Branch, office and agency, which is situated outside India, but is owned or controlled by a person resident in India. Broadly speaking FEMA, covers, three different

types of categories, and deals differently with them. These categories are:
a) Person b) Person Resident In India c) Person Resident Outside India

 For the purpose of provisions, a person shall

include any of the following:

An individual A Hindu Undivided family A company A Firm An association of persons or a body of individuals, whether incorporated or not, 6. Every artificial judicial person, not falling within any of the preceding sub clauses, and 7. Any agency, office or branch owned or controlled by such person.
1. 2. 3. 4. 5.

A person who has been residing in India for more than 182 days, in the last financial year. This means if a person has to be assessed, as to whether he is person resident in India, for any offence committed in August 2001, then he should be residing in India for more than 182 days during April 2000 to March 2001 2. Any person or body corporate registered or incorporated in India, or 3. An office, branch or agency in India owned or controlled by a person resident outside India, or 4. An office, branch or agency outside India owned or controlled by a person resident in India.
1.

 Simply putting it, "a person resident outside India"

means "a person who is not resident in India"

Prohibits dealings in foreign exchange except

through an authorized person Make any payment to or for the credit of any person resident outside India in any manner Receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner Enter into any financial transaction in India for acquisition or creation or transfer of a right to acquire, any asset outside India by any person

 SECTION 4 Restrains any person resident in India from acquiring, holding, owning, possessing or transferring any foreign exchange, foreign security or any immovable property situated outside India except as specifically provided in the Act. SECTION 5 deals with current account transaction Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawl is a current account transaction SECTION 6 - deals with capital account transactions. This section allows a person to draw or sell foreign exchange from or to an authorized person for a capital account transaction.

 Transactions
a)

having international financial implications are regulated by Exchange Control:

Purchase and sale of and other dealings in foreign exchange and maintenance of balances at foreign centers Procedure for realization of proceeds of exports Payments to non-residents or to their accounts in India Transfer of securities between residents and nonresidents and acquisition and holding of foreign securities Foreign travel with exchange

b)
c) d)

e)

Export and import of currency, cheques, drafts, travelers cheques and other financial instruments, securities, etc. g) Activities in India of branches of foreign firms and companies and foreign nationals h) Foreign direct investment and portfolio investment in India including investment by non-resident Indian nationals/persons of Indian origin and corporate bodies predominantly owned by such persons i) Appointment of non-residents and foreign nationals and foreign companies as agents in India j) Setting up of joint ventures/subsidiaries outside India by Indian companies k) Acquisition, holding and disposal of immovable property in India by foreign nationals and foreign companies l) Acquisition, holding and disposal of immovable property outside India by Indian nationals resident in India.
f)

 SECTION 7 - deals with export of goods and

services.

Every exporter is required to furnish to the RBI or any

other authority, a declaration etc. regarding full export value.

SECTION 8 and 9 casts the responsibility on the persons resident in India who have any amount of foreign exchange due or accrued in their favour to get same realized and repatriated to India within the specific period and the manner specified by RBI. SECTIONS 10 and 12 deals with duties and liabilities of the Authorized persons authorized dealer, money changer, off shore banking unit or any other person for the time being authorized to deal in foreign exchange or foreign securities.

 To comply with RBI directions Not to engage in unauthorized transactions

Ensure compliance of FEMA provisions

To produce books, accounts etc

 To deal in or transfer any foreign exchange Receive payments by order To open foreign exchange accounts

To sell or purchase foreign exchange for current

account transactions
To sell or purchase foreign exchange for permissible

capital account transactions

 Verifying the correctness of any statements,

information or particular
Obtaining information which such authorized

person has failed to furnish

Securing compliance with the provisions of Act

 SECTION 13
Any contravention, under FEMA, may invite following

kinds of penalties:
If, the amount involved in an offence is quantified, then

penalty will be "THRICE" the sum involved in contravention. Where the amount cannot be quantified the penalty may be imposed up to 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.

 SECTION 14 If a person fails to make full payment of the penalty imposed within a period of 90 days, he shall be liable to civil imprisonment. SECTION 15 Empowers the Directorate of Enforcement and Officers of the Reserve Bank of India as may be authorized by the central Govt. on its behalf to compound the offences. SECTION 16 Empowers the central Govt. to appoint as many adjudicating authorities as it may think fit for holding enquiries.

 SECTION 17 Empowers the central Govt. to appoint one or more special Directors to hear the appeals against the orders of the Adjudicating Authorities. SECTION 18 Empowers the central Govt. to establish Appellate Tribunal to hear appeals against the orders of Adjudicating Authorities and special Director. SECTION 19 It makes provisions regarding appeals to Appellate Tribunal.

 SECTION 20 Composition of Appellate Tribunal.

SECTION 21 Qualifications for appointment of Chairperson member and Special Director.

SECTION 22 Term of Office. SECTION 23 Terms and Conditions of service. SECTION 24 Vacancies.

 SECTION 25 Resignation and Removal. SECTION 26 Member to act as Chairperson in certain circumstances. SECTION 27 Staff of Appellate Tribunal and Special Directorate. SECTION 28 Power of Appellate Tribunal and Special Director. SECTION 29 Distribution of business among benches. SECTION 30 Power of Chairperson to Transfer cases.

 SECTION 31 Decision to be by majority.

SECTION 32 Right of Appellant to take assistance of legal practitioner or CA and of Govt. to appoint presenting officer.
SECTION 33 Members, etc to public servants. SECTION 34 Civil court not to have jurisdiction.

SECTION 35 Appeal to High Court.

 SECTION 36 to 38 Directorate of Enforcement enforcement of the provisions of the Foreign Exchange Management Act prevent leakage of foreign exchange Remittances of Indians abroad otherwise than through normal banking channels, i.e. through compensatory payments. Acquisition of foreign currency illegally by person in India. Non-repatriation of the proceeds of the exported goods. Unauthorized maintenance of accounts in foreign countries. Siphoning off of foreign exchange against fictitious and bogus imports. Illegal acquisition of foreign exchange through Hawala

 Electronic Corporation India Limited To tie up with international companies for local manufacture of computers To increase the local content to a point of "self sustenance". Tie up between ECIL and IBM Import of computers was carefully regulated, depending on ECILs production capacity, and the entry of the local private sector was controlled. The Implementation of FERA (in 1977) led to exit

of IBM from India.

Because FERA restricts any foreign company from

holding 40% shares but IBM had 70%.

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