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Chapter 10: FOREIGN EXCHANGE MANAGEMENT ACT, 1999
INTRODUCTION:
The main objective of the Foreign Exchange Regulation Act,
1973 (FERA), was to:
➢ Consolidate and amend the law.
➢ Regulate certain payments.
➢ Dealings in foreign exchange and securities.
➢ Transactions indirectly affecting foreign exchange.
➢ The import and export of currency for conservation of
foreign exchange resources of the country.
➢ And finally, the proper utilization of this foreign exchange
so as to promote the economic development of the
country.
The FERA was repealed mainly because it was felt that it was
too rigorous and had outlived its utility.
The object of enacting the Foreign Exchange Management Act,
1999 (FEMA) is was to consolidate and amend the law relating
to foreign exchange with the objective of facilitating external
trade and payments and for promoting the orderly
development and maintenance of foreign exchange market in
India consequent to the globalization and liberalization of the
Indian economy which was embarked in 1991.
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The provisions of the FEMA extends to all over India and also
applies to all branches, offices and agencies outside India
owned or controlled by a person resident in India and also to
any contravention committed outside India by any such
person to whom this Act applies.
MEANING OF CERTAIN IMPORTANT TERMS USED IN FEMA:
Capital account transaction: means a transaction by which
there may be a change (either an increase or decrease) in the
assets or liabilities outside India of persons resident in India or
assets or liabilities in India of persons resident outside India.
Current account transaction: means a transaction other than a
capital account transaction.
For example:
➢ Payments due with respect to the foreign trade done,
other business, services.
➢ Payments due as interest on loans and as income from
investments.
➢ Remittances for living expenses of parents, spouse and
children residing abroad and
➢ Expenses in connection with foreign travel, education
and medical care of parents, spouse and children.
Foreign currency: is defined to mean any currency other than
Indian currency.
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Foreign Exchange:
The term “foreign exchange” is much wider than the term
foreign currency.
In addition to the foreign currency, it includes the following:
(i) amounts payable in any foreign currency.
(ii) drafts, travellers cheques, letters of credit or bills of
exchange, expressed or drawn in Indian currency but payable
in any foreign currency.
(iii) drafts, travellers cheques, letters of credit or bills of
exchange drawn by banks, institutions or persons outside
India, but payable in Indian currency.
Under the FEMA, a “person” is defined to include the
following entities:
(i) an individual.
(ii) a Hindu Undivided Family (HUF).
(iii) a company.
(iv) a firm.
(v) an association of persons or a body of individuals, whether
incorporated or not.
(vi) every artificial juridical person and
(vii) any agency, office or branch owned or controlled by such
person.
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“Person resident in India” means the following:
(i) A person residing in India for more than 182 days in the
preceding financial year but does not include:
(A) a person who has gone out of India or who stays outside
India:
(a) for taking up employment outside India, or
(b) for carrying on a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would
indicate his intention to stay outside India for an uncertain
period.
(ii) Any person or body corporate registered or incorporated in
India.
(iii) An office, branch or agency in India owned or controlled
by a person resident outside India.
(iv) An office, branch or agency outside India owned or
controlled by a person resident in India.
(v) Accordingly, a “person resident outside India” means a
person who is not resident in India as above.
‘Repatriate to India’ means bringing into India the realized
foreign exchange and
(i) The selling of such foreign exchange to an authorized
person in India in exchange for rupees, or
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(ii) The holding of realized amount in an account with an
authorized person in India to the extent notified by the
Reserve Bank.
POWERS OF RBI WITH RESPECT TO AUTHORISED PERSONS:
RBI has the following powers under FEMA:
1. To appoint authorized persons:
The said authorized persons are authorized to deal in foreign
exchange.
The person so appointed shall deal in foreign exchange only as
per the Rules, Regulations framed under the Act or as per
directions or orders issued by RBI from time to time for this
purpose.
2. To inspect the authorized persons:
To ensure that the said person so appointed complies with all
the rules and regulations so formulated by the RBI from time.
CONTRAVENTION, PENALTIES, ADJUDICATION AND APPEALS:
Under the FEMA any violation of the provisions of the said Act
will attract penal provisions including the right of arrest and
detention.
In terms of Section 13 which deals with the penalties:
If any person contravenes any provision of this Act, or
contravenes any rule, regulation, notification, direction or
order issued in exercise of the powers under this Act, he will
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be liable to a penalty up to thrice the sum involved in such
contravention where such amount is quantifiable, or up to
two lakh rupees where the amount is not quantifiable, and
where such contravention is a continuing one, further penalty
which may extend to five thousand rupees for every day after
the first day during which the contravention continues.
If any person is found to have acquired any foreign exchange,
foreign security or immovable property, situated outside
India, of the aggregate value exceeding the threshold
prescribed under the proviso to sub-section (1) of section 37A,
he shall be liable to a penalty up to three times the sum
involved in such contravention and confiscation of the value
equivalent, situated in India, the foreign exchange, foreign
security or immovable property. Also punishable with
imprisonment for a term which may extend up to five years.
DIRECTORATE OF ENFORCEMENT:
The Central Government establishes a directorate of
enforcement with a director and other officers, called officers
of enforcement. (Section 36)
Power of Search, Seizure etc.:
The director of enforcement and other officers of
enforcement, not below the rank of an assistant director can
investigate contraventions of the provisions of the Act as well
as Rules and Regulations framed including notifications and
directions or orders issued by RBI.
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The Central Government can also authorize any class of
officers in the Central Government, State Government or the
RBI not below the rank of an Under Secretary to investigate
contraventions. (Section 37)
Empowering Other Officers:
The Central Government can (subject to conditions and
limitations), authorise any customs officer/central excise
officer/any police officer/any other officer of the Central
Government or a State Government to exercise the powers
and discharge the duties of the director of enforcement or any
other officer of enforcement. (Section 38)
