FEMA

Foreign Exchange Management Act, 1999 w.e.f. 2000

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result of economic liberalization replaced Foreign Exchange Regulation Act FERA had become incompatible with the pro-liberalisation policies of the Government of India -FEMA brought a new management regime of Foreign Exchange consistent with the emerging framework of the World Trade Organisation (WTO) also brought with it the Prevention of Money Laundering Act 2002, which came into effect from 1 July 2005. Unlike other laws where everything is permitted unless specifically prohibited, under this act everything was prohibited unless specifically permitted

Main Features
- Activities such as payments made to any person outside India or receipts from them, along with the deals in foreign exchange and foreign security is restricted. It is FEMA that gives the central government the power to impose the restrictions. - Restrictions are imposed on people living in India who carry out transactions in foreign exchange, foreign security or who own or hold immovable property abroad. - Without general or specific permission of the Reserve Bank of India, FEMA restricts the transactions involving foreign exchange or foreign security and payments from outside the country to India the transactions should be made only through an authorised person. - Deals in foreign exchange under the current account by an authorised person can be restricted by the Central Government, based on public interest. contd.

 - Although selling or drawing of foreign exchange is done through an authorised person, the RBI is empowered by this Act to subject the capital account transactions to a number of restrictions. - People living in India will be permitted to carry out transactions in foreign exchange, foreign security or to own or hold immovable property abroad if the currency, security or property was owned or acquired when he/she was living outside India, or when it was inherited to him/her by someone living outside India. - Exporters are needed to furnish their export details to RBI. To ensure that the transactions are carried out properly, RBI may ask the exporters to comply to its necessary requirements.

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Object: Upgrade the law in the light of developments and experience in relation to foreign trade and investment User friendly with object to facilitate external trade and payments & promoting growth of foreign trade in India

Foreign Exchange: Means-Foreign currency Includesa) deposits, credits and balances payable in FC b) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in FC c) drafts, etc., drawn by banks, institutions or persons outside India, but payable in Indian currency Foreign security: Any security created or issued elsewhere than in India, but redemption, any form of return like interest/ dividends payable in Indian currency Indian currency: excluded the Spl. bank notes and spl. One rupee notes

Regulation And Management Of Foreign Exchange

Dealing in foreign exchange, etc.: No person shall (a) deal in or transfer any foreign exchange or foreign security to any person not being an authorised person; (b) make any payment to or for the credit of any person resident outside India in any manner;

(c) receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner;
(d) enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person -RBI has authority to grant general or special permission

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Holding of foreign exchange, etc. No person resident in India, unless permitted, shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.

 Current account transactions Capital account transactions

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Current account transactions. : - which arise in the ordinary course of business & for living expenses (education/medical/foreign travel, etc.) Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction Not a freely available A/c The Central Government may, in public interest and in consultation with RBI, impose such reasonable restrictions for current account transactions

 Capital account transactions : -Which alters the assets & liabilities (including contingent liabilities) out side India of persons resident in India or vice-versa Not arises in the ordinary course of business Subject to the provisions, any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction.
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The RBI may, in consultation with the Central Government, specify regulations in case of (a) any class or classes of capital account transactions which are permissible; (b) the limit up to which foreign exchange shall be admissible for such transactions this relates to outflow of FE However, the RBI shall not impose any restriction on i) the drawal of foreign exchange for payments due on account of amortization of loans; or ii) for depreciation of direct investments in the ordinary course of business.

The RBI may, by regulations, prohibit, restrict or regulate the following (a) transfer or issue of any foreign security by a person resident in India; (b) transfer or issue of any security by a person resident outside India; (c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India; (d) any borrowing or lending in foreign exchange in whatever form or by whatever name called; (e) any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India;

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(f) deposits between persons resident in India and persons resident outside India; (g) export, import or holding of currency or currency notes; --prohibition does not apply to Gold Coins with foreign markings (not a legal tender)(PV Varghese v. Collector of Central Excise , 1987, Tri.) -- ship on high seas beyond the territorial waters of India is a place outside India (Collector of Customs v. Sun Industries, 1988,SC)

Contd

(h) transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India; (i) acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India No NRI/ person RoI can hold imm. property without prior permission of RBI (UoI v. Mohinder Singh, 1956) (j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred -(a) by a person resident in India and owed to a person resident outside India; or -(b) by a person resident outside India.

Contd...

- A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. - A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India. - Without prejudice to the provisions of this section, the Reserve Bank may, by regulation, prohibit, restrict, or regulate establishment in India of a branch, office or other place of business by a person resident outside India, for carrying on any activity relating to such branch, office or other place of business.

Realisation and repatriation of foreign exchange.

Realisation : Any amount of foreign exchange is due or has accrued to any person resident in India, he shall take all reasonable steps to realise and repatriate to India such foreign exchange within such period and in such manner as specified by RBI (s.8) Realisation is a duty If delayed- it ceases to be receivable Repatriation: manner -sell it to an authorised person in India in exchange for Rupee - retain / hold in an a/c with authorised dealer to the extent permitted -use it for discharge of debt/ liability denominated in FC to the extent permitted

Surrender of realised FE
Period : in case of FE - remuneration/ assets/ income/ settlement of lawful obligation- with in 7 days -in other case- 90 days In certain other cases: If not used for the purpose for which acquired- within 60 days Acquired for the foreign travel: Unused FC- within 90 days of return to India Unused travellers cheque- within 180 days of return to India Exemption given to- currency of Bhutan & Nepal

Exemption from realisation and repatriation in certain cases

The provisions of Ss. 4 & 8 shall not apply to the following, viz,:

(a) possession of FC/ coins by any person up to such limit as the RBI may specify; -US $ 500 : - personal purpose US $ 2000 (b) foreign currency account held or operated by such person or class of persons and the limit up to which the RBI may specify;

(c) foreign exchange acquired or received before the 8th day of July, 1947 or any income arising or accruing thereon which is held outside India by any person in pursuance of a general or special permission granted by the RBI;

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(d) foreign exchange held by a person resident in India up to such limit as the RBI may specify, if such foreign exchange was acquired by way of gift or inheritance from a person referred to in clause (c), including any income arising there from; (e) foreign exchange acquired from employment, business, trade, vocation, services, honorarium, gifts, inheritance or any other legitimate means up to such limit as the RBI may specify; and

(f) such other receipts in foreign exchange as the RBI may specify (s.9)

Export of goods and services

Regulated by the Act Every exporter of goods shall -(a) furnish to the RBI or to such other authority a declaration, containing true and correct material particulars, including the amount representing the full export value or, -- if the full export value of the goods is not ascertainable at the time of export, the value which the exporter (having regard to the prevailing market conditions) expects to receive on the sale of the goods in a market outside India;

-(b) furnish to the RBI such other information as may be required by the RBI for the purpose of ensuring the realisation of the export proceeds by such exporter.

full export value of the goods or such reduced value of the goods as the Reserve Bank determines, having regard to the prevailing market conditions, is received without any delay, direct any exporter to comply with such requirements as it deems fit.

. The RBI may, for the purpose of ensuring that the

Every exporter of services shall furnish a declaration containing the true and correct material particulars in relation to payment for such services. Export made without declaration constitutes an offence

Foreign trade Development

Regulated by Foreign Trade (Development & Regulation) Act, 1992

Authorised Person: -An authorised dealer, moneychanger, offshore booking unit or other who is authorised to deal in FE or F Securities Authorisation by RBI Application Authorisation in writing Revocation- in public interest; or - failure to comply with the conditions RBIs powers - to issue directions -to inspect the Authorised Person - verifying correctness of statements, information, etc.; - obtaining any information or particulars when failed to furnish; -securing compliance of provisions & rules,etc.

Adjudicating Authorities: Appeal to Spl. Director (Appeals) Appellate Tribunal for Foreign Exchange(ATFE): - replaced the Foreign Exchange Regulation Appellate Board -to hear Appeal against an order of Adjudicating Authority & Spl. Director (Appeals) -Limitation : 45 days -Deposit of penalty - Disposal of Appeal : within 180 days Appeal to High Court : Limitation -60 days

Directorate of Enforcement:
-Director of enforcement + enforcement officers -Director/ Addl. Director/ Spl. Director/ Deputy Directorauthorised to appoint Enforcement Officers below the rank of Asst. Director -Power of search & seizure: Above the rank of Asst.Director Authorised to exercise the powers conferred on Income Tax authorities.

 Offenses related to foreign exchange civil offenses Under FERA a person was presumed guilty unless he proved himself innocent, whereas under other laws a person is presumed innocent unless he is proven guilty.

 Case laws UoI v. Venkateshan (2002)5 SCC 285