FEMA-2000

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FOREIGN EXCHANGEMANAGEMENT ACT, 2000

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SYNOPSIS

1. INTRODUCTION

2. FERA v. FEMA3. PROVISIONS RELATING TO AUTHORISED

PERSON

4. REGULATION AND MANAGEMENT OF FOREIGN

EXCHANGE

5. CONTRAVENTION, PENALTIES AND APPEAL

6. DIRECTORATE OF ENFORCEMENT

7. MISCELLANEOUS PROVISIONS

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INTRODUCTION

With liberalization, need was felt to remove the drastic

measures of FERA and replace them by a set of liberal foreignexchange management regulations.

FEMA was enacted to replace FERA.

FEMA A major shift in Indias approach to foreignexchange control.

Facilitates Foreign Direct Investments in Indian entities.

Eliminates RBI approvals to a very large extent.

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FERA v. FEMA

Preamble to FERA reads An act to consolidate and amend the law

relating to certain payments, dealing in foreign exchange and securities,

transactions affecting foreign exchange and import and export ofcurrency for the conservation of foreign exchange resources of the

country and proper utilisation thereof in the interest of economic

development.

FEMA An act 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.

Shift from a regulatory mechanism to management mechanism w.r.t.

foreign exchange.

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FERA FEMA

1. Control of foreign

exchange.

2. FERA prohibited almost all

foreign transactions unless

there was a general/specific

permission.

3. Offences criminal in nature

4. Presumption of existence of

guilty mind unless accused

proved otherwise.

1. Regulate and manageforeign exchange.

2. FEMA permits almost allforeign transactions unlessthere is a general/specific

prohibition.

3. Offences civil in nature.

4. Prosecution has to proveexistence of offence.Offence compoundable innature.

5. Describes an elaborateredressal machinery for

total justice and fairness.

FERAv. FEMA .Contd.

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Similarity

-Both FERA and FEMA are governed bynotifications issued by the Central Government

or RBI for granting general permission.

-FEMA enumerates areas where specific

permission of RBI or Central Government is

required.

FERAv. FEMA .Contd.

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Applicability:

- Extends to the whole of India.

- Applicable to all branches/offices and agencies outside

India owned/controlled by a person resident in India

Introduction..contd.

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Important Terms under FEMA:

1. Authorised person: means an authorised dealer, money changer,

off-shore banking unit or any other person for the time being

authorised under to deal in foreign exchange or foreign securities.

2. Capital Account Transaction: Essentially an economic

definition, intended to cover cross-border investments, cross

border loans and transfer of wealth across borders.

A transaction which-

a. alters foreign assets and foreign liabilities of Indian residents.

b. alters Indian assets and Indian liabilities of foreign residents.

c. Specified transactions listed under S. 6(3).


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3.Currency Account Transaction: transactions other than capitalaccount transaction, includes

a. Business transactions between residents and non-residents.

b. Short-term banking and credit facilities in the ordinary course ofbusiness.

c. Payment towards interest of loans and by way of income frominvestments.

d. Payment of expenses of parents, spouse or children living abroador expenses on their foreign travel, medical and education.

e. Gifts.Distinction b/w Capital and Currency A/c Transaction:

If a transaction gives rise to any claim or obligation b/w a residentand non-resident, it is capital account transaction. Eg. Machinery

purchased on hire by a resident from non-resident.

If on completion of a transaction, there is no further obligation, it iscurrent account transaction. For Eg. Sale of machinery.


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4. Foreign Exchange: means foreign currency and includes-

i. deposits, credits and balances payable in any foreign currency,

ii. drafts, travelers cheques, letters of credit or bills of exchange,

expressed or drawn in Indian currency but payable in any foreign

currency,

iii. drafts, travelers cheques, letters of credit or bills of exchange drawn

by banks, institutions or persons outside India, but payable in Indian

currency.

5. Foreign Security: means any security, in the form of shares, stocks,

bonds, debentures or any other instrument denominated or expressed in

foreign currency and includes securities expressed in foreign currency,

but where redemption or any form of return such as interest or dividends

is payable in Indian currency.


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6. Person: includes an individual, a Hindu undivided

family, a company, a firm, an association of persons or a

body of individuals, whether incorporated or not, every

artificial juridical person and any agency, office or branch

owned or controlled by such person.


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7. Person resident in India : means(i) a person residing in India for more than 182 days during the course ofthe preceding financial year but does not include :-(a) a person who has gone out of India or who stays outside India, for oron taking up employment outside India, or

for carrying on outside India a business or vocation outside India, or forany other purpose, in such circumstances as would indicate his intentionto stay outside India for an uncertain period;(b) a person who has come to or stays in India, otherwise than for or ontaking up employment in India, or for carrying on in India a business orvocation in India, or

for any other purpose, in such circumstances as would indicate hisintention to stay in 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 personresident outside India,an office, branch or agency outside India owned or controlled by a person

resident in India.


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8. 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

(ii) the holding of realized amount in an account with an

authorized person in India to the extent notified by the

Reserve Bank,

and includes use of the realized amount for discharge of a

debt or liability denominated in foreign exchange and the

expression "repatriation" shall be construed accordingly.


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Section 10 RBI may on application made to it in this behalf,authorise any person to be known as authorised person to deal inforeign exchange/foreign securities, as an authorised dealer, money

changer or off-shore banking unit or in any manner as it deems fit. Authorisation to be in writing and subject to conditions laid down

therein.

Authorisation may be revoked by RBI at any time if it is satisfiedthat

i. It is in public interest.

ii. The authorised person has failed to comply with the conditionssubject to which authorisation was granted/ has contravened any

provisions of the Act, rule, regulation, notification, direction ororder made thereunder.

Authorised person to be given reasonable opportunity to be heard.

PROVISIONS RELATING TO AUTHORISED PERSON

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Duties of Authorised Person:

1. Comply with RBI directions.

2. Not to engage in unauthorised transactions involving foreignexchange and foreign security not in conformity with terms ofauthorisation.

3. Ensure compliance of FEMA provisions

4. Duty to produce books, accounts etc. to RBI.

Powers of Authorised Person:

1. To deal in or transfer any foreign exchange or foreign security to

any person.

2. Receive any payment by order or on behalf of any person residentoutside India in any name.

3. To open NRO, NRE, FCNR accounts.

4. To sell/purchase foreign exchange for current accounttransaction/capital account transaction.

Authorised Personcontd.

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Sec.11RBI is empowered to issue directions to authorised person

in regard to making payment or to do or abstain from doing any act

relating to foreign exchange or foreign security.

RBI may direct authorised person to furnish information as andwhen necessary.

Sec. 12RBI has powers to inspect authorised persons for

(a) Verifying the correctness of any statement, informations or

particulars furnished to the RBI.

(b) obtain any information which such authorised person has failed to

furnish on being called upon to do so.

(c) Securing compliance with provisions of the Act.

Authorised Personcontd.

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REGULATION AND MANAGEMENT OF

FOREIGN EXCHANGE (Sec.3-9)

Sec. 3 Dealing in Foreign Exchange etc.

All dealings in foreign exchange or foreignsecurities will be governed by the provisions of

FEMA.

Receipts and payments in foreign exchange will be

through an authorised person in the mannerprescribed.

Except for section 3, which relates to dealing in

foreign exchange, etc. no other provisions of FEMA

stipulate obtaining RBI permission

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Sec. 3- Except with the general or special permission of the

Reserve Bank, no person can :-

(a.) deal in or transfer any foreign exchange or foreign security to

any person not being an authorized person;

(b) make any payment to or for the credit of any person resident

outside India in any manner;(c ) receive otherwise through an authorized 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 aright to acquire, any asset outside India by any person

Explanation: Financial transaction means making any payment to,

or for the credit of any person, or receiving any payment for, by

order or on behalf of any person, or drawing, issuing or

negotiating any bill of exchange or promissory note, or

transferring any security or acknowledging any debt.

Regulation and Management .contd.

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Section 4: Holding of Foreign Exchange etc.

No person resident in India can acquire, hold, own, possess or

transfer any foreign exchange, foreign security or any immovable

property situated outside India except with the general or specialpermission of the Reserve Bank.

Section 5: Current Account Transaction

Any person may sell or draw foreign exchange to or from an

authorized person if such sale or drawal is a current accounttransaction. However, the Central Government may, in public

interest and in consultation with the Reserve Bank, impose such

reasonable restrictions for current account transactions as may be

prescribed.


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Section 6: Capital Account Transaction

Any person may sell or draw foreign exchange to or from an

authorized person for a capital account transaction. The ReserveBank may, in consultation with the Central Government, specify :-

(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:However, the Reserve Bank cannot impose any restriction on the

drawal of foreign exchange for payments due on account of

amortization of loans or for depreciation of direct investments in

the ordinary course of business.


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The Reserve Bank can, by regulations, prohibit, restrict or regulate:-(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;

(e) any borrowing or tending in rupees in whatever form or by whatever

name called between a person resident in India and a person resident outside

India;

(f) deposits between persons resident in India and persons resident outside

India;

(g) export, import or holding of currency or currency notes;(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;

(j) giving of a guarantee or surety in respect of any debt, obligation or other

liability incurred (i) by a person resident in India and owed to a personresident outside India or (ii) by a person resident outside India.


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A person resident in India may hold, own, transfer or invest in foreigncurrency, foreign security or any immovable property situated outsideIndia if such currency, security or property was acquired, held or ownedby such person when he was resident outside India or inherited from aperson who was resident outside India.

A person resident outside India may hold, own, transfer or invest inIndian currency, security or any immovable property situated in India ifsuch currency, security or property was acquired, held or owned by suchperson when he was resident in India or inherited from a person whowas resident in India.

The Reserve Bank may, by regulation, prohibit, restrict, or regulate

establishment in India of a branch, office or other place of business by aperson resident outside India, for carrying on any activity relating tosuch branch, office or other place of business.

Note:1. Rupee rates in the FX market are market determined and not RBI prescribed.2. Most of the transactions for inward foreign investment are liberalised.

3. For outward investments, upto U.S. $ 15 million, automatic permission is available. Largeroutward investments are also permissible if one can satisfy RBI about the project.


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Section 7 : Export of Goods and Services

Every exporter of goods must :-

(a) furnish to the Reserve Bank or to such other authority a

declaration in such form and in such manner as may be specified,

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 marketconditions, expects to receive on the sale of the goods in a market

outside India;

(b) furnish to the Reserve Bank such other information as may be

required by the Reserve Bank for the purpose of ensuring the

realization of the export proceeds by such exporter.


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Section 8: Realization and repatriation of foreign exchange

Where any amount of foreign exchange is due or has accrued

to any person resident in India, such person shall take allreasonable steps to realize and repatriate to India such foreign

exchange within such period and in such manner as may be

specified by the Reserve Bank.

Section 9 provides exceptions to realization and repatriationof foreign exchange in cases where possession of foreign

currency or foreign exchange transaction is upto such limit as

the RBI may specify.


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CONTRAVENTIONS, PENALTIES AND APPEALS

The penalties for contraventions under FEMA are per se monetary in

nature.

If any person contravenes any provisions, rules, regulations etc. the

penalty imposed may go upto 3 times the amount involved in thecontravention and if the amount involved in the contravention is not

ascertainable, then upto Rs. 2,00,000.

If the contravention is a continuing one, penalty upto Rs.5,000 per day

may be imposed for every day after the first day during which the

contravention continues.

The adjudicating authority may also confiscate any currency, security

or property in addition to imposing penalty.

Contravention Penalties contd

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If the person does not pay upon the penalty within 90 days, he will be

liable to civil imprisonment.

There is a right to appeal given at every stage and an appeal against

the order of the adjudicating authority can be made to the Special

Director (Appeal).

An appeal against the Special Director (Appeal) can be made to the

Appellate Tribunal (Sec. 20 deals with the Composition of Appellate

Tribunal)

An appeal, on question of law, against the order of the Appellate

Tribunal can be made to the High Court.

Contravention, Penalties.contd.

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DIRECTORATE OF ENFORCEMENT

Sections 36-38 makes provisions relating to Directorate of

Enforcement.

The Central Government may establish a Directorate ofEnforcement comprising of a director or such officers or

class of officers as it thinks fit, who shall be called Officers

of Enforcement.

The officers of the Directorate shall have powers toinvestigate contraventions of provisions under Section 13.

The powers and limitations of these officers shall be the

same as those conferred on Income Tax authorities under

Income Tax Act.

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MISCELLANEOUS PROVISIONS

Section 42 Provides for contravention by companieswhere a person committing contravention of any

provisions of the Act on behalf of the company.

However, such a person would not be liable to

punishment if he proves that the contravention tookplace without his knowledge or that he exercised due

diligence to prevent such contravention.

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Other Regulations made by RBI w.r.t foreign

exchange management:

1. Foreign Exchange Management (Investment in Firm or Proprietary

Concern in India), 2000

- To regulate investment by a person resident outside India in apartnership firm or proprietary concern in India.

2. Foreign Exchange Management ( Transfer or Issue of any Foreign

Security) Regulations, 2000

- Under these Regulations, RBI regulates investment in foreignsecurities either by direct investment or otherwise.

3. Foreign Exchange Management ( Deposit) Regulations, 2000

- To regulate matters relating to deposits between a person resident inIndia and a person resident outside India. ( Ex. NRE, FCNR A/c,

NRN)

Oth R l ti td

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4. Foreign Exchange Management ( Foreign Currency Accounts by a

person Resident in India) Regulations 2000

- Prescribes rules for opening, holding, maintaining of Foreign

Currency Accounts and the limits upto which amounts can be held in

such accounts by a person resident in India.

5. Foreign Exchange Management Regulations, 2000

- provides for manner of receipt of foreign exchange and receipt of

payment for export in certain cases and the manner of payment in

foreign exchange.

6. Foreign Exchange Management ( Transfer or Issue of Security by a

person resident outside India) Regulations, 2000- governs issue of or recording of a transfer of security, acquisition

of right shares, issue of shares under ESO scheme, remittance of sale

proceeds of Indian security, purchase by person resident outside India

of equity/preference shares or debentures issued by an Indian

company.

Other Regulations contd.

Oth R l ti td

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7. Foreign Exchange Management ( Acquisition and Transfer of Immovable

Property outside India) Regulations, 2000

- governs acquisition or transfer of immovable property situated outside

India by a person resident in India.8. Foreign Exchange Management (Acquisition and Transfer of Immovable

Property) Regulations, 2000

- governs acquisition or transfer of immovable property situated in India

by (i) an Indian citizen resident outside India and (ii) a person of Indian

origin.

9. Foreign Exchange Management ( Establishment in India of branch or

office or other place of business) Regulations, 2000

10. Foreign Exchange Management ( Export of Goods or Services)

Regulations 2000

Other Regulations contd.

FEMA-2000

Documents

Transcript of FEMA-2000