FEMA - 1999

Presented by:
Akshay (06)
Anuradha (15)
Atashi (24)
Divya (33)
Hariharan (42)
Joslin (51)
 COURSE OF PRESENTATION

• Introduction: Hariharan (42)

• Capital & Current account transactions: Divya (33)
• Person resident in  India: Atashi (24)
• Exports of goods & services: Anuradha (15)
• Authorised person: Joslin (51)
• How these get established and governed: Akshay (06)
 History

• Foreign Exchange Regulation Act 1947 –

temporarily for a period of 10 yrs
• FERA was made permanent in 1957
• FERA was Repealed FERA-1973 was enacted
• Under 1991 liberalization – Provisions of FERA
1973 were relaxed
• 1999 – Foreign Exchange Management Act
was enacted
 FERA to FEMA

• FERA was a Draconian Approach - Thrust was on

regulating payments and dealings in foreign
exchange and also to conserve the foreign exchange
resources of the country
– Anybody could be arrested and put behind bars
– Very strict norms
– Permission from RBI
– Case: late S L Kirloskar arrested for owning princely
amount of 82$
• FEMA - From Permission to Regulation
 Why FEMA?

Preamble:
FEMA was enacted 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
 Salient Features of FEMA
• Act is meant to be user friendly with the object to facilitate trade
and payments
• FEMA extends to whole of India
• Current Account Convertibility is complete
• Violations under FEMA have a thrust on Penalties and more dealt as
civil offence and not criminal unlike FERA
• Emphasis is on determining residential status is on actual period of
stay and not intention of stay
• Central Government may from time to time give general and special
directions to RBI and RBI shall comply[sec. 41]
• Central government can suspend the operation of FEMA under
public interest if it convinced to so
CAPITAL & CURRENT ACCOUNT
TRANSACTIONS
 CAPITAL ACCOUNT TRANSACTIONS
1. Transactions which are undertaken by a resident of India such that his assets
or liabilities outside India are altered
EXAMPLES:
i. a resident of India acquires an immovable property outside India or
acquires shares of a foreign company  overseas assets are increased
ii. a resident of India borrows from a non-resident through External
commercial Borrowings  has created a liability outside India

2. Transactions which are undertaken by a non-resident such that his assets or

liabilities in India are altered
EXAMPLES:
i. a non-resident acquires immovable property in India or acquires shares of
an Indian company or invest in a Wholly Owned Subsidiary or a Joint
Venture with a resident of India  assets in India are increased
ii. a non-resident borrows from Indian housing finance institute for acquiring
a house in India  has created a liability in India
 CURRENT ACCOUNT TRANSACTIONS
(Sec 2(j) & 5)
• The Act defines it as:
• “a transaction other than a capital account transaction
• and without prejudice to the generality of the foregoing such
transaction
• includes
(1) Payments due in connection with (2)Payments due as
whatever is done in ordinary course • interests on loans
of business: • net income from investments
• foreign trade,
• other current business,
• Services
• short term banking and credit
facilities
(4)Expenses in connection with
(3) Remittances for living expenses of • foreign travel,
parents, spouse and children residing • education and
abroad • medical care of parents, spouse & children”
“without prejudice to the generality of the foregoing
such transaction includes”

• The words imply that even if the transactions listed may fit
into the definition of capital account transactions, such
transactions shall be treated current account transactions.

• Eg: A resident of India imports goods from outside India on

a short term credit (for a period<6 months), he is creating a
liability outside India and thus, it can be treated a capital
account transaction but, it is specifically included in the
above definition as a current account transaction.
 CAPITAL ACCOUNT TRANSACTIONS CURRENT ACCOUNT TRANSACTIONS
• RBI can specify, in consultation with the • The Central Government may impose
Central Government, the permissible capital reasonable restrictions, as deemed fit by
account transactions and the limits up to the Reserve Bank, in public interest and in
which foreign exchange may be drawn for consultation with the RBI.
such transactions.

• Subject to the provisions of the Act, any • Any person may sell/draw foreign exchange
person may sell/draw foreign exchange to/from an authorized person if such action
to/from an authorized person for a capital is a current account transaction.
account transaction specified in the
schedules;
– Provided that the transaction is within
the limit (if any specified)

• The Central Government has issued

• RBI issues notifications  The FEMA
the Foreign Exchange Management (Current
Notification No. 1/2000 dated 3-5-
Account Transaction) Rules, 2000.
2000 contains
– List of permissible capital account
transactions • No restrictions for transactions not covered
by the above rules.
– List of prohibited capital account
transactions
PERSON RESIDENT IN INDIA
 FEMA defines “person resident in India” u/s 2(v) which means –

•  a person residing in India for more than 182 days during the course of the
preceding financial year but does not include –
– a person who has gone out of India or who stays outside India, in either case-
– for or on taking up employment outside India, or
– for carrying on outside India a business or vocation outside India, or
– for any other purpose, in such circumstances as would indicate his intention to stay outside India for an
uncertain period;
– a person who has come to or stays in India, in either case, otherwise than-
– for or on taking up employment in India, or
– for carrying on in India a business or vocation in India, or
– for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain
period;

• any person or body corporate registered or incorporated in India,

• an office, branch or agency in India owned or controlled by a person resident
outside India,
• an office, branch or agency outside India owned or controlled by a person
resident in India.
FEMA defines “person resident outside India” u/s 2(w) which means a person who is not resident
in India.

• Residence in India is also comprehensively dealt in by I T

Act u/s 6. The residential status of an individual is basically
determined by the number of days of stay in India. Hence,
physical presence is an important criterion for ascertaining
his/her residence under the I T Act. 
• The determination of residential status under FEMA is
substantially different when compared to I T Act.
FEMA determines the residential status based on different
set of parameters. Let us explore into some examples to
comprehend the residential status of an individual.
 
EXPORT OF GOODS & SERVICES
Exports of Goods & Services (Secs. 2(l)(zb) &7)

Foreign exchange earned out of export of goods or

rendering of services are regulated by this act
 Submit declaration regarding the full export value
 Furnish information as required by the RBI
 RBI can direct exporters to comply with
requirements as it thinks fit
 Exporters submit declaration about the true and
correct material particulars in relation to payment
for such services
The main purpose and object of the enactment is to get a
declaration from the exporter that he has either brought or
will bring back the full export value of the goods exported
 Declaration must be affirmed as a true declaration
 In the absence, goods are not allowed to be shipped out
 “Full export value” as against “full amount payable by”
foreign buyers
 Cannot reduce the value of goods without the permission
of RBI
 Reasonable efforts should be made to realize the full value
 Goods exported without declaration or failure to declare
the true and full export value is a violation under the
Customs Act,1962
 Foreign Trade Development

Established as Foreign Trade(Development and Regulation) Act

1992, with Foreign Trade (Regulation) Rules,1993 have been
enacted to facilitate imports into, and augment exports from
India
 Code No.
License
• Conditions of License for Export
•Conditions of License for Import
•Deemed Conditions of License for Import
Declarations
Utilisation of Imported Goods
AUTHORISED PERSON
 Authorised Person (Secs. 2(c),10,11,12)
Authorised person means a
• Dealer
• Money changer
• Offshore banking unit
• Or any other person
for the time being, authorised to deal in foreign exchange or foreign securities.

The Reserve Bank may, on any application made to it,

authorise any person to be known as authorised person to deal in foreign
exchange or in foreign securities,as
an authorised dealer, money changer, offshore banking unit or in any other manner
as it deems fit.

An authorisation may be in writing and may be subject to the conditions laid down
therin.
 Revocation Rules to be followed:
Authorisation can be revoked by the Reserve • An authorised person shall comply with such
Bank, if – general or special directions or orders as the
Reserve Bank may, from time to time, think fit
to give.
 it is in public interest to do so; or
• Except with the previous permission of the
 the authorised person has failed to Reserve Bank, an authorised person shall not
comply with the conditions subject to engage in any transaction involving any foreign
which the authorisation was granted or exchange or foreign security which is not in
has contravened any of the provisions of conformity with the terms of his
the Act or any rule, regulation, authorisation.
notification, direction or order made
thereunder. • An authorised person shall, before
undertaking any transaction in foreign
exchange on behalf of any person, require that
However, no such authorisation shall be person to make such a declaration and to give
revoked unless the authorised person has such information as will reasonably satisfy him
been given a reasonable opportunity of that the transaction will not involve, and is
making a representation in the matter. not designed for the purpose of any
contravention or evasion of the provisions of
the Act or of any rule, regulation, notification,
direction or order made thereunder.
Reserve Bank’s Powers to issue directions to authorised persons:

• The Reserve Bank may,

 for the purpose of securing compliance with the provisions of the Act, and of any
rules, regulations, notifications or directions made thereunder,
give to the authorised persons any direction in regard to making a payment or the
doing or desist from doing any act relating to foreign exchange or foreign security.
 direct any authorised person to furnish such information, in such manner, as it
deems fit.

Where any authorised person contravenes any direction give by the Reserve Bank or
fails to file any return as directed,
the bank may, after giving reasonable opportunity of being heard, impose on the
authorised person a penalty,
which may extend to Rs. 10,000 and in the case of continuing contravention with an
additional penalty which may extend to Rs. 2000 for everyday during which such
contravention continues.
Power of Reserve Bank to inspect authorised person:

The Reserve Bank may, at any time, cause an inspection to be made, by any officer of the
Reserve Bank specially authorised in writing of the business of any authorised person as may
appear it to be necessary or expedient for the purpose of –

• verifying the correctness of any statement, information or particulars furnished to the Reserve
Bank;
• obtaining any information or particulars which such authorised person has failed to furnish on
being called upon to do so;
• securing compliance of the provisions of the Act or of any rules, regulations, directions or
orders made thereunder.

It shall be the duty of every authorised person, and

where such person is a company or a firm, of every director, partner or other officer of such
company or firm, as the case may be,
to produce to any officer making an inspection,
such books, accounts and other documents in his custody and
to furnish any statement or information relating to the affairs of such person, company or firm
as the said officer may require within such time and in such manner as the said officer may
direct.
 HOW DO THESE THINGS GET
ESTABLISHED AND GOVERNED???
ESTABLISHMENT[Sections 36-38]

• Officers of Enforcement is established with

relevant powers
• The Director will hold enquiry cases involving
an amount exceeding ` 1 crore
• The Director and other officers not below the
Assistant Director have the power to take up
investigations and all other powers as
conferred to the Income Tax authorities
Adjudicating Authority[Section 16]

• Appointed by the Central Govt. for holding an

inquiry within their jurisdiction
• A written complaint is required by any officer
authorised by order of Central Govt.
• The authority holds the powers of a Civil Court
and all proceedings before it are deemed to be
judicial proceedings
• They have to dispose off the complaint within a
span of a year
 Appeals

• Appeal to Special Director

- Person who is aggrieved by an order made
by Adjudicating Authority, being an Assistant
Director or Deputy Director of Enforcement
can appeal to the Special Director within 45
days
• Appeal to the Appellate Tribunal(Foreign
Exchange)
– Deposit of Penalty
– Period for Filing appeal- 45 days
– Period of Disposal -180 days
• Powers of Appellate Tribunal
– Not bound by any procedure laid down by Code of
Civil Procedure
– Summon, evidence receiving, and reviewing of its
own decisions
Appeal to High Court within 60 days if not satisfied
 Penalties[Section 13]

• Contravention of any provision of the Act or rule,

the person is liable to pay thrice the sum involved,
if amount is quantifiable or upto Rs 2 lacs.
• In addition, the authority can confiscate deposits,
Indian currency or any property if it has acted
during the course of transactions
• If the penalties are not payed within 90 days then
the person is liable to civil imprisonment with an
arrest warrant
 Miscellaneous

• Contravention by Companies:
– Every person who, at the time of contravention
was committed, was in charge of and was
responsible to the company for the conduct of
business as well as company, shall be punished
accordingly
– Liability of Director, Manager, etc
• If the directions for such contraventions came from the
Director of the company or any officer then they too
shall be held guilty of contravention
THANK YOU!!