FOREIGN EXCHANGE MANAGEMENT ACT, 1999

FOREIGN EXCHANGE MANAGEMENT ACT, 1999

- Economic Liberalization
- FERA 1973 was reviewed in 1993
- Task Force set up - Submitted Report in 1994 - Resulted in FEMA
- Changes in Economy

1) Substantial increase in Foreign Exchange Reserves
2) Growth in Foreign trade
3) Rationalization of Tariffs
4) Current Account convertibility
5) Liberalization of Indian investments abroad
6) Increased access to external commercial borrowings
7) Participation of Financial Institutional Investors in our Stock
Markets

OBJECTS

1) To consolidate and amend law relating to Foreign Exchange
2) Facilitation of external trade and payments
3) Promoting the orderly development and maintenance of Foreign
Exchange market in India
EXTENSION
- Whole of India

APPLICATION

- All Branches, Offices and Agencies outside India owned or
controlled by a person resident in India
- Any contravention committed outside India by any person to whom
the Act applies

DEFINITIONS

1) Sec. 2(c) : ‘AUTHORISED PERSON’ - means an authorized dealer,
money changer, off-shore banking unit, any person authorized under
Sub-Sec. (1) of Sec. 10 to deal in foreign exchange or securities
2) Sec. 2(e) : ‘CAPITAL ACCOUNT TRANSACTION’ - means a
transaction which alters the assets and liabilities, including
contingent liabilities outside India of persons resident in India or
assets or liabilities in India of persons resident outside India and
includes transactions under Sec. 6(3)
3) Sec. 2(h) - ‘CURRENCY’ includes all currency notes, postal notes,
postal orders, money orders, cheques, drafts, travellor cheques,
letter of credit, bills of exchange and promissory notes, credit cards
or such other similar instruments, as may be notified by Reserve
Bank
4) Sec. 2( i ) - ‘CURRENCY NOTES ’ means and includes cash in the
form of coins and bank notes
5) Sec. 2(j) - ‘CURRENT ACCOUNT TRANSACTION’ means a
transaction other than a Capital Account Transaction and without
prejudice to the generality of the foregoing such transaction includes
a) Payments due in connection with foreign trade, other current
business services, and short term banking and credit facilities in
the ordinary course of business
b) Payments due as interest on loans and as net income from
investments
c) Remittances for living expenses of parents, spouse and children
residing abroad
d) Expenses in connection with foreign travel, education and
medical care of parents, spouse and children
6. Sec. 2( l ) - ‘EXPORT ’ with its grammatical variations and cognate
expressions means
a) the taking out of India to a place outside India any goods
b) provision of services from India to any person outside India
7. Sec . 2(m ) - ‘FOREIGN CURRENCY ’ means any currency other than
Indian currency
8. Sec. 2(n ) - ‘FOREIGN EXCHANGE ’ means foreign currency and
includes
a) Deposits, credits and balances payable in any foreign currency
b) Drafts, travellor cheques, letter of credit or bills of exchange,
expressed or drawn in Indian currency but payable in any
foreign currency
c) Drafts, travellor cheques, letters of credit or bills of exchange
drawn by banks, institutions or persons outside India, but
payable in Indian currency
9. Sec. 2(o) ‘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 dividend is payable in Indian
currency
10. Sec. 2(p ) ‘IMPORT ’ with its grammatical variations and cognate
expressions, means bringing into India goods and services
11. Sec. 2(q ) ‘INDIAN CURRENCY ’ means currency which is expressed
or drawn in Indian rupees but does not include special bank notes
and special one rupee notes issued U/S 28A of RBI Act, 1934
12. Sec. 2(u ) ‘PERSON ’ includes
a) An individual
b) A HUF - Hindu Undivided Family
c) A Company
d) A Firm
e) An association of persons or a body of individuals, whether
incorporated or not
f) Every artificial juridical person, not falling within any of the
preceding sub-clauses
g) Any agency, office or branch owned or controlled by such
person
13. Sec. 2(v ) - ‘PERSON RESIDENT IN INDIA ’ means
i) A person residing in India for more than 182 days during the
course of the preceding financial year but does not include
A) A person who has gone out of India or who stays outside
India, in either case
a) For or on taking up employment outside India or
b) For carrying on outside India 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
B) A person who has come to or stays in India in either case
otherwise than
a) For or on taking of employment in India or
b) For carrying on in India a business or vocation in India or
c) For any other purpose, in such circumstances as would
indicate his intention 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
person resident outside India
iv) An office, branch or agency outside India owned or controlled by
a person resident in India
14. Sec. 2(w) ‘PERSON RESIDENT OUTSIDE INDIA ’ means a person
who is not resident in India.
15. Sec. 2(y) ‘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
ii) The holding of realized amount in an account with an authorized
person in India to the extent notified by the Reserve Bank of
India
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.
16. Sec. 2( zb ) ‘SERVICE ’ means service of any description which is
made available to potential users and includes the provision of
facilities in connection with banking, financing, insurance, medical
assistance, legal assistance, chit fund, real estate, transport,
processing, supply of electrical or other energy, boarding or lodging
or both, entertainment, amusement or the purveying of news or
other information, but does not include the rendering of any service
free of charge or under a contract of personal service.
REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE
Sec. 3 - Dealing in FE shall be only with general or special permission of
Reserve Bank of India
i.e. Dealings or transfer of Foreign Exchange or Foreign
Securities through Authorized Person
Payments or credits to persons resident outside India
Payments on behalf of persons resident outside India
through Authorized Person
Financial transaction in India resulting in creation of asset
outside India
Exp. All remittances through Authorized Person
Transactions involving money - Foreign Trade
Sec. 4 - No person resident in India shall acquire, hold, own, possess or
transfer any Foreign Exchange, Foreign Security or immoveable
property situated outside India
Sec. 5 - Current Account Transactions through Authorized Person -
Central Government in public interest and on consultation with
Reserve Bank of India impose reasonable restrictions
Sec. 6 - All Capital Account Transactions through Authorized Dealer
- Reserve Bank of India with consultation of Central Government
- Specify class or classes of Capital Account Transactions which
are permissible and limit Foreign Exchange in such
transactions:
- Reserve Bank of India may specifically impose the following
restrictions
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 persons 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 immoveable 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 person
resident outside India or
ii) by a person resident outside India
- A person residing in India may hold asset outside India if
acquired when they are inherited from person residing
there
- A person residing outside India may hold asset in India
acquired when residing here or inherited from person
residing here
- Reserve Bank of India to put restrictions for setting up
business in India by person outside
Sec. 7 - EXPORT OF GOODS AND SERVICES
- Every Exporter of goods to furnish following information to Reserve
Bank of India
a) Authority of declaration
b) Containing true and material particulars
c) Full export value or
d) Full export value as per market rate
e) Information for ensuring realization of export proceeds
- Reserve Bank of India to inform exporter the requirements to realize
export proceeds
- Every exporter of services to provide material particulars to Reserve
Bank of India
Sec. 8 - REALIZATION & REPATRIATION OF FOREIGN EXCHANGE
by person resident in India as per procedure of Reserve Bank of India
Sec. 9 - EXEMPTION FROM REALIZATION AND REPATRIATION in
certain cases - Secs. 4 to 8 not to apply in the following cases:
i) Possession of foreign currency or foreign coins by any
person upto limit provided by Reserve Bank of India
ii) Foreign currency account held or operated by such person
or class of persons and upto limit specified by Reserve
Bank of India
iii) Foreign Exchange acquired or received before 8/7/1947 or
any income arising or accruing thereon which is held
outside India by any person in pursuance of general or
special permission granted by Reserve Bank of India
iv) Foreign Exchange held by a person resident in India upto
such limit as the Reserve Bank of India may specify, if such
Foreign Exchange was acquired by way of gift or
inheritance from a person as in clause (iii) including any
income arising therefrom
v) Foreign Exchange acquired from employment, business,
trade, vocation, services, honorarium, gifts, inheritance or
any other legitimate means upto such limit as Reserve
Bank of India may specify
vi) Such other receipts specified by Reserve Bank of India
Sec.10 -AUTHORIZED PERSON
- Application to Reserve Bank of India - to deal in Foreign Exchange
and foreign securities i.e. to be a Dealer, Money Changer, Off-shore
Banking Unit
- Authorization granted in writing subject to conditions
- Authorization can be revoked by Reserve Bank of India
a) in public interest
b) violation of conditions, rules, regulations and law after
opportunity of hearing
- Authorized Person to comply with terms of authorization and special
and general directions of Reserve Bank of India
- Authorized Person to require declaration by person regarding
compliance with law and to report to Reserve Bank of India if person
fails to comply with declaration or fails to give it
- Any person fails to use acquired Foreign Exchange as per
declaration or fails to give it to Authorized Dealer has contravened
this Act
Sec . 11 - RESERVE BANK OF INDIA ’s POWER TO ISSUE
DIRECTIONS TO AUTHORIZED PERSON
- For the following purposes
a) Securing compliance with provisions of this Act relating to
Foreign Exchange and Foreign Securities
b) Ensure compliance with provisions of Act and supply of
information
- Failure of Authorized Person - Opportunity of being heard - fine of
upto Rs.10,000/-, Rs.2,000/- per day in case of continuing offence
Sec.12 - POWER OF RESERVE BANK OF INDIA TO INSPECT
AUTHORIZED PERSON
- By Inspector of Reserve Bank of India for following purposes
i) Verifying the correctness of any statement, information or
particulars provided to Reserve Bank of India
ii) Obtaining any information or particulars which such Authorized
Person has failed to furnish on being called upon to do so
iii) Securing compliance with the provisions of this Act of any rules,
regulations, directions or orders made thereunder
- Duty of AP to make available all documents and information for this
purpose
Sec.36 -DIRECTORATE OF ENFORCEMENT
- Central Government to establish Directorate of Enforcement with the
following personnel
a) Director
b) Officers of Enforcement - Its powers and duties
c) Additional Director of Enforcement
d) Special Director of Enforcement
e) Deputy Director of Enforcement
f) Assistant Director of Enforcement
Sec.37 -POWER OF SEARCH AND SEIZURE
- All the above to exercise power of investigation under this Act -
Powers of Income Tax Officers
- Also Officers of Central Government, State Government, Reserve
Bank of India not below rank of Under Secretary
Sec.38 -EMPOWERING OTHER OFFICERS
- Under Order of Central Government subject to conditions and
limitations
- Officer of Customs ) Exercise powers of
- Central Excise Officer ) Directorate of Enforcement
- Police Officer ) and powers of Income Tax
- Officer of Central Government or ) Officers
State Government )