Foreign Exchange

Market – Part II
Prepared by:-
Nidhi Gupta
Pawan Kathooria
 DISCUSSING
THE
DIFFERENCE
BETWEEN
FERA & FEMA
 WHAT
WHATISIS
•What is FERA?

FERA?
FERA?
• • The Foreign Exchange Regulation Act, 1973, is
The Foreign Exchange Regulation Act, 1973, is
(FERA)
(FERA)Act. Act.
• • FERA was introduced at a time when foreign
FERA was introduced at a time when foreign
exchange
exchange(Forex)
(Forex)reserves
reservesofofthe
thecountry
countrywere
were
low,
low,Forex
Forexbeing
beingaascarce
scarcecommodity.
commodity.
• • FERA therefore proceeded on the presumption
FERA therefore proceeded on the presumption
that
thatall
allforeign
foreignexchange
exchangeearned
earnedby byIndian
Indian
residents
residentsrightfully
rightfullybelonged
belongedtotothe
theGovernment
Government
ofofIndia
Indiaandandhad
hadtotobe
becollected
collectedand
andsurrendered
surrendered
totothe
theReserve
Reservebank
bankofofIndia
India(RBI).
(RBI).
 OBJECTIVE
OBJECTIVEOF
OF
FERA?
FERA?
The
Themain
mainobjective
objectiveofofthe
theFERA
FERA1973
1973was
wastoto
consolidate and amend the law regulating:-
consolidate and amend the law regulating:-
certain payments,
certain payments,
dealings in foreign exchange and securities,
dealings in foreign exchange and securities,
transactions, indirectly affecting foreign
transactions, indirectly affecting foreign
exchange,
exchange,
the import and export of currency, for the
the import and export of currency, for the
conservation
conservationofofthetheforeign
foreignexchange
exchangeresources
resources
ofofthe
thecountry,
country,
the proper utilization of this foreign exchange
the proper utilization of this foreign exchange
sosoasastotopromote
promotethe
theeconomic
economicdevelopment
developmentofof
the country.
the country.
 PURPOSE
PURPOSEOF
OFFERA?
FERA?
The
Thebasic
basicpurpose
purposeofofFERA
FERAwas:was:
a)
a)ToTohelp
helpRBI
RBIininmaintaining
maintaining
exchange
exchangerate
ratestability.
stability.
b)
b)ToToconserve
conserveprecious
preciousforeign
foreign
exchange.
exchange.
c)c)To
Toprevent/regulate
prevent/regulateforeign
foreign
business
businessininIndia.
India.
 Contraventions and Penalties under
FERA
Under Sec. 35 of FERA, any officer authorized
Under Sec. 35 of FERA, any officer authorized
by
bythe
theCentral
Centralgovernment
governmentcan canarrest
arrestany
any
person
personon onmere
meresuspicion
suspicionofofhis
hishaving
having
committed an offence under the
committed an offence under the Act. Act.
This is one of the most obnoxious and most
This is one of the most obnoxious and most
misused
misusedprovisions
provisionsofofFERA.
FERA.
Any offence under FERA, was a criminal
Any offence under FERA, was a criminal
offence,
offence,punishable
punishablewith
withimprisonment
imprisonmentasasper per
code of criminal procedure, 1973.
code of criminal procedure, 1973.
The monetary penalty payable under FERA,
The monetary penalty payable under FERA,
was
wasnearly
nearlythe
thefive
fivetimes
timesthe
theamount
amountinvolved.
involved.
 Why there was a need to scrap FERA?
The Foreign Exchange Regulation Act was
The Foreign Exchange Regulation Act was
replaced by the Foreign Exchange Management
replaced by the Foreign Exchange Management
Act
Actasasititwas
wasananimpediment
impedimentininIndia
Indiatotogo
go
global.
global.
FERA was enacted in 1973 when Indian
FERA was enacted in 1973 when Indian
economy
economywas wasfacing
facingcrisis
crisis&&forex
forexhas
hasbecome
become
precious
preciouscommodity.
commodity.
But by the nineties, FERA had outlived its
But by the nineties, FERA had outlived its
utility
utilityand
andwas
wasininfact,
fact,an
animpediment
impedimentininIndia's
India's
effort to go global and compete with other
effort to go global and compete with other
developing
developingcountries.
countries.
Thus, there was a need to scrap FERA and the
Thus, there was a need to scrap FERA and the
FEMA, 1999 came into effect on June 1, 2000.
 WHAT
WHATIS
IS
FEMA?
FEMA?
The Foreign Exchange Regulation Act of 1973
The Foreign Exchange Regulation Act of 1973
(FERA)
(FERA)ininIndia
Indiawas
wasrepealed
repealedon
on1st
1stJune,
June,2000.
2000.ItIt
was
wasreplaced
replacedbybythe
theForeign
ForeignExchange
Exchange
Management
ManagementAct Act(FEMA),
(FEMA),which
whichwas
waspassed
passedinin
the
thewinter
wintersession
sessionofofParliament
Parliamentinin1999.
1999.
FEMA has brought a new management regime of
FEMA has brought a new management regime of
Foreign
ForeignExchange
Exchangeconsistent
consistentwith
withthe
theemerging
emerging
frame
framework
workofofthe
theWorld
WorldTrade
TradeOrganization
Organization
(WTO).
(WTO).
 Objectives
Objectivesand andExtent
Extentof of
FEMA
FEMA
The objective of the Act is to consolidate and amend
The objective of the Act is to consolidate and amend
the law relating to foreign exchange with
the law relating to foreign exchange with the the
objective:-
objective:-
of facilitating external trade and payments and for
of facilitating external trade and payments and for
promoting
promotingthe theorderly
orderlydevelopment
development&&
maintenance of foreign exchange market in India.
maintenance of foreign exchange market in India.
It applies to all branches, offices and agencies
It applies to all branches, offices and agencies
outside
outsideIndia
Indiaowned
ownedororcontrolled
controlledby
byaaperson
personwho
who
isisaaresident
residentofofIndia,
India,
Also to any contravention there under committed
Also to any contravention there under committed
outside
outsideIndia
Indiabybyany
anyperson
persontotowhom
whomthis
thisAct
Act
applies.
applies.
 Similarities & Differences between FERA & FEMA

Similarities
Similaritiesin
inFERA
FERA&&FEMA
FEMA
The similarities between FERA and FEMA are as
follows:-

•The Reserve Bank of India and central government

would continue to be the regulatory bodies.

•Presumption of extra territorial jurisdiction as

envisaged in section (1) of FERA has been retained.

•The Directorate of Enforcement continues to be the

agency for enforcement of the provisions of the law
such as conducting search and seizure.
Difference
between
FERA
&
FEMA
S.N Difference FERA FEMA
o

1. PROVISIONS FERA consisted of 81 FEMA is much simple,

sections, and was more and consist of 49 sections
complex. only.

2. FEATURES Presumptions of negative These presumptions have

intention & joining hands in been excluded in FEMA
offence existed in FEMA.

3. NEW TERMS in Terms like Capital Account Terms like Capital

FEMA Transaction, current Account
Transaction, person, service
etc. were not defined in
FERA.
Account Transaction,
current account
Transaction person,
service etc., have been
defined in detail in
FEMA.
S.N Difference FERA FEMA
o
4. DEFINITION OF Definition of "Authorized The definition of
AUTHORIZED Person" in FERA was a Authorized person has been
PERSON narrow one 2(b) widened to include banks,
money changes, off shore
banking Units etc. (2 ( c )

5. PUNISHMENT Any offence under FERA, Here, the offence is

was a criminal offence ,
punishable with
imprisonment as per code of
criminal procedure, 1973
considered to be a civil
offence only punishable
with some amount of
money as a penalty.
Imprisonment is prescribed
only when one fails to pay
the penalty

6. QUANTUM OF The monetary penalty Under FEMA the quantum

PENALTY payable under FERA, was of penalty has been
nearly the five times the considerably decreased to
amount involved. three times the amount
involved.
S.N Difference FERA FEMA
o
7. POWER OF FERA conferred wide powers The scope and power of
SEARCH AND on a police officer not below search and seizure has
SEIZE the rank of a Deputy been curtailed to a great
Superintendent of Police to extent.
make a search
8. RIGHT OF FERA did not contain any FEMA expressly
ASSISTANCE express provision on the right recognizes the right of
DURING LEGAL of on impleaded person to appellant to take
PROCEEDINGS take legal assistance assistance of legal
practitioner or chartered
accountant (32)

9. APPEAL An appeal against the order of The appellate authority

"Adjudicating office", before
" Foreign Exchange
Regulation Appellate Board
went before High Court
under FEMA is the special
Director ( Appeals)
Appeal against the order
of Adjudicating
Authorities and special
Director (appeals) lies
before "Appellate
Tribunal for Foreign
Exchange."
THANK
YOU