Foreign Exchange Management Act, 1999

Characteristics
TITLE The act may be called the foreign exchange management act 1999.
DATE : FEMA was introduced by the finance minister in Lok -sabha on august 4 1998. It was adopted by parliament in1999. The FEMA came into force on June 1st 2000.

APPLICATION FEMA applies to whole of India. It also applies to all branches, offices
and agencies outside India owned or controlled by a person resident in India

Reason For Application Of FEMA:

The FEMA replaced due to following reason. The government itself felt that there was a need to simplify regulations relating to foreign investment, remove restrictions and delete provisions of FERA in order to attract better inflow of foreign capital and investment FERA was not suitable for liberalization policy. Though certain amendments were made in 1993 but they were not sufficient. After 1993, many important changes took place. Foreign exchange reserve also increased. The provisions of FERA were not favorable for these changes. The objective of the FERA was to conserve foreign exchange resources which badly affected the comfortable foreign exchange reserves. So the FEMA came into the existence.

With liberalized economic environment and increase flow of foreign exchange to India the provisions of FERA was repealed and Foreign Exchange Management Act, 1999 was passed by the central government.

Objectives
To consolidate and amend the laws relating to foreign exchange with the objective of facilitating external trade and payments For promoting the orderly development and maintenance of foreign exchange market in India.

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. 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.

REGULARISATION AND MANAGEMENT OF FOREIGN EXCHANGE

The following provisions have been made in FEMA for the regularization and management of foreign exchange. Section 3 Dealing in Foreign Exchange No person shall a) deal in or transfer any foreign exchange to any person not being authorized ; 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 Section 4 Restrains any person resident in India from acquiring, holding, owning, possessing or transferring any foreign exchange, foreign security or any immovable property situated outside India except as specifically provided in the Act.

Section 5 deals with Current account transactions. Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawal is a current account transaction which includes following : Payment due in connection with foreign trade Payments due as interest on loans and as net income from investments Remittances for living expenses of parents,spouse and children residing abroad Expenses in connection with foreign travel,education

Section 6 deals with Capital Account Transactions. This section allows a person to draw or sell foreign exchange from or to an authorized person for a capital account transaction. It means and includes A transaction which alters the assets or liabilities, including contingent liabilities outside India of persons resident in India

 A transaction which alters the assets or liabilities in India of persons resident outside India Transfer or issue of any foreign security by a person resident in India

Section 7 deals with Export Goods And Services Every exporter of goods shall: Furnish to the Reserve Bank a declaration in such form and in such manner as may be specified,containing correct material particulars,including the amount representing the full export value. Furnish to the RBI such other information as may be required by the RBI for the purpose of ensuring the realization of the export proceeds

The RBI may,for the purpose of ensuring that the full export value of the goods is received without any delay,direct any exporter to comply with such requirements as it deems fit Every exporter of services shall furnish to the RBI a declaration containing the true and correct material particulars in relation to payment for such services.

Section 8 lays down provisions of Realisation 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 all reasonable steps to realise and repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve Bank. Authorized Person (section 10) According to Section 10 The RBI may, on an application made to it in its behalf,authorize any person to be known as authorized person to deal in foreign exchange as an authorized dealer. An authorization under this section shall be in writing. An authorization granted may be revoked at any time if the RBI is satisfied that It is in the public interest to do so ; or The authorized person has failed to comply with the condition subject to which the authorization was granted. An authorized person shall, in all his dealings in foreign exchange or foreign security, comply with such general or special dealings as the RBI may think fit to give.

Section 13 PENALITIES & CONTRAVENTIONS

If any person contravenes any provision of this Act,he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues. Chapter V of the act deals with ADJUDICATION AND APPEAL. It states that the central government may appoint adjudicating authorities for holding an inquiry in the manner prescribed after giving the accused person a reasonable opportunity of being heard. SECTION 15 Empowers the Directorate of Enforcement and Officers of the Reserve Bank of India as may be authorized by the central Govt. in this behalf to compound the offences. SECTION 16 Empowers the central Govt. to appoint the as many adjudicating authorities as it may think fit for holding enquiries. SECTION 17 Empowers the central Govt. to appoint one or more special Directors to hear the appeals against the orders of the Adjudicating Authorities. SECTION 18 Empowers the central Govt. to establish Appellate Tribunal to hear appeals against the orders of Adjudicating Authorities and special Director Chapter VI deals with establishment of the directorate of enforcement and its powers Chapter VII deals with miscellaneous issues

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DIFFERENCES PROVISIONS

FERA FERA consisted of 81 sections, and was more complex. Terms like Capital Account Transaction, current Account Transaction, person, service etc. were not defined in FERA. Definition of "Authorized Person" in FERA was a narrow one

FEMA FEMA is much simple, and consist of only 49 sections. Terms like Capital Account Transaction, current account Transaction person, service etc., have been defined in detail in FEMA The definition of Authorized person has been widened to include banks, money changes, off shore banking Units etc. Offence is 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. Under FEMA the quantum of penalty has been considerably decreased to three times the amount involved. The appellate authority under FEMA is the special Director ( Appeals) Appeal against the order of Adjudicating Authorities and special Director (appeals) lies before

NEW TERMS IN FEMA

DEFINITION OF AUTHORIZED PERSON

PUNISHMENT

Any offence under FERA, was a criminal offence , punishable with imprisonment as per code of criminal procedure, 1973 The monetary penalty payable under FERA, was nearly the five times the amount involved. An appeal against the order of "Adjudicating office", before " Foreign Exchange Regulation Appellate Board went before High Court

QUANTUM OF PENALTY.

APPEAL

"Appellate Tribunal for Foreign Exchange." An appeal from an order of Appellate Tribunal would lie to the High Court.

Similarities between FEMA and FERA

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