CHAPTER - FEMA FOREIGN EXCHANGE MANAGEMENT ACT, 1999 OBJECTS OF FEMA DIFFERENCE BETWEEN FERA & FEMA DEFINITIONS

IONS DEFINITIONS RELATING TO RESIDENTIAL STATUS REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE (A) GENERAL
PERMISSION FOR PAYMENTS BY A PERSON RESIDENT IN INDIA ECEIPTS BY A PERSON RESIDENT IN INDIA - GENERAL PERMISSION

REPATRIATION OF FOREIGN EXCHANGE AND EXEMPTIONS REGULATIONS ON REALISATION, REPATRIATION AND SURRENDER OF FOREIGN EXCHANGE REGULATIONS ON POSSESSION AND RETENTION OF FOREIGN CURRENCY AUTHORISED PERSON CURRENT ACCOUNT TRANSACTIONS RULES ON CURRENT ACCOUNT TRANSACTIONS CAPITAL ACCOUNT TRANSACTION HOLDING OR ACQUISITION OF IMMOVABLE PROPERTY OUTSIDE INDIA HOLDING OR ACQUISITION OF IMMOVABLE PROPERTY IN INDIA REGULATIONS ON CAPITAL ACCOUNT TRANSACTIONS EXPORT OF GOODS AND SERVICE REGULATIONS ON EXPORT OF GOODS AND SERVICES ADJUDICATING AUTHORITY PENALTIES PROCEDURE FOR ADJUDICATION COMPOUNDING OF CONTRAVENTION APPEAL WITH SPECIAL DIRECTOR ( APPEALS ) AND THE APPELLATE TRIBUNAL APPEAL TO HIGH COURT POWERS OF ADJUDICATING AUTHORITY, SPECIAL DIRECTOR ( APPEALS ) AN THE APPELLATE TRIBUNAL INVESTMENT IN INDIA BY A PERSON RESIDENT OUTSIDE INDIA BANK ACCOUNTS BY A PERSON WHO IS RESIDENT OUTSIDE INDIA

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NON-RESIDENT ( EXTERNAL ) RUPEE ACCOUNT SCHEME FOREIGN CURRENCY ( NON-RESIDENT ) ACCOUNT ( BANKS ) SCHEME FCNR(B) NON-RESIDENT ORDINARY RUPEE ( NRO ) ACCOUNT SCHEME EXCHANGE EARNERS FOREIGN CURRENCY ( EEFC ) ACCOUNT SCHEME RESIDENT FOREIGN CURRENCY ACCOUNT BANK ACCOUNTS BY A PERSON RESIDENT IN INDIA PRACTICAL QUESTIONS 1 Ans. What are the OBJECTS of enacting Foreign Exchange Management Act, 1999? Also state the extent and application of FEMA. Foreign Exchange Regulation Act ( FERA ) was introduced in the year 1974 with an object of having stringent controls to conserve foreign exchange and utilise these scarce resources in the best interest of the country. With the liberalized economic environment and increased flow of foreign exchange to India the draconian provisions of FERA were needed to be reviewed. Therefore, FERA was repealed and Foreign Exchange Management Act, 1999 (FEMA) was passed. FEMA has been brought into force from 1st June, 2000. The preamble to FEMA reads as under : 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. EXTENT and APPLICATION ( Sec. 1 ) The Act extends to the WHOLE of India. Also, the Act has extra territorial jurisdiction, i.e., it also applies to :(a) All branches, offices and agencies OUTSIDE India - owned or controlled by a Person RESIDENT in India; and (b) Any contravention committed outside India by ANY Person - to whom this Act applies. *** 2 Bring out the significant DIFFERENCES between Foreign Exchange Regulation Act, 1973 ( FERA ) and Foreign Exchange Management Act, 1999 ( FEMA ). The significant DIFFERENCES between Foreign Exchange Regulation Act, 1973 (FERA) and Foreign Exchange Management Act, 1999 (FEMA) are as under : Object of the Act. The main object of FERA was to CONSERVE the foreign exchange resources and prevent the misuse thereof. However,

Ans.

1.

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the main object of FEMA is to PROMOTE and DEVELOP the foreign exchange management of the Country. In other words, FERA sought to control foreign exchange transactions while FEMA seeks to manage foreign exchange. 2. Meaning of Person Resident in India. Citizenship was the criterion to determine the residential-status of a person under FERA. The definition of RESIDENT in India has been redefined in FEMA. A person residing for more than 182 days in India - is a person RESIDENT in India as per FEMA. Structure of the Act - Prohibition/Relaxation. FERA PROHIBITED almost all the foreign exchange transactions UNLESS a general or special permission was issued. However, under FEMA, all the current account transactions are permissible EXCEPT some transactions controlled by the Rules. Nature of Offences. The offences under FEMA shall be treated as civil wrongs whereas under FEMA, offences were subject to criminal punishments also. Therefore, FERA was held to be draconian, severe and harsh. Presumption of Mens-rea. Under FERA there was a presumption existence of guilty mind , UNLESS the accused proved otherwise. Under FEMA, however, the prosecution will have to PROVE that a person has committed an offence. Power to Arrest. Sec. 35 of FERA empowered the Enforcement officers to arrest a person, if they had reasons to believe that the person was guilty of FERA violations. FEMA provides such power of arrest ONLY in the following 2 cases : (a) Where the accused person FAILS to pay the full payment of penalty - WITHIN 90 days from service of notice on him. (b) Where the accused person FAILS to furnish the security for his appearance BEFORE the Adjudicating Authority, the Adjudicating Authority may, in his discretion, order that the accused person be DETAINED - in the custody of an Officer of the Adjudicating Authority. 7. 8. 9. Compounding of Offences. All the offences under FEMA are compoundable whereas compounding was not permissible under FERA. Appellate Authorities. There was only ONE Appellate Authority under FERA whereas in FEMA, there exists TWO Appellate Authorities. Right of Legal Assistance. The accused has a right to take the assistance of a Legal Practitioner (or) a Chartered Accountant under FEMA. Under FERA, even a friend or a relative of the person could represent the accused person before the Adjudicating Authority.

3.

4.

5.

6.

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10. Role of RBI. Reserve Bank of India has been portrayed as a FACILITATOR under FEMA instead of a REGULATOR of foreign exchange under FERA. There is however, one underlying SIMILARITY in BOTH these legislations that FEMA, just like FERA, is also governed by the NOTIFICATIONS - to be issued by the Central Government/ Reserve Bank of India for granting GENERAL Permissions. *** 3 1. DEFINE the following TERMS :Sec. 2(h) - Currency : includes - all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange, promissory notes, credit cards or such other similar instruments, as may be NOTIFIED by the Reserve Bank. RBI has notified debit cards, ATM cards or any other instrument by whatever name called that can be used to create a financial liability as CURRENCY Accordingly, all the rules, regulations and directions made under the Act shall also apply to credit cards, ATM cards, Debit cards, etc. Sec. 2(i) - Currency Notes : means and includes cash in the FORM of coins and bank notes. Sec. 2(m) - Foreign Currency : means any currency OTHER THAN Indian currency. Sec. 2(n) - Foreign exchange : means foreign currency and includes (i) ; deposits, credits and balances payable - in any FOREIGN currency

2. 3. 4.

(ii) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in INDIAN currency but payable in any FOREIGN currency ; (iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks institutions or persons OUTSIDE India, - but payable in INDIAN CURRENCY. 5. 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 dividends is payable IN INDIAN CURRENCY. Sec. 2(p) - Import : with its grammatical variations and cognate expressions, means bringing into India any goods, or services. Sec. 2(q) - Indian Currency : means currency which is expressed or drawn in Indian rupees but does not include special bank notes and

6. 7.

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special one rupee notes issued under section 28A of the Reserve Bank of India Act, 1934. 8. Sec. 2(za) - Security : means shares, stocks, bonds and debentures, government securities defined in the Public Debt Act, 1944, savings certificates to which the Government Saving Certificates Act, 1959 applies, deposit receipts in respect of deposits securities and units of the Unit Trust of India established under sub-section (1) of section 3 of the Unit Trust of India Act, 1963 or of any mutual fund and includes certificates of title to securities, but does not include bills of exchange or promissory notes other than government promissory notes or any other instruments which may be notified by the Reserve Bank as security for the purposes of this Act. Sec. 2(ze) - Transfer : includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien. *** 4 Define the terms PERSON, PERSON RESIDENT in India and Person resident OUTSIDE India OR How will you determine whether a particular Business Unit like a Factory (or) Office - is a Person Resident in India - under FEMA, 1999? Sec. 2(u) - Person Person includes(i) an individual; (ii) (iii) a Hindu undivided family; a company;

9.

Ans.

(iv) a firm; (v) an association of persons or a body of individuals, whether incorporated or not; (vi) every artificial juridical person, not falling within any of the preceding sub-clauses; and (vii) any agency, office or branch owned or controlled by such person. Sec. 2(v) - Person Resident in India 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 (1) 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

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(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period; (2) a Person who has come to or stay in India, in EITHER case, OTHERWISE than (a) (b) for or on taking up employment in India, or 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. Sec. 2(w) - Person resident OUTSIDE India Person resident outside India means a person who is NOT resident in India. *** 5 Ans. What are the RESTRICTIONS imposed under FEMA relating - to dealing in FOREIGN EXCHANGE and FOREIGN SECURITIES ? Section 3 requires that all the transactions in foreign exchange shall be in accordance with the provisions of Foreign Exchange Management Act. The provisions of section 3 are explained as follows : 1. RESTRICTIONS on dealings in Foreign Exchange and Foreign Securities : ( Sec. 3 ) Section 3 provides for the following RESTRICTIONS : (a) Restrictions on dealings. No person shall deal in or transfer any foreign exchange or foreign security to any person not being an authorised person [Sec. 3(a)]. Restriction on payments. No person shall make any payment to or for the order of any person resident outside India in any manner [Sec. 3(b)]. Restrictions on receipts. No person shall receive, otherwise through an authorised person any payment by order or on behalf of any person resident outside India in any manner [Sec. 3(c)]. Receipts to be supported by inward remittances. For the purpose of Sec. 3(c), where any person in, or resident in, India receives any payment by order or on behalf of any person resident outside India through any other person ( including an authorised

(b)

(c)

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person ) without a corresponding inward remittance from any place outside India, then, such person shall be deemed to have received such payment otherwise than through an authorised person. (d) Acquisition etc. of assets outside India. No person shall enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person [Sec. 3(d)]. Meaning of financial transaction. For the purpose of Sec. 3(d), 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. 2. RELAXATIONS in Restrictions ( Sec. 3 ) All the restrictions mentioned under Section 3 may be relaxed in the following manner: (a) By making a provision to that effect in the Act. (b) By making a provision to that effect in the rules and regulations made under the Act. (c) By the general permission of the Reserve Bank. (d) By the special permission of the Reserve Bank. 3. GENERAL permission - under Sec. 3(a) The Reserve Bank of India has permitted any person to BUY from any Post Office, in accordance with any law or rules made thereunder for the time being in force, an foreign exchange in the form of postal orders or money orders 4. General permission - under Sec. 3(b), 3(c) and 3 (d) The prohibitions imposed by clauses (b), (c) and (d) of section 3 shall NOT apply to any transaction entered into in Indian rupees by or with :(a) a person who is a citizen of India, Nepal or Bhutan resident in Nepal or Bhutan; (b) a branch situated in Nepal or Bhutan of any business carried on by a company a corporation incorporated in India, Nepal or Bhutan; and a branch situated in Nepal or Bhutan of any business carried on as a partnership firm or otherwise, by a citizen of India, Nepal or Bhutan.

(c)

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The cases in which a Person Resident in India may make a payment to, or on behalf of, a Person Resident OUTSIDE India :NO person shall make any payment to or for the order of any person resident OUTSIDE India in any manner, except as provided in the Act, rules or regulations made thereunder or with the general or special permission of the Reserve Bank [Sec. 3(b)]. The Reserve Bank of India has issued a GENERAL permission permitting any person RESIDENT in India to make payment in INDIAN RUPEES in the following cases :-

(a)

Expenses of hospitality of a person visiting India. Payment towards meeting expenses on account of boarding, lodging and services related thereto or travel to and from and within India of a person resident outside India who is on a visit to India. Purchase of gold or silver. Payment to a person resident outside India, by means of a crossed cheque or a draft as consideration for purchase of gold or silver in any form imported by such person in accordance with the terms and conditions imposed under any order issued by the Central Government under the Foreign Trade (Development and Regulations ) Act, 1992 or under any other law, rules or regulations for the time being in force. Payment to a guarantor. A person resident in India, being the principal debtor, may make a payment to a person resident outside India being a guarantor, such payment being by way of reimbursement of the payment made to the resident creditor by the non-resident guarantor under the guarantee furnished by him on behalf of the principal debtor. However, the amount payable by way of reimbursement by the resident principal debtor shall not exceed the rupee equivalent of the amount paid by the non-resident guarantor under the guarantee. Payments to NON-WHOLETIME Director. A company in or resident India, may make a payment in rupees to its non-whole time director who is resident outside India and is on a visit to India for the companys work and is entitled to payment of sitting fees or commission or remuneration, and travel expenses to and from and within India, in accordance with the provisions contained in the companys memorandum of association or articles of association or in any agreement entered into by it or in any resolution passed by the company in general meeting or by its Board of Directors, provided the requirements of any law, rules, regulations, directions applicable for making such payments are duly complied with. ***

(b)

(c)

(d)

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The CASES - in which a person RESIDENT in India may RECEIVE a payment from a person RESIDENT OUTSIDE India :NO person shall receive, otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner, except as provided in the Act, rules or regulations made thereunder or with the general or special permission of the Reserve Bank [ Sec. 3(c) ]. The Reserve Bank of India has issued a GENERAL PERMISSION permitting any person to RECEIVE any amount in the following CASES :

(a)

Any person may receive any payment made in rupees by order or on behalf of a person resident outside India during his stay in India out of rupee funds provided by him by - sale of foreign exchange to an authorised dealer or a money changer in India. Any person may receive any payment made by means of a cheque drawn on a bank situated outside India or a bank draft or travellers cheque issued OUTSIDE India subject to the condition that the foreign exchange so received shall be offered for sale to an authorised dealer or a money changer with in 7 days of receipt thereof. Any person may receive any payment made in foreign currency notes directly from OUT OF India subject to the condition that the foreign exchange so received shall be offered for sale to an authorised dealer or a money changer within 7 days of receipt thereof. Any person may receive any payment by means of postal order or issued by a post office outside India. RESTRICTIONS - on holding of Foreign Exchange etc. ( Sec. 4 ) NO person resident in India shall acquire, hold, possess, own or transfer any foreign exchange, foreign security or any immovable property situated outside India, EXCEPT in accordance with the Act, or by a general or special permission of Reserve Bank India. ***

(b)

(c)

(d) 5.

What are the provisions relation to REALISATION and REPATRIATION of foreign exchange? Also state the EXEMPTIONS provided in FEMA? Repatriation to India [ Sec. 2(y) ] Repatriate to India means bringing into India the realised foreign exchange and (i) the selling of such foreign exchange to an authorised person in India in exchange for rupees, or (ii) the holding of realised amount in an account with an authorised person in India to the extent notified by the Reserve Bank, and

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includes use of the realised amount for discharge of a debt or liability denominated in foreign exchange. REALISATION and REPATRIATION of Foreign Exchange ( Sec. 8 ) 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. EXEMPTION from Realisation and Repatriation ( Sec. 9 ) The provisions of sections 4 and 8 shall NOT apply to the following, i.e., in the following cases the foreign exchange need not be repatriated to India : (a) (b) Possession of foreign currency or foreign coins by any person upto such limit as the Reserve Bank may specify. Foreign currency account held or operated by such person or class of persons upto such limits as may be specified by the Reserve Bank of India. Foreign exchange acquired or received before the 8th day of July, 1947 or any income arising or accruing thereon which is held outside India by any person in pursuance of a general or special permission granted by the Reserve Bank. Foreign exchange held by a person resident in India upto such limit as the Reserve Bank may specify, if such foreign exchange was acquired by way of gift or inheritance from a person referred to in clause (c), including any income arising therefrom. Foreign exchange acquired from employment, business, trade, vocation, services, honorarium, gifts, inheritance or any other legitimate means upto such limits as the Reserve Bank may specify. Such other receipts in foreign exchange as the Reserve Bank may specify. *** 7 What are the Provisions of the Regulations framed by RBI - in respect of REALISATION, REPATRIATION and SURRENDER of Foreign Exchange The Reserve Bank of India has framed Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000. The provisions of these regulations are as under : Duty of persons to realise foreign exchange due - [ Regulation 3 ] A person resident in India to whom any amount of foreign exchange is due or has accrued shall take all reasonable steps to realise and repatriate to India such foreign exchange.

(c)

(d)

(e)

(f)

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He shall NOT do or refrain from doing anything which has the effect of securing (a) that the receipt by him of the whole or part of that foreign exchange is delayed; or (b) that the foreign exchange ceases in whole or in part to be receivable by him. Manner of repatriation - ( Regulations 4 and 5 ) On realisation of foreign exchange due, a person shall repatriate it to India. He shall adopt either of the following manners of repatriation : (a) Selling to authorised person. He shall sell it to an authorised person in India in exchange for rupees. Period for surrender. He shall sell the realised foreign exchange within the period specified below : (i) Within 7 days - where the foreign exchange is due or accrued as remuneration for services rendered ( whether in or outside India ); or settlement of any lawful obligation; or an income on assets held outside India; or Inheritance, settlement or gift. (ii) (b) (c) Within 90 days - in all other cases. Retain. He shall retain or hold it in account with an authorised dealer in India only to the extent specified by the Reserve Bank. Paying a liability. He shall use it for discharge of a debt or liability denominated in foreign exchange only to the extent and in the manner specified by the Reserve Bank. A person shall be deemed to have repatriated the realised foreign exchange to India when he receives in India payment in rupees from the account of a bank or an exchange house situated in any country outside India, maintained with an authorised dealer. Period for surrender of foreign exchange acquired from an authorised person ( Regulation 6 ) 1. Unspent foreign exchange acquired for foreign travel. Where the foreign exchange acquired by any person from an authorised person is for the purpose of foreign travel, then, the unspent balance of such foreign exchange shall be surrendered to an authorised person as follows : (a) Within 90 days - if the unspent foreign exchange is in the form of currency notes and coins. (b) Within 180 days - if the unspent foreign exchange is in the form of travellers cheques. The period of 90 days 180 days shall be calculated form the date of return of the traveller to India.

Deemed repatriation

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2.

Unspent foreign exchange acquired for any other purpose. A person can acquire foreign exchange from an authorised person only on furnishing a declaration stating the intended use of such foreign exchange [Section 10(5)]. Where he does not use the foreign exchange for such purpose or for any other purpose for which acquisition of foreign exchange is permissible, he shall surrender such foreign exchange or the unused portion thereof to an authorised person within 60 days from the date of its acquisition by him.

Exemption ( Regulation 7 ) : NOTHING in these regulations shall apply to foreign exchange in the form of currency of Nepal or Bhutan. *** 8 What are the PROVISIONS of the REGULATIONS framed by the Reserve Bank of India - in respect of POSSESSION and RETENTION of FOREIGN CURRENCY ? Ans. As per Section 4, NO person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, except in accordance with the Act. In this regard, the Reserve Bank of India has framed Foreign Exchange Management ( Possession and Retention of Foreign Currency ) Regulations, 2000. The provisions of these regulations are as under : Limits for possession and retention of foreign currency or foreign coins - ( Regulation 3 ) An authorised person acting within the scope of his authority may possess foreign currency and coins without any limit. Any person may possess foreign coins without any limit. A person resident in India may possess or retain foreign currency notes, bank notes and foreign currency travellers cheques not exceeding US$ 2,000 or its equivalent in aggregate, provided that such foreign exchange(a) was acquired by him while on a visit to any place outside India by way of payment for services not arising from any business in or anything done in India; or (b) was acquired by him, from any person not resident in India and who is on a visit to India, as honorarium or gift or for services rendered or in settlement of any lawful obligation; or (c) was acquired by him by way of honorarium or gift while on a visit to any place outside India; or (d) represents unspent amount of foreign exchange acquired by him from an authorised person for travel abroad. POSSESSION of foreign exchange by a person resident in India but NOT permanently resident therein ( Regulation 4 ) A person resident in India but not permanently resident therein may possess without limit foreign currency in the form of currency notes, bank

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notes and travellers cheques, if such foreign currency was acquired, held or owned by him when he was resident outside India and, has been brought into India in accordance with the regulations made under the Act. Meaning of NOT permanently resident. NOT permanently resident means a person resident in India for(a) or employment of a specified duration (irrespective of length thereof);

(b) a specific job or assignment, the duration of which does NOT exceed 3 years. *** 9 Ans. What do you mean by the expression AUTHORISED PERSON ? Explain the PROVISIONS relating to authorised persons. Generally, the term AUTHORISED PERSON means a person who has obtained the authorisation from the Reserve Bank of India for dealing in foreign exchange. The provisions applicable to an authorised person are contained in Sect. 10 to 12 ( Sec. 10 to 12 constitute Chapter III of FEMA, 1999 ). Authorised person means an authorised dealer, money changer, offshore banking unit or any other person for the time being authorised under Section 10(1) to deal in foreign exchange or foreign securities. Application for appointment as authorised person ( Sec. 10 ) The Reserve Bank may, on an application made to it in this behalf, authorise any person to be known as authorised person to deal in foreign exchange or in foreign securities, as an authorised dealer, money changer or off-shore banking unit or in any other manner as it deems fit. The authorisation given by the Reserve Bank shall be in writing and shall be subject to the conditions laid down therein. Revocation of authorisation ( Sec. 10 ) The authorisation may be revoked by the Reserve Bank in the following cases: (a) (b) Revocation in public interest. The Reserve Bank of India may revoke the authorisation if it is satisfied that such revocation is in public interest. Contravention of Act etc. The Reserve Bank of India may revoke the authorisation if it is satisfied that the authorised person has failed to comply with the condition subject to which the authorisation was granted or has contravened any of the provisions of the Act or any rule, regulation, notification, direction or order made thereunder. However, the Reserve Bank of India shall give the authorised person a reasonable opportunity of making a representation in the matter.

DEFINITION of Authorised person [ Sec. 2(c) ]

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DUTIES of authorised person ( Sec. 10 ) 1. To comply with RBI directions. An authorised person shall, in all his dealings in foreign exchange or foreign security, comply with such general or special directions or orders as the Reserve Bank may, from time to time, think fit to give. Not to engage in unlawful transactions. Except with the previous permission of the Reserve Bank, an authorised person shall not engage in any transaction involving any foreign exchange or foreign security which is not in conformity with the terms of his authorisation under this section. To ensure compliance with act, rules, etc. An authorised person shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declaration and to give such information as will reasonably satisfy him that the transaction will not involve, and is not designed for the purpose of any contravention or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made thereunder. To report to Reserve Bank of India apprehended contravention of the Act. Where a person refuses to make the declaration or to give the information required by the authorised person or makes only unsatisfactory compliance therewith, the authorised person shall refuse in writing to undertake the transaction. Also, if he has reason to believe that certain contravention or evasion is contemplated by the person, he shall report the matter to the Reserve Bank. Issue of directions. The Reserve Bank may, for the purpose of securing compliance with the provisions of this Act and of any rules, regulations, notifications or directions made thereunder, give to the authorised persons any direction in regard to making of payment or the doing or desist from doing any act relating to foreign exchange or foreign security. Calling of information. The Reserve Bank may, for the purpose of ensuring the compliance with the provisions of this Act or of any rule, regulation, notification, direction or order made thereunder, direct any authorised person to furnish such information, in such manner, as it deems fit. Penalty for contravention. (a) When can penalty be levied? The penalty may be levied in the following cases : (i) Where an authorised person contravenes any direction given by the Reserve Bank under this Act. (ii) Where an authorised person fails to file any return as directed by the Reserve Bank.

2.

3.

4.

Powers of Reserve Bank ( Sec. 11 ) 1.

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Amount of penalty. (i) The penalty shall not exceed 10,000. (ii) Where any contravention is a continuing one, further penalty not exceeding Rs. 2,000 per day may be levied. (c) Opportunity of being heard to be given. Before levying any penalty the Reserve Bank shall give a reasonable opportunity of being heard to the authorised person. Power of Reserve Bank to inspect authorised person ( Sec. 12 ) 1. Inspection by Reserve Bank. The Reserve Bank may, at any time, cause an inspection to be made, by any officer of the Reserve Bank specially authorised in writing by the Reserve Bank in this behalf, of the business of any authorised person as may appear to it to be necessary or expedient for the purpose of - (a) verifying the correctness of any statement, information or particulars furnished to the Reserve Bank; (b) (c) 2. obtaining any information or particulars which such authorised person has failed to furnish on being called upon to do so ; securing compliance with the provisions of this Act or of any rules, regulations, directions or orders made thereunder.

(b)

Duty produce books and furnish information. It shall be the duty of every authorised person, and where such person is a company or a firm, every director, partner or other officer of such company or firm, as the case may be, to produce to any officer making an inspection under subsection (1), such books of accounts and other documents in his custody or power and to furnish any statement or information relating to the affairs of such person, company or firm as the said of facer may require within such time and in such manner as the said of facer may direct. If a person who has acquired foreign exchange for any purpose mentioned in the declaration made by him to an authorised person shall be deemed to have committed contravention of the provisions of the Act, if he does not use it for such purpose; or does not surrender it to authorised person within the specified period; or uses the foreign exchange so acquired for any other purpose for which purchase or acquisition of foreign exchange is not permissible. *** What do you understand by the term CURRENT ACCOUNT TRANSACTIONS? (OR) Explain the meaning of the term Current Account Transaction and the RIGHT of a CITIZEN to obtain Foreign Exchange under the Foreign Exchange Management Act, 1999.

Duties of acquire of foreign exchange

(a) (b) (c)

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Ans.

(a)

(b) (c) (d)

Definition of CURRENT ACCOUNT TRANSACTION [ 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 payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business; payments due as interest on loans and as net income from investments; remittances for living expenses of parents, spouse and children residing abroad; and expenses in connection with foreign travel, education and medical care of parents, spouse and children. Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction. However, the Central Government may in public interest and in consultation with the Reserve Bank of India, impose such reasonable restrictions for current account transactions as may be prescribed. In other words, foreign exchange is freely available for a current account transaction if the following two conditions are satisfied :

NO restriction on current account transactions unless specified ( Sec. 5 )

(a) (b)

The transaction is not prohibited by the rules. The transaction is within the ceiling limit, if any, prescribed by the rules, or the permission of the Reserve Bank of India or the Central Government, as the case may be, is obtained. Meaning of drawal of foreign exchange. Drawal means drawal of foreign exchange from an authorised person and includes opening of letter of credit or use of international credit card or debit card or ATM card or any thing by whatever name called which has the effect of creating a foreign exchange liability. ***

11 Ans.

Explain briefly the provisions relating to the RULES framed for CONTROL of CURRENT ACCOUNT transactions. The Central Government has framed Foreign Exchange Management ( Current Account Transactions ) Rules, 2000. As per these rules, the current account transactions have been divided into the following 3 categories: (a) Transactions for which drawal of foreign exchange is prohibited. (b) Transactions for which foreign exchange can be drawn subject to the prior approval of the Central Government. (c) Transactions for which foreign exchange can be drawn subject to the prior approval of the Reserve Bank of India.

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Transactions for which drawal of foreign exchange is prohibited Rule 3 read with Schedule I prohibits drawal of foreign exchange (by any person) for the following purposes: 1. Remittance out of lottery winnings. 2. Remittance of income from racing/riding, etc., or any other hobby. 3. Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes, etc. 4. Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned Subsidiaries abroad of Indian companies. 5. Remittance of dividend by any company to which the requirement of dividend balancing is applicable. 6. Payment of commission on exports under Rupees State Credit Route. 7. Payment related to Call Back Services of telephones. 8. Remittance of interest income on funds held in Non-resident Special Rupee Scheme Account. 9. Payment for travel to Nepal and/or Bhutan. 10. Any transaction with a person resident in Nepal or Bhutan. Transactions permissible with APPROVAL of CENTRAL GOVERNMENT As per Rule 4 read with Schedule II, prior approval of Central Government shall be required for drawal of foreign exchange (by any person) for the following purposes : 1. Cultural Tours. 2. Advertisement in foreign print media for the purposes other than promotion of tourism, foreign investments and international bidding (exceeding US$ 10,000) by a State Government and its Public Sector Undertakings. 3. Remittance of freight of vessel chartered by a PSU. 4. Payment of import by a Government Department or a PSU on CIF basis (i.e., other than FOB and FAS basis). 5. Multi-modal transport operators making remittance to their agents abroad. 6. Remittance of hiring charges of transponders. 7. Remittance of container detention charges exceeding the rate prescribed by Director General of Shipping. 8. Remittances under technical collaboration agreements where payment of royalty exceeds 5% on local sales and 8% on exports and lump-sum payment exceeds US$ 2 million. 9. Remittance of prize money/sponsorship of sports activity abroad by a person other than International/ National/State leaves sports bodies if the amount involved exceeds US $ 1,00,000 10. Payment for securing Insurance for health from a company abroad.

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11. Remittance for membership of P&I Club. Exception : No prior approval of the Central Government shall be required where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter. Transactions permissible - with APPROVAL of RESERVE BANK As per Rule 5 read with Schedule III, PRIOR approval of Reserve Bank shall be required for drawal of foreign exchange ( by any person ) for the following purposes :1. Remittance by artists e.g., wrestler, dancer, entertainer, etc. (This restriction is not applicable to artists engaged by tourism related organisations in India like ITDC, State Tourism Development Corporations, etc. during special festivals or those artists engaged by hotels in five star categories, provided the expenditure is met out of EEFC account). Release of exchange exceeding US$ 10,000 or its equivalent in one calendar year for one or more private visits to any country (except Nepal and Bhutan). Gift remittance exceeding US$ 5,000 per remitter/donor per annum. Donation exceeding US$ 5,000 per remitter/donor per annum. Exchange facilities exceeding US$ 1,00,000 for persons going abroad for employment. Exchange facilities for emigration exceeding US$ 1,00,000 or amount prescribed by country of emigration. Remittance for maintenance of close relatives abroad (i) exceeding net salary (after deduction of taxes, contribution to provident fund and other deductions) of a person who is resident but not permanently resident in India and is a citizen of a foreign country other than Pakistan; (ii) exceeding US$ 5,000 per year per recipient, in all other cases. Meaning of RESIDENT BUT NOT ORDINARY RESIDENT. For the purpose of this item, a person resident in India on account of his employment of a specified duration ( irrespective of length thereof ) or for a specific job or assignment, the duration of which does NOT exceed 3 years is a resident but NOT permanently resident. 8. Release of foreign exchange, exceeding US$ 25,000 to a person, irrespective of period of stay, for business travel, or attending a conference or specialised training or for maintenance expenses of a patient going abroad for medical treatment or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/check-up.

2.

3. 4. 5. 6. 7.

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9.

Release of exchange for meeting expenses for medical treatment abroad exceeding the estimate from the doctor in India or doctor abroad. Authorised dealers may release foreign exchange upto an amount of US$ 50,000 or its equivalent for medical treatment abroad, without insisting on any estimate from a hospital/doctor, provided the applicant furnishes a declaration that he is buying the foreign exchange for medical treatment outside India. The payment for purchase of foreign exchange shall be made by way of a cheque or demand draft or debit to the applicants account .

10. Release of exchange for studies abroad exceeding the estimates from the institution abroad or US$ 30,000 per academic year whichever is higher. 11. Commission to agents abroad for sale of residential flats or commercial plots in India, exceeding 5% of the inward remittance. 12. Short-term credit to overseas offices of Indian companies. 13. Remittance for advertisement on foreign television by a person whose export earnings are less than Rs.10 lakhs during each of the preceding 2 years. 14. Remittances of royalty and payment of lump-sum fee under the technical collaboration agreement which has not been registered with Reserve Bank. 15. Remittance exceeding US$ 1,00,000 per project, for any consultancy service procured from outside India. 16. Remittances for use and/or purchase of trade mark/franchise in India. 17. Remittance exceeding US$ 1,00,000 by an entity in India by way of reimbursement of pre-incorporation expenses. *** 12 Explain the meaning of the term CAPITAL ACCOUNT TRANSACTION under the Foreign Exchange Management Act, 1999. Meaning of CAPITAL ACCOUNT TRANSACTION [ Sec. 2(e) ] Capital Account Transaction means a transaction which alters the assets or liabilities, INCLUDING contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and INCLUDES the following transactions :(a) (b) (c) Transfer or issue of any foreign security by a person resident in India. Transfer or issue of any security by a person resident outside India. Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India.

Ans.

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(d) (e)

Any borrowing or lending in foreign exchange in whatever form or by whatever name called. Any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India. Deposits between persons resident in India and persons resident outside India. Export, import or holding of currency or currency notes. Transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India. Acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India. 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. The Reserve Bank shall not impose any restriction on the drawal of foreign exchange for payments due on account of amortisation of loans or for depreciation of direct investments in the ordinary course of business. A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India. The Reserve Bank may, by regulations, prohibit, restrict or regulate the capital account transactions. The Reserve Bank may, by regulation, prohibit, restrict, or regulate establishment in India of a branch, office or other place of business by a person resident outside India, for carrying on any activity relating to such branch, office or other place of business. The Reserve Bank may, in consultation with the Central Government, specify -

(f) (g) (h) (i) (j)

PERMISSIBLE Capital Account Transactions ( Sec. 6 ) 1.

2.

3.

Control over Capital Account Transactions ( Sec. 6 ) 1. 2.

3.

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(a) any class or classes of capital account transactions which are permissible; (b) the limit upto which foreign exchange shall be admissible for such transactions: *** 13 Ans. What are the RESTRICTIONS imposed on a person resident in India relating to holding of IMMOVABLE property OUTSIDE India ? The Reserve Bank of India has framed Foreign Exchange Management ( Acquisition and Transfer of Immovable Property Outside India ) Regulations, 2000. The provisions contained in these regulations are explained as under : 1. Restriction on Acquisition or Transfer of Immovable Property OUTSIDE India. NO person resident in India shall acquire or transfer any immovable property situated outside India EXCEPT in accordance with (a) the Foreign Exchange Management Act; or (b) the provisions contained in these regulations; or (c) general permission of the Reserve Bank; or (d) special permission of the Reserve Bank. 2. Exemptions (a) Nothing contained in these regulations shall apply to the property held by a person resident in India who is a national of a foreign state. Nothing contained in these regulations shall apply to the property acquired by a person resident in India on or before 8th July, 1947 and continued to be held by him with the permission of the Reserve Bank. A person resident in India may hold, own, transfer or invest in any immovable property situated outside India if such property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India [Section 6(4)]. A person resident in India may acquire immovable property outside India (i) by way of gift or inheritance from a person referred to in (b) or (c) above. (ii) by way of purchase out of foreign exchange held in Resident Foreign Currency (RFC) account maintained in accordance with the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000.

(b)

(c)

(d)

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(e)

A person resident in India, who has acquired immovable property outside India under (d) above, may transfer it by way of gift to his relative who is a person resident in India. Relative for this purpose means husband, wife, brother or sister or any lineal ascendant or descendant of an individual. ***

14 Ans.

State the regulations framed by the Reserve Bank of India relating to holding or acquisition of IMMOVABLE property in India? The Reserve Bank of India has framed Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000. The provisions of these regulations are as under : Acquisition and transfer of property in India by an Indian citizen resident OUTSIDE India A person resident outside India who is a citizen of India may (a) acquire any immovable property in India other than agricultural/ plantation/farm house; (b) transfer any immovable property in India to a person resident in India; and (c) transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.

1.

2.

Acquisition and transfer of property in India - by a PERSON of Indian ORIGIN A person of Indian origin resident OUTSIDE India may (a) acquire any immovable property other than agricultural land/farm house/ plantation property in India by purchase, from out of (i) funds received in India by way of inward remittance from any place outside India; or (ii) funds held in any non-resident account maintained in accordance with the Act . (b) acquire any immovable property in India other than agricultural land/farm house/plantation property by way of gift from a person resident in India or from a person resident outside India who is a citizen of India or from a person of Indian origin resident outside India ; (c) acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force

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at the time of acquisition by humor the provisions of these regulations or from a person resident in India; (d) transfer any immovable property in India other than agricultural land/farm house/plantation property, by way of sale to a person resident in India; transfer agricultural land/farm house/plantation property in India, by way of gift or sale to a person resident in India who is a citizen of India; transfer residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.

(e)

(f)

3.

Acquisition of immovable property - for carrying on a PERMITTED activity A person resident outside India, who has established in India a branch office or other place of business for carrying on in India any activity, excluding a liaison office, may (a) acquire any immovable property in India, which is necessary for or incidental to carrying on such activity, if (i) the branch office or other place of business is established in accordance with the Regulations framed in this behalf ; (ii) all applicable laws, rules, regulations or directions for the time being in force are duly complied with; and (iii) the person files with the Reserve Bank a declaration in the prescribed form, not later than 90 days from the date of such acquisition. (b) transfer by way of mortgage to an authorised dealer as a security for any borrowing, the immovable property acquired in pursuance of clause (a).

4.

Prohibition on acquisition or transfer of immovable property - IN INDIA No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan shall acquire or transfer immovable property in India. Exceptions : (a) Acquisition or transfer of any immovable property with the prior permission of the Reserve Bank. (b) Acquisition or transfer of any immovable property on lease, not exceeding 5 years.

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***

15 Ans.

State the RULES framed by Reserve Bank of India - in respect of Capital Account Transactions. The Reserve Bank of India has framed Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000. The provisions of these regulations are as under : As per these regulations, capital account transactions may be classified under the following heads: 1. Permissible capital account transactions of persons resident in India (Schedule I) 2. Permissible capital account transactions of persons resident outside India (Schedule II) 3. Prohibited capital account transactions.

1.

Permissible Capital Account Transactions of Persons - Resident in India A person resident in India may enter into any of the following capital account transactions provided the regulations specified by the Reserve Bank of India in respect of such capital account transaction are complied with: (a) Investment by a person resident in India in foreign securities. (b) Foreign currency loans raised in India and abroad by a person resident in India. (c) Transfer of immovable property outside India by a person resident in India. (d) Guarantees issued by a person resident in India in favour of a person reside, outside India. (e) Export, import and holding of currency/currency notes. (f) Loans and overdrafts (borrowings) by a person resident in India from a person resident outside India. (g) Maintenance of foreign currency accounts in India and outside India by a person resident in India. (h) Taking out of insurance policy by a person resident in India from an insurance company outside India. (i) Loans and overdrafts by a person resident in India to a person resident outside India. (j) Remittance outside India of capital assets of a person resident in India.

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(k)

Sale and purchase of foreign exchange derivatives in India and abroad a commodity derivatives abroad by a person resident in India.

2.

PERMISSIBLE Capital Account Transactions of Persons resident OUTSIDE India A person resident outside India may enter into any of the following capital account transactions provided the regulations specified by the Reserve Bank of India respect of such capital account transaction are complied with : (a) Investment in India by a person resident outside India, that is to say (i) issue of security by a body corporate or an entity in India and investment therein by a person resident outside India; and (ii) investment by way of contribution by a person resident outside India to the capital of a firm or a proprietorship concern or an association of persons India. (b) Acquisition and transfer of immovable property in India by a person resident outside India. (c) Guarantee by a person resident outside India in favour of, or on behalf of, a person resident in India. (d) Import and export of currency/currency notes into/from India by a person resident outside India. (e) Deposits between a person resident in India and a person resident outside India. (f) Foreign currency accounts in India of a person resident outside India. (g) Remittance outside India of capital assets in India of a person resident outside India.

3.

PROHIBITED Capital Account Transactions Unless otherwise provided in the Act, rules or regulations made thereunder, no person resident outside India shall make investment in India in any entity which is engaged, or proposes to engage (a) in the business of chit fund; or (b) as Nidhi Company; or (c) in agricultural or plantation activities; or (d) in real estate business, or construction of farm houses; or (e) in trading in Transferable Development Rights (TDRs).

MEANING of Certain Terms.

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(a)

Real estate business. For the purpose of this regulation, real estate business shall not include development of townships, construction of residential or commercial premises, roads or bridges. Transferable Development Rights. Transferable Development Rights means certificates issued in respect of category of land acquired for public purpose either by Central or State Government in consideration of surrender of land by the owner without monetary compensation, which are transferable in part or whole.

(b)

Declaration to be furnished Every person selling or drawing foreign exchange to or from an authorised person for a capital account transaction shall furnish to the Reserve Bank, a declaration in the form and within the time specified in the regulations relevant to the transaction. *** 16 Define the terms EXPORT and SERVICE under FEMA. What are the PROVISIONS of FEMA relating to EXPORT OF GOODS AND SERVICES ? (i) (ii) Ans. (i) (ii) Furnishing of information relating to such exports. Realisation and repatriation of foreign exchange on such exports. Meaning of EXPORT [ Sec. 2(1) ] - export means taking out of India to a place outside India any goods; and provision of services from India to any person outside India.

Meaning of SERVICE [ 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 surveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service. Reserve Bank of Indias RIGHT over the Exporter and Export Proceeds ( Sec. 7 ) 1. Furnishing of declaration by an Exporter of Goods- Every exporter of goods shall furnish to the Reserve Bank or other specified authority a declaration in such form and in such manner as may be specified. The declaration shall contain true and correct material particulars. The declaration shall indicate the full export value of the goods exported. However, if the full export value of the goods is not ascertainable at the time of export, the exporter shall specify the amount which he

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expects to receive by way of sale of such goods in the overseas market. While determining the expected export value, the exporter shall pay due regard to the prevailing market conditions. 2. Furnishing of information by exporter of goods. Every exporter of goods shall furnish to the Reserve Bank such other information as may be required by the Reserve Bank for the purpose of ensuring the realisation of the export proceeds by such exporter. Declaration by an exporter of services. Every exporter of services shall furnish to the Reserve Bank or to such other authorities a declaration in such form and in such manner as may be specified, containing the true and correct material particulars in relation to payment for such services. Issue of directions by RBI . The Reserve Bank may, for the purpose of ensuring that the full export value of the goods or such reduced value of the goods as the Reserve Bank determines, having regard to the prevailing market conditions, is received without any delay, direct any exporter to comply with such requirements as it deems fit. Realisation and repatriation of foreign exchange, i e., export proceeds ( Sec. 8 ). 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. As per regulation 13 of Foreign Exchange Management ( Export of Goods and Services ) Regulations, 2000, no person shall do or refrain from doing anything which results in (a) receipt of export proceeds otherwise than in the specified manner; or (b) delaying the receipt of export proceeds beyond the specified period; or (c) reduction or cessation of whole or part of the export proceeds receivable by him. *** What are the PROVISIONS of the REGULATIONS framed by the Reserve Bank of India - in respect of EXPORT of GOODS and SERVICES ? The Reserve Bank of India has framed Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. The provisions of these regulations are as under : Meaning of EXPORT [ Regulation 2(v) ] Export includes the taking or sending out of goods by land, sea or air, on consignment or by way of sale, lease, hire-purchase, or under any

3.

4.

5.

17

Ans.

1.

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other arrangement by whatever name called, and in the case of software, also includes transmission through any electronic media. 2. Meaning of EXPORT VALUE [ Regulation 2(vi) ] Export value in relation to export by way of lease or hire -purchase or under any other similar arrangement, includes the charges, by whatever name called, payable in respect of such lease or hire-purchase or any other similar arrangement. 3. REQUIREMENTS for making Exports ( Regulation 3 ) (a) Submission of declaration. A declaration shall be submitted by every exporter of goods or software where exports are made to any place outside India, other than Nepal and Bhutan. (b) Form of declaration. The declaration shall be in one of the forms set out in the Schedule. Following forms have been prescribed for this purpose. Nature of Exports Type of Form (i) (ii) For exports otherwise than by post including Form GR exports of software in physical form. For exports to Customs Offices notified by the Form SDF Central Government which have introduced Electronic Data Interchange system for processing shipping bills notified by the Central Government.

(iii) For export by Post. , Form PP (iv) For export of software otherwise than in physical form. Form SOFTEX (v) For export of services - No form has been prescribed (c) Evidence in support of declaration. The declaration shall contain true and correct particulars and shall be supported by evidence. (d) Contents of declaration. The declaration shall specify either of the following : (i) Full Export Value : The amount representing the full export value of the goods or software. (ii) Expected Export Value : If the full export value is not ascertainable at the time of export, the exporter shall specify in the declaration the amount which he expects to receive by way of sale of such goods or software in the overseas market. While determining the expected export value, the exporter shall pay due regard to the prevailing market conditions. (e) Time limit for submission of document. The documents pertaining to export shall be submitted within 21 days from the date of export.

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4.

EXEMPTION from making Declaration ( Regulation 4 ) Export of goods or services may be made without furnishing a declaration in the following cases :(a) (b) (c) (d) Trade samples. Trade samples of goods and publicity material supplied free of payment. Baggage. Personal effects of travelers, whether accompanied or unaccompanied Stores. Ships stores, transshipment cargo and goods supplied under the orders of Central Government. Export of goods upto Rs. 25,000. Goods accompanied by a declaration by the exporter that are not more than Rs. 25,000 in value. or software they

(e)

Gifts upto Rs. 1,00,000. Gift of goods accompanied by a declaration by the exporter that they are not more than Rs. 1,00,000. Aircrafts for repairs. Aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad subject to their reimport into India after overhauling/ repairs, within a period of 6 months from the date of their export. Import for re-export purposes. Goods imported free of cost on reexport basis. Exports to Myanmar. Goods not exceeding US $ 1,000 or its equivalent in value per transaction exported to Myanmar under the Barter Trade Agreement between the Central Government and the Government of Myanmar. Replacement of goods. Replacement goods exported free of charge in accordance with the provisions of Exim Policy in force, for the time being. Goods for testing purposes. Goods sent outside India for testing subject to re-import into India. Export of defective goods for repairs. Defective goods sent outside India for repair and re-import provided the goods are accompanied by a certificate from an authorised dealer in India that the export is for repair and re-import and that the export does not involve any transaction in foreign exchange. Any exports permitted by RB1. Exports permitted by the Reserve Bank, on application made to it, subject to the terms and conditions, if any, as stipulated in the permission.

(f)

(g) (h)

(i)

(j) (k)

(l)

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5.

Certain exports - requiring PRIOR approval - ( Regulation 14 ) Following exports would require previous approval: (a) Export of goods on lease, hire, etc. Export of goods on lease, hire, etc. or other manner other than sale or disposal of such goods shall require prior approval of the Reserve Bank. (b) Exports under trade agreement/rupee credit, etc. Export of goods under special arrangement between the Central Government and Government of a foreign state shall be governed by the terms and conditions set out in the relative public notices. (c) Counter Trade. Any arrangement involving adjustment of value of good imported into India against value of goods exported from India, shall require prior approval of the Reserve Bank.

6.

Prescribed period - for REALISATION of EXPORT VALUE - ( Regulation 9 ) (a) Ordinarily - 6 months. The amount representing the full export value of good or software exported shall be realised and repatriated to India within 6 month from the date of export. Exports to a warehouse outside India-15 months. Where the goods are exported to a warehouse established outside India with the permission of the Reserve Bank, the amount representing the full export value of goods exported shall be paid to the authorised dealer as soon as it is realised and in any case within 15 months from the date of shipment of goods. Exports to a unit in SEZ -12 months. Where the export of goods or software has been made by a unit situated in a Special Economic Zone, the amount representing the full export value of goods or software shall be realised and repatriated to India within 12 months from the date of export. Extension by RBI. The Reserve Bank or the authorised dealer may extend the period of 6 months, 15 months or 12 months, as the case may be, for a sufficient and reasonable reason.

(b)

(c)

(d)

7.

PROHIBITION of export - on extended CREDIT terms - ( Regulation 10 ) No person shall enter into any contract to export goods on the terms which provide for a period longer than 6 months for payment of the value of the goods to be exported. However, the Reserve Bank may, for reasonable and sufficient cause shown, grant approval to enter into a contract on such terms. In other words, exports on credit terms of more than 6 months require the approval of Reserve Bank of India.

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8.

MANNER of payment - of EXPORT VALUE of GOODS - ( Regulation 8) The amount representing the full export value of the goods exported shall be paid through an authorised dealer in the manner specified in the Foreign Exchange Management ( Manner and Receipt and Payment ) Regulations, 2000.

9.

Payment for the Export - ( Regulation 13 ) EXCEPT with the permission of Reserve Bank of India, no person shall do or refrain from doing anything which results in (a) receipt of export proceeds otherwise than in the specified manner; or (b) delaying the receipt of export proceeds beyond the specified period; or (c) reduction or cessation of whole or part of the export proceeds receivable by him.

10. Delay in receipt of payment ( Regulation 15 ) Where the export proceeds are NOT repatriated within the specified time, the Reserve Bank may give directions to the exporter of goods or software. The Reserve Bank may give these directions for the purpose of (a) securing such payment; (b) sale of such goods or software, if such goods or software has not been sold; (c) re-import of such goods or software, if such goods or software has not been sold However, the omission of the Reserve Bank to give directions shall not have the effect of absolving the person committing the contravention from the consequences thereof. *** 18 What do you understand by the term Adjudicating Authority ? ( OR ) Explain the meaning of the term Adjudicating Authority under the Foreign Exchange Management Act, 1999. Meaning of ADJUDICATION Adjudication means the process by which a contravention of any provision of the Act, rule, regulation, notification, direction or order issued under the Act is dealt with by the appropriate Adjudicating Authority. For the purpose of adjudication, the Central Government has been empowered (vice section 16) to appoint the Adjudicating Authorities who shall hold the inquiry in the manner prescribed under the Act read with

Ans.

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Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. Meaning of ADJUDICATING AUTHORITY [ Sec. 2(a) ] Adjudicating Authority means an officer authorised under Section 16(1). APPOINTMENT of Adjudicating Authority ( Sec. 16 ) 1. For the purpose of adjudication and imposing penalties, the Central Government may appoint certain officers as the Adjudicating Authorities for holding inquiries in respect of any contravention under the Act. Such appointments shall be made by the Central Government by issuing a notification in the Official Gazette [ Sec. 16(1) ]. The Central Government shall specify the respective jurisdictions of various Adjudicating Authorities. Every Adjudicating Authority shall endeavour to dispose of the complaint within I year from the date of receipt of the complaint. If the complaint is not disposed of within 1 year, the Adjudicating Authority shall record the reasons for the same. The Adjudicating Authority shall give a reasonable opportunity of being heard to the person against whom a contravention of the Act is alleged (referred to as the accused person). *** 19 What are the penalties provided under FEMA for contravention of provisions of the Act ? ( OR ) What consequences follow where a person fails to pay the penalty levied on him ? The penalties provided in the different provisions of the Act are summarised as under : Penalty for contravention (a) When levied ? The penalty may be levied in the following cases : (i) Where any person contravenes any provisions of the Act, rule, regulation, notification, direction or order issued under the Act. (ii) Where any person contravenes any condition subject to which an authorisation is issued by the Reserve Bank. Amount of penalty. (i) Where the amount involved in contravention is quantifiable, the penalty may be levied upto 3 times the sum involved in the contravention. (ii) Where the amount involved in contravention is not quantifiable, penalty upto Rs. 2,00,000 may be levied.

2.

DUTIES of the Adjudicating Authority 1.

2.

Ans. 1.

(b)

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2.

(a)

(iii) Where any contravention is a continuing one, further penalty not exceeding Rs. 5,000 per day may be levied. (c) Penalty payable upon adjudication. Penalty shall become payable only upon adjudication under Sec.14. Other Consequences of contravention [ Sec. 13(2)] In addition to the levy of penalty, the Adjudicating Authority may issue the following directions : Confiscation of currency etc. While adjudicating any contravention, the Adjudicating Authority may, if he thinks fit, direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government. Extended meaning of property. For the purposes of section 13(2), property in respect of which contravention has taken place, shall includedeposits in a bank, where the said property is converted into such deposits; Indian currency, where the said property is converted into that currency; and any other property which has resulted out of the conversion of that property.

(b)

Issue of directions relating to foreign exchange holdings. The Adjudicating Authority may further direct that the foreign exchange holdings of the person committing the contravention shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf. Consequences of failure to pay penalty ( Sec. 14 ) (a) Imprisonment. If any person fails to make full payment of the penalty imposed on him within 90 days from the date of service of notice on him, he shall be liable to civil imprisonment. (b) Term of imprisonment. (i) Where the demand raised in the penalty order exceeds Rs. 1 crore, the imprisonment may extend upto 3 years. (ii) In any other case, the imprisonment may extend upto 6 months. (c) Release of defaulter on payment. The defaulter shall be released, where the amount mentioned in the warrant has been paid to the officer in charge of the civil prison. ***

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20 Ans.

Explain the provisions in respect of enforcement of the orders of Adjudicating Authority . The procedure for adjudication is contained in sections 14 and 16 of the Act read with Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. These provisions are explained as follows : Cognisance of offences ( Sec. 16 ) No Adjudicating Authority shall hold an inquiry (i.e., adjudication proceedings for the purpose of determining whether the accused person has committed a contravention under the Act) except upon a complaint in writing made by any officer authorised by the Central Government.

1.

2.

Issue of show cause notice For the purpose of adjudicating as to whether the accused person has committed the contravention under the Act, the Adjudicating Authority shall issue a notice to the accused person requiring him to show cause as to why an inquiry should not be held against him. Also, the nature of contravention committed by the accused person shall also be indicated in the notice. The Adjudicating Authority shall give the accused person at least 10 days time for giving a reply of such show cause notice.

3.

Holding of inquiry The procedure for holding the inquiry is explained as under : (a) The Adjudicating Authority shall consider the reply made by the accused person. Thereafter, if the Adjudicating Authority is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for the hearing. The accused person may either appear in person or take the assistance of a legal practitioner or a chartered accountant of his choice for presenting his case before the Adjudicating Authority. On the date fixed, the Adjudicating Authority shall explain to the accused person the contravention alleged to have been committed by him. The Adjudicating Authority shall give an opportunity to such person to produce such documents or evidence as he may consider relevant to the inquiry. If necessary, the hearing may be adjourned to a future date. While holding an inquiry, the Adjudicating Authority shall have the power to summon and enforce attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which in the opinion of the Adjudicating Authority may be useful for the purpose of the inquiry.

(b)

(c)

(d)

(e)

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(f)

(g)

If any person fails, neglects or refuses to appear for the hearing, the Adjudicating Authority may proceed with the adjudication proceedings in the absence of such person after recording the reasons for doing so. In other words, the Adjudicating Authority may also proceed ex parte if the accused person does not turn up before the Adjudicating Authority. The Adjudicating Authority shall endeavour to dispose of the complaint within year from the date of receipt of the complaint. If the complaint is not disposed of within 1 year, the Adjudicating Authority shall record the reasons for the same. If, upon consideration of the evidence produced before the Adjudicating Authority, the Adjudicating Authority is satisfied that the person has committed the contravention, the Adjudicating Authority may impose such penalty as he thinks fit. The penalty shall be levied in accordance with the provisions of section 13. The order of Adjudicating Authority shall specify the provisions of the Act, rules, regulations, notifications, direction in respect of which contravention has taken place and shall contain brief reasons for such decisions. Every order shall be dated and signed by the Adjudicating Authority. A copy of the order shall be supplied free of charge to the person against whom the order is made.

4.

ORDER levying penalty (a)

(b)

(c) (d) 5.

Detention of DEFAULTER on CONCLUSION of inquiry Upon the conclusion of the inquiry, the Adjudicating Authority may make an order for the detention of the defaulter in the civil prison and shall in that event cause him to be arrested if he is not already arrested. When the Adjudicating Authority does not make an order of detention, the defaulter shall be released, if he is already under arrest. Opportunity to defaulter to satisfy the arrears. Before making an order of detention on conclusion of inquiry, the Adjudicating Authority may decide to give the defaulter an opportunity of satisfying the arrears. Accordingly, it may (a) (b) leave the defaulter in the custody of the officer arresting him or of any other officer for a specified period not exceeding 15 days; or release him on his furnishing security to the satisfaction of the Adjudicating Authority for his appearance at the expiration of the specified period if the arrears are not satisfied. As such, if the defaulter is already under arrest (in pursuance of execution of an arrest warrant), the Adjudicating Authority shall direct his release. Time limit for payment of penalty. The accused person shall be required to make full payment of the penalty imposed on him within

6.

Imprisonment for NON-PAYMENT of PENALTY (a)

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90 days from the date of service of notice on him. In case of default, he shall be liable to civil imprisonment. (b) Conditions for making the order of imprisonment. No order for the arrest and detention in civil prison of a defaulter shall be made unless the following three conditions are satisfied : (i) The Adjudicating Authority has served a notice upon the defaulter calling upon him to appear for a hearing before the Adjudicating Authority. An opportunity has been given to him to show cause why he should not be committed to the civil prison. the defaulter, with the object or effect of obstructing the recovery of penalty, has after the issue of notice by the Adjudicating Authority, dishonestly transferred, concealed, or removed any part of his property; or the defaulter has the means to pay the arrears or some substantial part thereof and refuses or neglects to pay the same.

(ii)

(iii) The Adjudicating Authority is satisfied that -

(c)

Term of Imprisonment. The term of imprisonment shall be as follows : (i) (ii) Where the demand raised in the penalty order exceeds Rs. 1 crore, the imprisonment may extend upto 3 years. In any other case, the imprisonment may extend upto-6 months.

(d)

Release of defaulter on payment. The defaulter shall be released, where the amount mentioned in the warrant has been paid to the officer in charge of the civil prison. Execution of warrant. Execution by any Adjudicating Authority. A warrant of arrest issued by the Adjudicating Authority may also be executed by any other Adjudicating Authority within whose jurisdiction the defaulter may be found. Release of defaulter on payment of penally. Where the defaulter pays the amount entered in the warrant of arrest and the costs of the arrest to the officer arresting him, such officer shall at once release him. Shifting of defaulter. Every person arrested in pursuance of a warrant; arrest under this section shall be brought before the Adjudicating Aut issuing the warrant as soon as practicable and in any event within 24 of his arrest (exclusive of the time required for the journey).

(e)

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*** 21 Ans. Explain the provisions relating - to compounding of Offences. Compounding of contravention means imposition of fine in lieu of prosecution. The compounding provisions in an Act reflect the leniency in the administration of the Act. The provisions relating to compounding of contraventions are contained in section 15 of the Act read with Foreign Exchange Management (Compounding Proceedings) Rules, 2000. These provisions are explained hereunder : Contraventions that can be compounded Any contravention which is punishable under section 13 may be compounded. As per section 13, penalty may be levied in the following cases : (a) Where any person contravenes any provisions of the Act, rule, regulation, notification, direction or order issued under the Act. (b) Where any person contravenes any condition subject to which an authorisation is issued by the Reserve Bank. In other words, any contravention committed by any person (except the contraventions committed by an authorised person for which penalty is provided under section 11) can be compounded under Section 15. WHO can apply for compounding ? The application for compounding shall be made by the person who has committed the contravention. 3. Time limit for compounding The compounding authority shall give an opportunity of being heard to all concerned It shall pass an order of compounding as expeditiously as possible and not later than 180 days from the date of the application. 4. Authorities appointed for compounding (a) Compounding by Reserve Bank of India. Following contraventions may be compounded by such officers of the Reserve Bank of India as may be prescribed by the Central Government : (i) Contraventions committed under sections 7, 8 and 9, i.e., contravention, relating to export of goods and services, and repatriation of foreign exchange. (ii) Contraventions committed under Third Schedule to Foreign Exchange Management (Current Account Transaction) Rules, 2000, i.e., contraventions relating to drawal of foreign exchange for a current account transaction for which prior approval of Reserve Bank of India is required. Compounding by Directorate of Enforcement. All other contraventions may be compounded by such officers of the Directorate of Enforcement as may be prescribed by the Central

1.

2.

(b)

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Government. Directorate of Enforcement is established by the Central Government under section 36 of the Act. 5. When is compounding NOT permissible (a) Amount involved in contravention is not quantifiable. Compounding shall not be permissible unless the amount involved in the contravention is quantifiable. Appeal No contravention shall be compounded if an appeal has been filed by the applicant. Contravention repeated within 3 years. A contravention committed within a period of 3 years from the date on which a similar contravention was committed cannot be compounded. In other words, after compounding of an offence if a similar offence is committed, the subsequent offence cannot be compounded if it has been committed within a period of 3 years from the date when the first offence was compounded. Offence treated as a fresh offence if committed after 3 years. A subsequent offence committed after 3 years of the last compounding of offence will be treated as a fresh offence or first offence and therefore is compoundable.

(b) (c)

6.

TIME LIMIT for payment of compounding fee The sum involved in the contravention shall be deposited within 15 days from the date of the order of compounding. Consequences of default in payment of compounding fee If the applicant fails pay the compounding fee, the adjudication proceedings will restart. It shall be deemed that no application for compounding had even been made by the applicant. Effect of compounding Once a contravention is compounded, no further proceedings shall be initiated or continued in respect of the contravention. Time limit for making an application for compounding An application for compounding may be made(a) before the start of the adjudication proceedings or (b) during the continuance of the adjudication proceedings; or (c) after the completion of adjudication proceedings, until appeal is filed. *** Explain the provisions relating - to FILING OF APPEAL with Special Director (Appeals) and the Appellate Tribunal. Under FEMA, two appellate authorities have been constituted. These are as follows : 1. Special Director (Appeals) ; 2. The Appellate Tribunal Appeal to Special Director ( Appeals ) ( Sec. 17 )

7.

8.

22 Ans.

1.

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(a)

Appointment of Special Director (Appeals). The Central Government shall appoint one or more Special Directors (Appeals) to hear appeals against the orders of the Adjudicating Authorities. The Central Government shall also specify the jurisdiction of Special Director (Appeals). Who may prefer an appeal Any person aggrieved by an order made by the Adjudicating Authority may prefer an appeal to the Special Director (Appeals). Right of legal assistance. The appellant may either appear in person or take the assistance of a legal practitioner or a chartered accountant of his choice for presenting his case before the Special Director (Appeals) (Sec. 32). When can appeal be filed An appeal can be filed with the Special Director (Appeals), if the Adjudicating Authority is (i) An Assistant Director of Enforcement; or (ii) A Deputy Director of Enforcement. Time limit for filing the appeal The appeal shall be filed within 45 days from the date of order of the Adjudicating Authority (excluding the time required in obtaining a copy of the order). However, if sufficient cause is shown, the Special Director (Appeals) may condone the delay. Order of Special Director ( Appeals ) The Special Director (Appeals) may pass such orders as he thinks fit. He may confirm, modify or set aside the order of the Adjudicating Authority. He shall give an opportunity of being heard to the parties before passing any order. He shall send a copy of every order made by him to the parties to the appeal and the concerned Adjudicating Authority.

(b)

(c)

(d)

(e)

(f)

(g) 2.

Time limit for disposal of appeal. No time limit has been prescribed for disposal of an appeal by the Special Director (Appeals). Establishment of Appellate Tribunal. The Central Government shall appoint an Appellate Tribunal to hear appeals against the orders of the Adjudicating Authorities and the Special Director ( Appeals ). Who can prefer an appeal. The Central Government or any person aggrieved may prefer an appeal to the Appellate Tribunal. Right of legal assistance. The appellant may either appear in person or take the assistance of a legal practitioner or a chartered

Appeal with the Appellate Tribunal ( Sec. 19 ) (a)

(b) (c)

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accountant of his choice for presenting his case before the Appellate Tribunal ( Sec. 32). (d) When can appeal be filed. An appeal can be filed with the Appellate Tribunal against the order made by (i) Special Director ( Appeals ); or (ii) An Adjudicating Authority other than an Assistant Director of Enforcement or a Deputy Director of Enforcement. Thus, the Appellate Tribunal is the second appellate authority which has original appellate jurisdiction as well as revisionary jurisdiction. (e) Deposit of penalty. Any person filing an appeal to the Appellate Tribunal shall, while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Central Government. Discretion to dispense with deposit of penalty. The Appellate Tribunal may dispense with the deposit of penalty, if it is of the opinion that the deposit of penalty would cause undue hardship to such person. The Appellate Tribunal may impose certain conditions so as to safeguard the realisation of penalty. (f) Time limit for filing the appeal. The appeal shall be filed within 45 days from the date of order of the Adjudicating Authority or the Special Director ( Appeals ) ( excluding the time required in obtaining a copy of the order ). However, if sufficient cause is shown, the Appellate Tribunal may condone the delay. ORDER of Appellate Tribunal The Appellate Tribunal may pass such orders as he thinks fit. It may confirm, modify or set aside the order appealed against. It shall give an opportunity of being heard to the parties before passing any order. It shall send a copy of every order made by him to the parties to the appeal and the concerned Adjudicating Authority or the Special Director (Appeals). Time limit for disposal of appeal. The Appellate Tribunal shall dispose of the appeal as expeditiously as possible. It shall endeavour to dispose off the appeal within 180 days from the date of filing the appeal. Where any appeal could not be disposed off within the said period of 180 days, the Appellate Tribunal shall record its reasons in writing for not disposing off the appeal within the said period. ***

(g)

(h)

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23

What are the provisions contained in FEMA relating to filing of appeal to High Court ? Can an appeal be filed in Supreme Court against the order of High Court ? The provisions relating to filing of an appeal to the High Court are explained as follows : CONDITIONS for filing an appeal to High Court The appeal to the High Court lies ONLY if (a) the decision or order appealed against has been passed by the Appellate Tribunal. (b) the appeal is filed on a question of law, i.e., the decision or order of the Appellate Tribunal on a question of fact is final, and hence the High Court will not entertain the appeal made against such order. TIME PERIOD for filing the appeal (a) (b) 60 days. The appeal shall be filed within 60 days of the communication of the decision or order of the Appellate Tribunal. Condonation of delay. The High Court may entertain a belated appeal upon being satisfied that the appellant was prevented by sufficient cause from filing the appeal in time. However, the further time which the High Court may allow is restricted to 60 days.

Ans. 1.

2.

3.

WHO can file the appeal ? The appeal to High Court may be made by either of the parties to the decision or order of the Appellate Tribunal. The appeal shall be made as follows : (a) Appeal by the Central Government. The appeal shall be made to the High Court within whose jurisdiction the respondent (i.e., the accused) ordinarily resides or carries on business or personally works for gain. Where there are more than one respondent, the appeal shall lie to the High Court within whose jurisdiction any of the respondents ordinarily resides or carries on business or personally works for gain. Appeal by the accused The appeal shall be made to the High court within whose jurisdiction the appellant (i.e., the accused) ordinarily resides or carries on business or personally works for gain.

(b)

4.

APPEAL to Supreme Court Unlike the Income Tax Act, there is no provision in FEMA for appeal to Supreme Court from the order of the High Court. However, the aggrieved party is free to apply for leave to appeal to the Supreme Court under Article 136(1) of the Constitution and then prefer an appeal to the Supreme Court if such appeal is otherwise maintainable.

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*** 24 The Adjudicating Authority, Special Director (Appeals) and the Appellate Tribunal - have the same POWERS as are vested in a Civil Court. Explain. As per Section 28, the Special Director (Appeals) and the Appellate Tribunal shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit, in respect of the following matters : (a) Summoning and enforcing the attendance of any person and examining him on oath. (b) Requiring the discovery and production of documents. (c) Receiving evidence on affidavits. (d) Requisitioning any public record or document. (e) Issuing commissions for the examination of witnesses or documents. (f) Reviewing its decisions. (g) Dismissing a representation of default or deciding it ex parse. (h) Setting aside any order of dismissal of any representation for default or any order passed by it expires. (i) Any other matter which may be prescribed by the Central Government. PROVISIONS applicable to Appellate Tribunal and Special Director (Appeals) ( Sec. 28 ) 1. The Appellate Tribunal and the Special Director (Appeals) shall NOT be bound by the procedure laid down by the Code of Civil Procedure, but shall be guided by the principles of natural justice. The Appellate Tribunal and the Special Director (Appeals) shall have powers to regulate their own procedure. An order made by the Appellate Tribunal or the Special Director (Appeals) shall be executed as a decree of civil court and for this purpose it shall have all the powers of a civil court. The Appellate Tribunal or the Special Director (Appeals) may transmit any order made by it to a civil court having local jurisdiction and such civil court shall execute the order as if it were a decree made by that court. All proceedings before the Appellate Tribunal and the Special Director (Appeals) shall be deemed to be judicial proceedings. The appellant may either appear in person or take the assistance of a legal practitioner or a chartered accountant of his choice for presenting his case before the Special Director (Appeals) or the Appellate Tribunal (Sec. 32).

Ans.

2. 3.

4.

5. 6.

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*** 25 State the RULES framed by the Reserve Bank of India - relating to Investment in India - by a Person resident OUTSIDE India? Ans. The Reserve Bank of India has framed Foreign Exchange Management (Investment in Firm or Proprietary Concern in India) Regulations, 2000. The provisions of these regulations are as under : RESTRICTIONS on investment in a firm or a proprietary concern in India by a person resident OUTSIDE India Except with the permission of Reserve Bank, no person resident outside India shall make any investment by way of contribution to the capital of a firm or a proprietary concern or any association of persons in India. Permission for investment in certain cases A non-resident Indian or a Person of Indian Origin resident outside India may invest by way of contribution to the capital of a firm or a proprietary concern in India, subject to the fulfillment of following conditions : (a) the amount invested is received either by inward remittance through normal banking channels or out of an account maintained with an authorised dealer or authorised bank by the non-resident Indian or the person of Indian origin in accordance with the relevant regulations. the firm or the proprietary concern is not engaged in any agricultural/plantation activity or real estate business, i.e., dealing in land and immovable property with a view to earning profit or earning income therefrom. the amount invested shall not be eligible for repatriation outside India. A firm or a proprietary concern in India may make payment to or for the credit of a non-resident Indian or a person of Indian origin the sum invested by such person in that firm or the proprietary concern or the income accruing to such person by way of profit on such investment. 26 *** Describe briefly the provisions relating to different kinds of bank accounts that can be opened by a person who is resident outside India. A person resident outside India can maintain a bank account in Indian rupees. These provisions are contained in Foreign Exchange Management (Deposit) Regulations, 2000. For the purpose of these regulationsDeposit includes deposit of money with a bank, company, proprietary concern, partnership firm, corporate body, trust or any other person.

(b)

(c)

Payment by the firm or proprietary concern permitted

Ans.

(a)

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(b)

Authorised bank means a bank including a co-operative bank (other than an authorised dealer) authorised by the Reserve Bank to maintain an account of a person resident outside India. Person of Indian Origin means a citizen of any country other than Bangladesh or Pakistan, if (i) he, at any time held, Indian passport; or (ii) he or either of his parents or any of his grand-parents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955; or (iii) the person is a spouse of an Indian citizen or a person referred to in sub-clause (i) or (ii). A person resident OUTSIDE India can maintain the following kinds of accounts :

(c)

1. 2. 3.

Non-resident (External) Rupee Account Scheme Foreign Currency (Non-resident) Account (Banks) Scheme FCNR(B) Non-resident Ordinary Rupee (NRO) Account Scheme Kindly note that the following schemes have been discontinued w.e.f. 1.4.2002 : Non-resident (Special) Rupee (NRSR) Account Scheme Non-resident (Non-Repatriable) Rupee Deposit Scheme *** Describe in detail the REGULATIONS framed by the Reserve Bank of India - for opening of NON-RESIDENT ( EXTERNAL ) RUPEE ACCOUNT. The provisions in respect of Non-resident (External) Rupee Account Scheme are detailed hereunder :

1. 2. 27

Ans.

Eligibility : NRIs are permitted to open and maintain these accounts. Opening of NRE accounts in the names of individuals/entities of Bangladesh/Pakistan nationality/ ownership requires approval of Reserve Bank. The account should be opened by the non resident account holder himself and NOT by the holder of the Power of Attorney in India. Types of Accounts The accounts may be maintained in any form ( e.g., savings, current, recurring or fixed deposit account, etc.) Permitted Credits (a) Proceeds of remittances to India in any permitted currency. (b) Proceeds of personal cheques drawn by the account holder on his foreign currency account.

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(c)

Proceeds of travellers cheques, bank drafts payable in any permitted currency including instruments expressed in Indian rupees for which reimbursement will be received in foreign currency, deposited by the account holder in person during his temporary visit to India, provided the authorised dealer/ bank is satisfied that the account holder is still resident outside India, the travellers cheques/drafts are standing/endorsed in the name of the account holder and in the case of travellers cheques, they were issued outside India. Proceeds of foreign currency/bank notes tendered by account holder during his temporary visit to India, provided (i) the amount was declared on a Currency Declaration Form (CDF), where applicable, and (ii) the notes are tendered to the authorised dealer in person by the account holder himself and the authorised dealer is satisfied that account holder is a person resident outside India. Transfers from other NRE/FCNR accounts. Interest accruing on the funds held in the account. Interest on Government securities and dividend on units of mutual funds, provided the securities / units were purchased by debit to the account holders NRE/FCNR account or out of inward remittance through normal banking channels. Maturity proceeds of Government securities including National Plan/Savings Certificates. Proceeds of Government securities and units of mutual funds sold on a recognised stock exchange in India and sale proceeds of units received from mutual funds, provided the securities/units were originally purchased by debit to the account holders NRE/FCNR account or out of remittances received from outside India in free foreign exchange. Refund of share/debenture subscriptions to new issues of Indian companies or portion thereof, if the amount of subscription was paid from the same account or from other NRE/FCNR account of the account holder or by remittance from outside India through normal banking channels. Any other credit if covered under general or special permission granted by Reserve Bank.

(d)

(e) (f) (g)

(h) (i)

(j)

(k)

Permitted Debits (a) Local disbursements. (b) Remittances outside India. (c) Transfer to NRE/FCNR accounts of the account holder or any other person eligible to maintain such account. (d) Investment in shares/securities/commercial paper of an Indian company or for purchase of immovable property in India provided

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(e)

such investment/purchase is covered by the regulations made, or the general/special permission granted, by the Reserve Bank. Any other transaction if covered under general or special permission granted by Reserve Bank.

Rate of Interest Rate of interest applicable to these accounts shall be in accordance with the directions/ instructions issued by Reserve Bank from time to time. *** Describe in detail the regulations framed by the Reserve Bank of India for opening of Foreign Currency (Non-resident) Account. The provisions in respect of Foreign Currency (Non-resident) Account Scheme are detailed hereunder : NRIs are eligible to open and maintain these accounts with an authorised dealer. Opening of FCNR(B) accounts in the names of NRIs of Bangladesh/ Pakistan nationality/ownership requires approval of Reserve Bank. These accounts may be opened with funds remitted from outside India through normal banking channels or funds received in rupees by debit to the account of a non-resident bank maintained with an authorised dealer in India or funds which are of repatriable nature in terms of the regulations made by Reserve Bank. Accounts may also be opened by transfer of funds from existing NRE/ FCNR accounts. Remittances from outside India for opening of or crediting to these accounts should be made in the designated currency in which the account is desired to be opened/ maintained. These accounts may be opened only in the form of term deposit for any of the three maturity periods, viz. one year and above but less than two years, two years and above but less than three years and three years only. RATE of Interest The rate of interest on funds held in these deposit accounts will be in accordance with the directives issued by the Reserve Bank from time to time. Permissible Debits/Credits All debits/credits permissible in respect of NRE accounts shall be permissible in respect of these accounts also.

28 Ans.

Eligibility (a)

(b)

(c)

TYPES of Account

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 Change of resident status of the account holder When an account holder becomes a person resident in India, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him. However, except the provisions relating to rate of interest and reserve requirements as applicable to FCNR(B) deposits, for all other purposes such deposits shall be treated as resident deposits from the date of return of the account holder to India. Authorised Dealers should convert the FCNR(B) deposits on maturity into resident rupee deposit accounts or RFC account (if the depositor is eligible to open RFC account), at the option of the account holder and interest on the new deposit (rupee account or RFC account) shall be payable at the relevant rates applicable for such deposits. Joint Account, Repatriation of Balances, etc. Terms and conditions as applicable to NRE accounts in respect of joint accounts, repatriation of funds, opening account during temporary visit, operation by power of attorney, loans/overdrafts against security of funds held in accounts, shall apply mutatis mutandis to FCNR(B) accounts. Reporting The transactions in these accounts shall be reported to Reserve Bank in accordance with the directions issued by it from time to time. Premature Withdrawal Premature withdrawal of FCNR(B) deposits for the purpose of opening NRNR Rupee Deposit accounts with an authorised dealer other than the one with whom the account FCNR(B) is maintained will attract penalty as per the directions issued by Reserve Bank from time to time. 29 *** Describe in detail the REGULATIONS framed by the Reserve Bank of India - for opening of NON-RESIDENT ORDINARY RUPEE (NRO) ACCOUNT. The provisions in respect of Non-resident Ordinary Rupee (NRO) Account Scheme are detailed hereunder : Any person resident outside India may open NRO account with an authorised dealer or an authorised bank for the purpose of putting through bona fide transactions in rupees not involving any violation of the provisions of the Act, rules and regulations made thereunder. Opening of accounts by individuals/entities of Bangladesh/ Pakistan nationality/ownership requires approval of Reserve Bank. The operations on the accounts should not result in the account holder making available foreign exchange to any person resident in India against reimbursement in rupees or in any other manner.

Ans.

Eligibility (a)

(b)

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(c)

At the time of opening of the account, the account holder should furnish an undertaking to the authorised dealer/authorised bank with whom the account is maintained that in cases of debits to the account for the purpose of investment in India and credits representing sale proceeds of investments, he will ensure that such investments / dis-investments will be in accordance with the regulations made by Reserve Bank in this regard. NRO accounts may be opened/maintained in the form of current, savings, recurring or fixed deposit accounts. The requirements laid down fit the directives issued by Reserve Bank in regard to resident accounts shall apply to NRO accounts.

Types of accounts

Permissible credits/debits (A) Credits (i) Proceeds of remittances received in any permitted currency from outside India through normal banking channels or any permitted currency tendered by the account holder during his temporary visit to India or transfers from rupee accounts of non-resident banks. (ii) Legitimate dues in India of the account holder. (B) Debits (i) All local payments in rupees including payments for investments subject to compliance with the relevant regulations made by the Reserve Bank. (ii) Remittance outside India of current income in India of the account holder net of applicable taxes. Remittance of Funds - held in NRO accounts Balances in NRO accounts are not eligible for remittance outside India without the approval of Reserve Bank. Funds received by way of remittances from outside India in foreign exchange which have not lost their identity as remittable funds will only be considered by Reserve Bank for remittance outside India. Grant of Loans / Overdrafts (a) To account holders. (i) Loans to non-resident account holders may be granted in rupees against the security of fixed deposits subject to usual norms as are applicable to resident accounts, for personal purposes or for carrying on business activities except for the purpose of relenting or carrying on agricultural/ plantation activity or for investment in real estate business. (ii) Authorised dealer/bank may permit overdraft in the account of the account holder subject to his commercial judgment and compliance with the interest rate, etc. directives.

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(b)

To third parties. Loans/overdrafts to resident individuals/firms/companies in India may be granted against the security of deposits held in NRO accounts, subject to the following terms and conditions (i) The loans shall be utilised only for meeting borrowers personal requirements and / or business purpose and not for carrying on agricultural/plantation activities or real estate business, or for relending. (ii) Regulations relating to margin and rate of interest as stipulated by Reserve Bank from time to time shall be complied with. (iii) The usual norms and considerations as applicable in the case of advances to trade/industry shall be applicable for such loans/ facilities. The accounts may be held jointly with residents. Change of Resident Status of Account Holder

Joint Accounts with Residents

(a)

From resident to non-resident. When a person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment, or for carrying on business or vocation outside India or for any other purpose indicating his intention to stay outside India for an uncertain period, his existing account should be designated as a Nonresident (Ordinary) account. From non-resident to resident. NRO accounts may be re-designated as resident rupee accounts on the return of the account holder to India for taking up employment, or for carrying on business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident during such visit. The amount due/payable to non-resident nominee from the account of a deceased account holder, shall be credited to NRO account of the nominee with an authorised dealer/authorised bank in India.

(b)

Payment of Funds to Non-resident Nominee

Reporting of Transactions (i) The transaction in the account which may appear to represent reimbursement in rupees against foreign exchange made available to a person resident in India other than authorised dealer, as well as any other transaction of suspicious nature, should be reported to Reserve Bank. The transactions in these accounts shall be reported to the Reserve Bank in accordance with the directions issued by it from time to time. ***

(ii)

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30

Describe in detail the REGULATIONS framed by the Reserve Bank of India - for opening of EXCHANGE EARNERS FOREIGN CURRENCY (EEFC) ACCOUNT. The provisions in respect of Exchange Earners Foreign Currency (EEFC) Account Scheme are detailed hereunder: EEFC account will be a non-interest bearing current account only. NO credit facility whether fund based or non-fund based should be provided against EEFC balances

Ans.

Limit UPTO which foreign currency may be credited to EEFC account Export earnings in foreign exchange can be credited to this account, subject to certain limits, as follows : 1. Following units may credit UPTO 70% of its export earnings to EEFC Account: (a) A 100% Export Oriented Unit. (b) A Unit in Export Processing Zone. (c) A unit in Software Technology Park. (d) A unit in Electronic Hardware Technology Park. 2. Any other person resident in India may credit upto 50% of the export earnings. Meaning of EXPORT EARNINGS : For the purpose of this clause, EXPORT EARNINGS shall include the following: (i) Inward remittance through normal banking channel, other than the remittance received pursuant to any undertaking given to the Reserve Bank or which represents foreign currency loan raised or investment received from outside India by the account holder. Payments received in foreign exchange by a 100% Export Oriented Unit or a unit in (a) Export Processing Zone; or (b) Software Technology Park; or (c) Electronic Hardware Technology Park, for supply of goods to such similar unit or to a unit in Domestic Tariff Area.

(ii)

(iii) Payment received by an exporter from an account maintained with an authorised dealer for the purpose of counter trade, in accordance with the approval granted as per regulations framed in this regard. (iv) Advance remittance received by an exporter towards export of goods or services. (v) Payment received for export of goods and services from India, out of funds representing repayment of State Credit in US dollar held in

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the account of Bank for Foreign Economic Affairs, Moscow, with an authorised dealer in India. Higher percentage permissible with APPROVAL The Reserve Bank may, on an application made to it and on being satisfied that it is necessary to do so, grant permission to hold higher percentage of inward remittance/payments in foreign exchange in the EEFC account. Permissible Credits to EEFC account Following credits may be made to an EEFC Account, namely: (i) (ii) A portion of inward remittance/payment received by the recipient in foreign exchange constituting export earnings.. Interest earned on the funds held in the account.

(iii) Re-credit of unutilised foreign currency earlier withdrawn from the account. (iv) Amount representing repayment by the account holders importer customer, of loan/ advances granted to him. Permissible Debits to the EEFC account Following debits may be made to an EEFC Account, namely: (i) PaymentoutsideIndiatowardsacurrentaccounttransactioninaccordancewiththeprovisionsofthe Foreign Exchange Management (Current Account Transactions) Rules, 2000 and towards a capital account transaction permissible under the Foreign Exchange Management (Permissible CapitalAccountTransactions)Regulations,2000. Payment in foreign exchange towards cost of goods purchased from (a) (b) (c) (d) a 100 per cent Export Oriented Unit; or a Unit in (a) Export Processing Zone; or Software Technology Park; or Electronic Hardware Technology Park.

(ii)

(iii) Payment of customs duty in accordance with the provisions of Export Import Policy of Central Government for the time being in force. (iv) Trade related loans/advances, not exceeding US$ 3 million to the importer customer outside India, subject to compliance with the Foreign Exchange Management ( Borrowing and Lending in Foreign Exchange ) Regulations, 2000. (v) Payment in foreign exchange to a person resident in India for supply of goods/services including payments for air fare and hotel expenditure.

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*** 31 Describe in detail the REGULATIONS framed by the Reserve Bank of India - for opening of RESIDENT FOREIGN CURRENCY ACCOUNT. The provisions in respect of Resident Foreign Currency Account Scheme are detailed hereunder : A person resident in India may open, hold and maintain with an authorised dealer in India a Foreign Currency Account, to be known as a Resident Foreign Currency (RFC) Account. Permissible Credits Following amounts may be credited to RFC Account maintained with an authorised dealer in India : (a) Amount received as pension or any other superannuation or other monetary benefits from his employer outside India. (b) Amount realised on conversion of the assets referred to in subsec.(4) of Sec.6 of the Act, & repatriated to India. (c) (d) Amount received or acquired as gift or inheritance from a person referred to in sub-section (4) of Sec.6 of the Act. or Amount referred to in clause (c) of section 9 of the Act, or acquired as gift or inheritance therefrom. The funds in a RFC Account shall be free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India.

Ans.

Resident Foreign Currency Account

LIMIT on holding in a Foreign Currency Account Unless otherwise stipulated by the Reserve Bank, a person resident in India may hold foreign exchange without any limit in RFC Account. TYPES of Accounts A Foreign Currency Account with an authorised dealer in India may be maintained (1) in the form of current or savings or term deposit account in cases where the account holder is an individual, and in the form of current account or term deposit account in all other cases; singly or jointly in the name of person eligible to open, hold and maintain such account.

(2)

Remittances OUT OF the accounts AFTER the Account Holders Death On the death of a foreign currency account holder -

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(a)

the authorised dealer with whom the account is held or maintained may remit to a nominee being a person resident outside India, funds to the extent of his share or entitlement from the account of the deceased account holder ; a nominee being a person resident in India, who is desirous of remitting funds outside India out of his share for meeting the liabilities abroad of the deceased, may apply to the Reserve Bank for such remittance.

(b)

Foreign Currency Account in India - by SHIPPING and AIRLINES Companies A shipping or airline company incorporated outside India or its agent in India may open, hold and maintain a Foreign Currency Account with an authorised dealer in India for meeting the local expenses in India of such airline or shipping company. However, the credits to such accounts shall be made only by way of freight or passage fare collections in India or by inward remittances through normal banking channels from its office outside India and, in the case of agent, from his principal outside India. 32 Describe briefly the PROVISIONS relating to DIFFERENT KINDS of Bank Accounts - that can be opened by a Person who is Resident in India. A person resident in India can maintain a foreign currency account only in accordance with the provisions of Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2000. For the purpose of these regulations :Foreign Currency Account means an account held or maintained in currency other than the currency of India or Nepal or Bhutan. A person resident OUTSIDE India can maintain the following kinds of accounts : 1. Resident Foreign Currency Account 2. Exchange Earners Foreign Currency (EEFC) Account Scheme ***

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