SIDDHARTH ACADEMY

Economic and Commercial Laws

Chapter 1: Foreign Exchange Management
Discuss the provisions of the. Foreign Exchange Management Act, 1999 relating
to the export of goods and services without declaration.
As per Foreign Exchange Management (Export of Goods and Services) Regulations,
2000 export of goods or services may be made without furnishing the declaration in
the following cases, namely;.
(i) trade samples of goods and publicity material supplied free of cost;
(ii) personal effects of travellers, whether accompanied or unaccompanied;
ships stores, trans-shipment cargo and goods supplied under the orders of Central
Government or of such officers as may be appointed by the Central Government in this
behalf or of the military, naval or air force authorities in India for military,naval or air
force requirements;
(iii)

goods or software accompanied by a declaration by the exporter that they are not
more than twenty five thousand rupees in value;
(iv)

by way of gift of goods accompanied by a declaration by the exporter that they are
not more than one latch rupees in value;
(v)

aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad
subject to their re import into India after overhauling/repairs, within a period of six
months from the date of their export;
(vii) goods imported free of cost on re-export basis;
(vi)

goods not exceeding US$1000 or its equivalent in value per transaction exported to
Myanmar under the Barter Trade Agreement between the Central Government and the
Government of Myanmar;
(ix) the goods which are permitted by the Development Commissioner of the Export
Processing Zonet, EHTP, STP or Free Trade Zones to be re-exported;
(viii)

(x) replacement goods exported free of charge in accordance with the provisions of
aim Policy in force, for the time being;
(xi)

goods sent outside India for testing subject to re-import into India;

(xii) defective goods sent outside India, for repair and re-import provided the goods are

accompanied by a certificate from 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;
(xiii) export permitted by RBI.
Person resident of India.(2005 Dec- 3 marks)
Section 2(v) of Foreign Exchange Management Act, 1999 defines a person resident in

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India to mean a person residing in India for more than one hundred and eighty two days
during the course of the preceding financial year but does not include(A) a person who has gone out of India or who stay outside India, in either case :
(a) for or on taking up employment outside India; or
(b) for carrying on outside India a business or vocation outside India; or
(c) for any other purpose, in such circumstances as would indicate his intention to stay
in India for an uncertain period.
(B) a person who has come to or stays in India in either case otherwise than:
(a) for of on taking up employment in India; or
(b) for carrying on in India a business or vocations in India; or
(c) for any other purpose, in such circumstances as would indicate his intention to stay
in India for an uncertain period.
Powers of the RBI to compound contraventions of foreign exchange transactions.(
2006, December- 3 marks)
Rule 4 of the Foreign Exchange (Compounding Proceedings) Rules, 2000 empowers
the RBI to compound only quantifiable contravention committed by any person of the
provisions of Section 7 or Section 6 or Section 9, or Third Schedule to the Foreign
Exchange Management (Current Account Transactions) Rules, 2000 in the following
manners:
(a) where the sum involved in such contravention is five lakhs rupees or below, by the
Assistant General Manager of the Reserve Bank of India;
(b) the such involved in such contravention is more than rupees-five lakhs but less than

rupees twenty faiths by the Deputy General Manager of Reserve Bank of India;
(c) where the sum involved in the contravention is rupees twenty lakhs or more but less
than rupees fifty lakhs by the General Manager of Reserve Bank of India; and
(d) where the sum involved in such contravention is rupees fifty lakhs or more, by the
Chief General Manager of the Reserve Bank of India.

Foreign security.(2007 June- 3 marks)

The term Foreign Security has been defined under Section 2(o) of The Foreign
Exchange Management Act, 1999, to mean any security, in the form of shares, stocks,
bonds, debentures or any other instrument denominated or expressed in foreign
currency and includes securities expressed in foreign currency but where redemption or
any form of return such as interest or dividend is payable in Indian currency.
Current account transactions.(2007 Dec- 3 marks)
As per Section 2(j) of the Foreign Exchange Management Act, 1999 "current account
transaction" means a transaction other than a capital account transaction and includes,(a) payments due in connection with foreign trade, other current business,
services, and short-term banking and credit facilities in the ordinary course of
business;

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(b)
(c)
(d)

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.

Notes:
(1) Under the Act freedom has been granted for selling and drawing of foreign
exchange to or from an authorized person for undertaking current account transactions.
However; the Central Government has been vested with powers in consultation with
Reserve Bank to impose reasonable restrictions on current account transactions.
(2) The Central Government has framed Foreign Exchange Management (Current

Account Transactions) Rules,2000 dealing with various aspects of current account

transactions.

(3) The Rules contain three schedules prescribing the kinds of transactions which are

prohibited, transactions which require prior approval of Central Government and

transactions which require prior approval of Reserve Bank respectively

Project exports.
Answer: Project Exports: Export of engineering goods on deferred payment terms including
execution of turnkey projects and civil construction contracts abroad are collectively treated as
project export. Project exports are broadly divided into three categories, i.e. Civil Engineering
Construction Projects, Industrial Run Key Projects and Consultancy Services. Project exports
are regarded as a key indicator of technological maturity and industrial capabilities of a country.
These projects have occupied an important place in India's export portfolio. Regulation 18 of
the Foreign Exchange Management (Export of Goods and Services) Regulation 2000 deals with
project exports and provides that where the export of goods or services is proposed to be made
on deferred payment terms or in execution of a turnkey project or a civil construction contract,
the exporter shall before entering into any such export arrangement, submit the proposal for
prior approval of the Working Group or the Exim Bank or Authorised deale4 as the case may
be, which shall consider the proposal in accordance with the guidelines issued by Reserve Bank
from time to time.
Declarations for export of goods and services. (2010, December- 3 marks)
Section 7 of the Foreign Exchange Management Act, 1999 deals with export of goods and
services. Every exporter is required to furnish to Reserve Bank of India or any other authority
as prescribed a declaration containing true and correct particulars including the amount
representing the full export value or if the full export value of the goods is not ascertainable at
the time of export, the value which the exporter having regard to prevailing market conditions
expects to receive on sale of the goods in a market outside India. However, there are a few
exceptions wherein export of goods or services is permitted without declaration.

Depository Receipt(2012, December- 3 marks)

Depository Receipt: Depository Receipt means a negotiable security issued outside
India by a Depository bank, on behalf of an Indian company, which represent the local

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Rupee denominated equity shares of the company held as deposit by a Custodian bank
in India. Depository Receipts are traded on Stock Exchanges in the US, Singapore,
Luxembourg, etc. Depository Receipts listed and traded in the US markets are known
as American Depository Receipts (ADRs) and those listed and traded
anywhere/elsewhere are known as Global Depository Receipts (GDRs).
Indian companies can raise foreign currency resources abroad through the issue of
FCCB/DR (ADRs/GDRs), in accordance with the Scheme for issue of Foreign
Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt
Mechanism) Scheme, 1993 and guidelines issued by the Government of India there
under from time to time.

Person of Indian origin(2013, June- 3 marks)

As per Foreign Direct Investment Policy Person of Indian Origin (NO) means a citizen
of any country other than Bangladesh or Pakistan, if
(i) he at any time held Indian Passport
(ii) he or either of his parents or any of his grandparents 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)

'Foreign contribution' and 'foreign hospitality'. (2007, December 5 marks)

Foreign Contribution means the donation, delivery or transfer made by any foreign
source
(i) of any article, not being an article given to a person as a gift for his personal use, if
the market value, in India, of such article, on the date of such gift, does not exceed one
thousand rupees
(ii)of any currency, whether Indian or foreign,
(iii)of any foreign security as defined in clause (1) of Section 2 of the Foreign Exchange
Management Act, 1999
Foreign Contribution (Regulation) Act imposes restrictions on acceptance of foreign contribution by
candidate for election, correspondent, columnist, cartoonist, editor owner, printer or publisher of a
registered newspaper judge, government servant or employee of any corporation, member of any
legislature, and political parry or office-bearer thereof. Section 5 of FCRA prohibits, an organisation
of a political nature not being a political party," from accepting any foreign contribution, except
with the prior permission of the Central Government.
Foreign Hospitality: Foreign Hospitality means any offer not being a purely casual one, made by a
foreign source for providing a person with the costs of travel to any foreign country or territory or
with free board, lodging, transport or medical treatment.
Foreign Contribution (Regulation) Act prohibits acceptance of foreign hospitality by certain
persons except with the prior permission of the Central Government. Accordingly no member of a
Legislature, office bearer of a political party Judge, Government servant or employee of a
corporation shall, while visiting any country or territory outside India accept, without the prior"
permission of the Central Government any foreign hospitality

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'Person' and 'authorised person' tauter the Foreign Exchange Management Act;
1999.(2008 June- 4 marks)
Section 2(u) of FEMA, defines the term 'Person' to include
(i) an individual,
(ii) a Hindu Undivided Family,
(iii) a Company,
(iv) a Firm,
(v) an association of persons or body of individuals whether incorporated or not; and
(vi) every artificial juridical person not falling within the above sub clause
(vii) any agenc y, o ffice o r branch o wned o r cont ro lled b y such perso n;
Authori sed Person (1) T he t er m aut ho r ized per son is defined in
Sect ion 2(c) o f FE MA t o includ e
(i) an authorised dealer,
(ii) money changer;
(iii) offshore banking unit or

(iv )any other person for the time being authorized to deal in foreign exchange or
foreign securities.
(2) Under Section 10 of the FEMA, 1999 any person who has made an application to
the RBI may be authorised by it to act as an authorised person to deal in foreign
exchange or in foreign securities as an authorised dealer, money changer or
offshore banking unit or in any other manner as the RBI deem fit. This
authorisation is in writing and subject to the conditions laid down by the RBI.
Normally, nationalised banks, leading non nationalized banks arid foreign banks
are appointed as authorized, persons.
'Current account transactions' and 'capital account transactions'.(2012, June
CS- 3 Marks)
(1) Distinction between capital account transaction and current account transaction:

As per section 2(e) of the FEMA, Capital account transaction is one which alters
the assets or liabilities including contingent liabilities, outside India of persons
resident in India, or assets or liabilities in India of person resident outside India and
includes transactions specified in Sub-section(3) of Section 6 of the Act.
The term current account transaction has been defined under section 2(j). of the
FEMA to mean a transaction other than a capital account transaction and 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 loan 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.
(2) Withdrawal from capital a/c & current a/c: Section 5 of the Act allows any person
to sell or draw foreign exchange to or from an authorised person if such sale or
drawal is a current account transaction as defined under Section 2(j) of the Act.
However, the Central Government may, in the public interest and in consultation

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with the Reserve Bank impose reasonable restrictions for current account
transactions.
A look at the foreign Exchange Management (Current account transactions) Rules,
2000, reveals the following :
(i)
As per Rule 3, drawal of foreign exchange for certain purposes are totally
prohibited.
(ii) As per Rule 4, drawal of foreign exchange for certain purposes require prior
approval of government of India.
(iii) As per Rule 5, drawal of foreign exchange for certain purposes require prior
approval of Reserve Bank of India.
Scheduled I & II to Foreign Exchange Management (Permissible Capital Account
Transactions) Regulations, 2000 classifies the capital account transactions of a
person under the following two heads viz.
Schedule I contains classes of capital account transactions of resident insider India
and schedule 11 relating to residents outside India.
Subject to the provisions of the Foreign Exchange Management Act, or the rules, or
regulations or directions or orders made or issued thereunde any person may sell or draw
foreign exchange to or from an authorised person for the above mentioned capital
account transactions provided the transactions are within the limit, if any, specified in the
Regulations relevant to the transaction. However, no person is allowed to undertake or
sell or draw foreign exchange to or from an authorised person for any capital account
transaction except as provided in the Act, Rules or regulations made thereunder.
Similarly, except as otherwise provided in the Act, no person resident outside India is
entitled to make investment in India, in any form, in any company or partnership firm or
proprietary concern or any entity whether incorporated or not, which is engaged or
proposed to engage in the business of chit funds, or Nidhi company, or in agricultural or
plantation activities, or real estate business, or construction of farm houses, or trading in
Transferable Development Rights (TDRs). For this purpose real estate business includes
development of townships, construction of residential/commercial premises, roads or
bridges.
The payment for investment are required to be made by remittance from abroad
through normal banking channels or by debit to an account of the investor maintained
with an authorised person in India in accordance with the regulation made by the
Reserve Bank of India. Every person selling or drawing foreign exchange to or from an
authorised person for a capital account transaction is required to furnish to Reserve
Bank a declaration within the time specified in the regulations relevant to the
transactions.