A Project Report

On
“Foreign Exchange Regulatory Act /
Foreign Exchange Management Act”
Subject:- Legal Aspect Of Business
Submitted To:- Prof. Naresh Shah
Submitted By:-
1. Ankit Chauhan (08)
2. Pooja Raghuvanshi (36)
3. Atit Shah (41)
4. Ashima Koul (02)
5. Pratibha Behl (05)
6. Nilay Thakkar (51)
7. Hunny Goyal (14)
8. Parth Shah ( 44)
9. Payal Balat (03)

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Table Of Contents
INTRODUCTION ............................................................................................................................................. 3
Foreign Exchange Management Act [FEMA] ................................................................................................ 4
CHARACTERISTICS OF F E M A....................................................................................................................... 5
PROVISION IN FEMA ..................................................................................................................................... 6
Provision regarding dealing in foreign exchange. ..................................................................................... 6
Provision regarding holding of foreign exchange ..................................................................................... 7
Provision regarding current account transactions.................................................................................... 7
Provision regarding capital account transactions. .................................................................................... 7
Provision regarding goods and services .................................................................................................... 9
Provision regarding realisation and repatriation of foreign exchange. .................................................... 9
Provision regarding the exemption from the realisation and repatriation in certain cases. ................. 10
Who can deal in foreign exchange? ............................................................................................................ 11
Provision regarding the powers of R B I to inspect Authorized Person. ................................................. 12
Offices of enforcement ............................................................................................................................... 13
Powers of the officers of enforcement: -.................................................................................................... 14
Contraventions and penalties ..................................................................................................................... 14
FERA & FEMA .............................................................................................................................................. 15
Similarities:.............................................................................................................................................. 15
Differences: ............................................................................................................................................. 15
CONCLUSION............................................................................................................................................... 19
Bibliography ............................................................................................................................................... 20

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INTRODUCTION
The Foreign Exchange Regulation Act, 1973 was

reviewed in 1993 and several amendments were enacted as part of the ongoing
process of economic liberalisation relating to foreign investment and foreign trade
for closes interaction with the world economy. Significant development have taken
place since 1993 such as substantial increase lours foreign exchange reserves ,
growth in foreign trade, nationalization of tariffs ,current account convertibility,
liberalization of Indian investments abroad increase access to external commercial
borrowings by Indian corporate and participation of foreign institutional investing
in our stock markets. At that stage the central government decided that a further
review of the Foreign Exchange Regulation Act would be undertaken in the light
of subsequent developments and experiences in relation to foreign trade and
investment. Keeping in view the changed environment, the central Government
decided to introduce. The Foreign Exchange Management Bill and repeat the
Foreign Exchange Regulation Act, 1973. The Foreign Exchange Management Bill
was passed by both the House of parliament and received the assent of the
parliament on 29 December 1999.

Through this seminar I am going to introduce a detail report about the Foreign
Exchange Management Act of 1999.This includes the operations, its objectives,
scope, characteristics and various provisions in the Foreign Exchange Management
Act. This Foreign Exchange Management Act 1999 was the conservation of
Foreign Exchange resources of the country.

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Foreign Exchange Management Act
[FEMA]
The Foreign Exchange Regulation Act is 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.

The act extends to the whole of India. It shall also apply to all branches, offices
and agencies outside India owned or controlled by a person resident in India and
also to any contravention there under committed outside India by any person to
whom this act applies.

The main objects of the foreign exchange management act are as follows.

1. To regulate import and export of currency

2. To Regulate acquisition, holding etc., of immovable property in India by
non-residents
3. To regulate holding o immovable property outside India
4. To regulate dealings in foreign exchange and securities.
5. To regulate certain payments
6. To regulate foreign companies.
7. To regulate the transactions indirectly officiating foreign exchange.
8. To regulate employment of foreign nationals
9. To conserve the foreign exchange resources of the country and to utilise the
same in the interest of the economic development of the country

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CHARACTERISTICS OF F E M A
Foreign exchange Management act (FEMA) was formulated to repeal foreign
exchange regulation act (FERA), 1975 because the conditions had changed a lot
major characteristics of FEMA are as follows.

There is a major shift under FEMA. Under FEMA 1973, all transaction in foreign
exchange and all transactions with non residents [in foreign currency or in rupees]
were absolutely prohibited except where specific relaxations were made. Similarly
non residents were also not permitted to have any dealings in India. Under FEMA
1990, how was, the major focus is on transactions dealings foreign exchange and
foreign securities. Restrictions over dealings with non residents and by non-
residents in India have been, substantially diluted through eliminated.

Major change under FEMA is that only a monetary penalty will be slopped on the
convicted and a there is no punishment by way of imprisonment for contraction of
any of the provisions. The only circumstance under which imprisonment can be
imposed is for non payment of such penalty. Under FERA however of the
enforcement directorate had sweeping process to arrest anyone suspected in
indulging in foreign exchange violations naturally, individual in are particularly
employees of companies would welcome the new provision of FEMA. Foreign
Exchange Management Act. Causes under the Exchange Management Act will
also have to refer by Reserve Bank of India.

Foreign Exchange Management Act 1998 attempts to simplify the provision of

Foreign Exchange Regulation Act 1973.In fact there are several major changes

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with immediate effect and relevance, particularly those relation to certain
substantive matters and contraventions and Punishments.

PROVISION IN FEMA

Provisions in FEMA, 1999 regarding regulation and management of foreign

exchange. The provision under the act was us follows:-

1. Provisions regarding current account transactions[section 5]

2. Provision regarding dealing in foreign exchange (section 3)
3. Provision regarding capital account transaction(section 6)
4. Provision regarding goods and services(section 7)
5. Provision regarding and repatriation of foreign exchange (section 8)
6. Provision regarding the exemptions from realization and repatriation in
certain cases (section 9)
7. Provision regarding the exemption from the realisation and repatriation in
certain cases.

Provision regarding dealing in foreign exchange.

Without the general or specific permission of the Reserve Bank of India, no

person shall:

a) Deal in or transfer any foreign exchange or foreign security to any

person not being an authorised person.

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 b) Make any payment to or for the credit of any person resident outside
India in any manner.
c) Receive otherwise through an authorised person, any payment by
order or on behalf of any person resident outside India in any manner.
d) Enter into any financial transition 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.

Provision regarding holding of foreign exchange.

No person resident in India shall acquire, hold, own, possess or transfer any
foreign exchange, foreign security or any immovable property situated outside
India.

Provision regarding current account transactions

Any person may sell or draw foreign exchange to or from an authorised person if
such sale or drawl is a current account transaction. It also empowers the Central
Government to prescribe in public interest and in consultation with the RBI, the
restrictions for such transactions as may be considered reasonable.

Provision regarding capital account transactions.

Any person may sell or draw foreign exchange to or from an authorised person for
capital account transaction (see 6(1)).The Reserve Bank of India may in
consolation with the central Government specify any class or classes of capital
account which are permissible; the limit up to which foreign exchange shall be
admissible for such transactions (sec 6(2)).The Reserve Bank of India may by
regulations, prohibit restrict or regulate the following.

 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.

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 Transfer or issue of any security or foreign security by any branch,
office or agency in India of a person resident outside India.
 Any borrowing or lending in rupees in whatever from or by whatever
name called between a person resident in India and a person resident outside
India.
 Any borrowings or lending in foreign exchange in whatever form or
whatever name called.
 Deposits between person resident in India and person resident outside
India.
 Export, Import or holding of currency notes.
 Transfer of immovable properly 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
year or not exceeding five years by a person resident outside India.
 Giving of a guarantee or security in respect of any debit obligation or
other liability increased by a person resident in India and owned to a person
resident outside India or by a person resident outside; India (sec 6(3)).
 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 pr owned by such
person when he was resident outside India or inherited from a person who
was resident outside India (section6(4)
 A person resident outside India may hold, own transfer or invest into
any Indian currency, security or any immovable property situated in India if
such currency, security or property was acquired, held or owned or inherited
from a person who was president in India (Sec 6(5))

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  The Reserve bank of India 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(Sec 6(6))

Provision regarding goods and services

Every exporter of the goods shall furnish to the Reserve bank of India or to
such other authority a declaration in such form and in such manner as may be
specified, containing true and correct material particulars including the amount
representing the fall export value or if the full export value of goods is
ascertainable at the time of export, the value which the exporter having regard to
the prevailing market conditions experts to receive on the sale of goods in a market
outside India(Sec 7 -1(a)).

Every exporter will furnish to the Reserve bank of India such other
information as may be required by the R B I for the purpose of ensuring the
realisation of the export proceeds by such exporter (Sec 7-1(b)).

The Reserve Bank of India may for the purpose of ensuring that the full
export value of goods or such reduced value of goods as the Reserve Bank
determines having required to the prevailing market conditions is received without
any delay, direct any exporter to comply with such requirements as it deems fit
(Sec7 (7)).

Provision regarding realisation and repatriation of foreign exchange.

Where any amount of foreign exchange is due or has acquired to any person
resident in India such person shall take all reasonable steps to realise and repatriate

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to India such foreign exchange with in such period and in such manner as may be
specified by the Reserve Bank of India.

Provision regarding the exemption from the realisation and repatriation

in certain cases.
The provision of the act regulating holding of the foreign exchange etc. And
realisation and repatriation of foreign exchange shall not be applied under the
following cases:-

In case possession of foreign currency or foreign coins by any person up to

such limit as the Reserve Bank of India may specify.

In case foreign exchange acquired or received the eighth day of July 1947 or
any income arising or acquiring thereon which is held outside India by any person
is pursuance of a general or permission granted by the R B I.

In case of foreign exchange held by a person resident in India up to such

limit as the R B I may specify if such foreign exchange was acquired by way of
gift or inheritance from a person including any income outside there from.

In case foreign exchange acquired from employment business, trade relation,

service, honorarium, gifts, inheritance or any other legitimate means up to such
limit as the R B I may specify.

In case foreign currency account held or operated by such persons or class of

persons and the limit up to with the R B I may specified.

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Who can deal in foreign exchange?
The Reserve Bank of India may, on an application made to it in this behalf
authorize any person to be known as authorized dealer, money changes or off-
shore banking unit or in any other manner as it deems fit (section 10(1))

An authorization under this section shall be in writing and be subject to the

conditions laid down (section 10(2))

An authorization granted may be revoked by the Reserve Bank at any time if the
Reserve Bank is satisfied that (a) It is in public interest to do so; or (b) the
authorized person has failed to comply with the conditions subject to which the
authorization was gained or has contravened any of the provision of the act
(section 10(3)) Provisions Regarding The Dealing by the Authorized Person.

An authorized 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 and except with the previous
permission of the Reserve Bank an authorized person shall not engage in any
transaction involving any foreign exchange or foreign security which is not in
conforming with the teams of his authorization under this section (section 10(4))

An authorized person shall be for undertaking any transaction in foreign exchange

on behalf of any person require that person to make such declaration and to give
such information as well reasonably satisfy him that the transactions will not
involved and is not designed for the purposes of any contraventions or evasion of
provision of this act (section 10(5)).

Any person other than authorized person who has acquired or purchased exchange
for any purposes mentioned in the declaration unable by him to authorized person

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does not use it for such purpose or dose not surrender it to authorized person with
in the specified period or uses the foreign exchange so acquired or purchased for
any other purpose for which purchases or acquisition of foreign exchange is not
permissible under the provision of the act or the rules or regulations or directions
made shall be deemed to have committed contravention of the provision of the act
(section 10(6) )Provision Regarding the Reserve Bank of India’s Power To Issue
Directions To Authorized persons.

The Reserve Bank of India may, for the purpose of securing compliance with the
provisions of this act and of any rules, regulations, notifications or directions made
there under, due to make the authorized person any directions in regarding to make
of payments or the doing or desist from doing any act relating to foreign exchange
or foreign security (section 11(1) ) The Reserve Bank of India may direct any
authorized person to furnish such information in such manner as it deems fit
(section 11(2) )

Where any authorized person contravenes any direction given by the R B I under
this act or fails to file any returns as directed by the R B I, the R B I may after
giving reasonable opportunity of being heard, impose on authorized person a
penalty which may extend to Rs.10000 and in case of counting contraventions with
an additional penalty which may extend to Rs. 2000 for every day during which
such contravention continues (sec 11(3)).

Provision regarding the powers of R B I to inspect Authorized Person.

The R B I may at any time call the authorized person for:

1. Verifying the correctness of any statement; information or particulars

furnished to R B I.

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 2. Obtaining any information or particulars which such authorized person has
failed to furnish on being called up on to do so.
3. Securing compliance with the provisions of this act or of any rules,
regulations, directions or orders made (Sec 12(11)).
It shall be the duty of every authorized person and were such person is a company
or a firm every director, particular or other of such companies or firms, as the case
may be, to produce to any officer making an inspection, such books of account and
other documents in his custody or power and to furnish any statement or
information relating to the affairs of such persons, company or firms as the said
officer may require within such time and in such manner as the as the said offer
may direct (Sec 12(2)).

Offices of enforcement
Classes of enforcement: - The various classes of offices that may appoint by the
Central Government for the purpose of this act are:-

o Directors of enforcement
o Additional Directors of enforcement
o Deputy Directors of enforcement
o Assistant Directors of enforcement

Such other classes of offices as may be appointed for the purpose of the act

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Powers of the officers of enforcement: -
The central government may be appointing an officer of enforcement who
may exercise the powers and discharge the duties of conferred on him under this
act. The powers conferred upon the enforcement officer under this act are:-

1. Power to call for information

2. Power to search suspected person and to ceases documents
3. Power to arrest.
4. Power to search and stop conveyances.
5. Power to search premises.
6. Power to seize documents.
7. Power to examine persons.
8. Power to summons person to give evidence and produce documents.
9. Power to retain documents.
10.Power to encash cheques, drafts, traveller’s cheque, seized during
investigation.
11.Power to seize the books of accounts and other documents of any
authorised dealers.

Contraventions and penalties

If any person contravenes any provision of this act, or contravenes any rules and
regulations, notifications, directions or orders issued in exercise of the power under
this act or contravenes any conditions subject to which an authorisations be able to
a penalty up to there the sum involved in such contraventions where such amount
is quantifiable or up to a lakh rupees where the amount is not quantifiable and
where such contraventions is a counting one further penalties may extent to 5000
rupees for every day after the first day with the contravention continues.
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FERA & FEMA
Similarities & Differences between FERA & FEMA

Similarities:
The similarities between FERA and FEMA are as follows:

 The Reserve Bank of India and central government would continue to

be the regulatory bodies.

 The Directorate of Enforcement continues to be the agency for

enforcement of the provisions of the law such as conducting search and
seizure

Differences:
Sr.
DIFFERENCES FERA FEMA
No

PROVISIONS FERA consisted of 81 FEMA is much simple,

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

FEATURES Presumption of negative These presumptions of

intention (Mens Rea ) and Mens Rea and abatement
2
joining hands in offence have been excluded in
(abatement) existed in FEMA FEMA

NEW TERMS Terms like Capital Account Terms like Capital

IN FEMA Transaction, current Account Account Transaction,
3
Transaction, person, service current account
etc. were not defined in Transaction person,

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 FERA. service etc., have been
defined in detail in
FEMA.

DEFINITION Definition of "Authorized The definition of

OF Person" in FERA was a Authorized person has
AUTHORIZED narrow one ( 2(b) been widened to include
4
PERSON banks, money changes, off
shore banking Units etc.
(2 ( c )

MEANING OF There was a big difference in The provision of FEMA,

"RESIDENT" the definition of "Resident", are in consistent with
AS COMPARED under FERA, and Income income Tax Act, in
WITH INCOME Tax Act respect to the definition of
TAX ACT. term " Resident". Now the
criteria of "In India for
182 days" to make a
person resident has been
5
brought under FEMA.
Therefore a person who
qualifies to be a non-
resident under the income
Tax Act, 1961 will also be
considered a non-resident
for the purposes of
application of FEMA, but

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 a person who is
considered to be non-
resident under FEMA may
not necessarily be a non-
resident under the Income
Tax Act, for instance a
business man going
abroad and staying
therefore a period of 182
days or more in a financial
year will become a non-
resident under FEMA.

PUNISHMENT Any offence under FERA, Here, the offence is

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

QUANTUM OF The monetary penalty Under FEMA the

PENALTY. payable under FERA, was quantum of penalty has
7
nearly the five times the been considerably
decreased to three times

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 amount involved. the amount involved.

APPEAL An appeal against the order The appellate authority

of "Adjudicating office", under FEMA is the special
before " Foreign Exchange Director ( Appeals)
Regulation Appellate Board Appeal against the order
went before High Court of Adjudicating
Authorities and special
8 Director (appeals) lies
before "Appellate
Tribunal for Foreign
Exchange." An appeal
from an order of Appellate
Tribunal would lie to the
High Court. (sec 17,18,35)

RIGHT OF FERA did not contain any FEMA expressly

ASSISTANCE express provision on the right recognizes the right of
DURING of on impleaded person to appellant to take
9
LEGAL take legal assistance assistance of legal
PROCEEDINGS. practitioner or chartered
accountant (32)

POWER OF FERA conferred wide powers The scope and power of

10 SEARCH AND on a police officer not below search and seizure has
SEIZE the rank of a Deputy been curtailed to a great

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 Superintendent of Police to extent
make a search

CONCLUSION
After making a detailed study we made a conclusion that the foreign
exchange management act (FEMA) of 1999 that was formulated to repeal
foreign exchange regulations act (FERA) of 1973 because of the changed
conditions in the trading sector. This special act made a very strict control
over the foreign exchanges and transfer of foreign currencies and securities
and this act playing a great role in the field of foreign transfer or
transactions.

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 Bibliography
WWW.GOOGLE.COM

WWW. WIKIPEDIA.ORG

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