Foreign Exchange

Management Act
(FEMA)
PRESENTED BY MBA-IB (2ND SEM) STUDENTS :

VAIBHAV KADAM 04

MIHIR PANCHAL 08

NIYAZ KHAN - 18

MANU SHAJI 20
FAIZAN HAMIRANI - 24

MUJTABA KHAN 29

PRATIK TANTIA 31

FOREIGN EXCHANGE
MECHANISM

Statutory Basis for Exchange Control

The Foreign Exchange Regulation Act,

1973 (FERA 1973), as amended by
the Foreign Exchange Management
(Amendment) Act, 1999, forms the
statutory basis for Exchange Control
in India.

FEMA (1999)

The Foreign Exchange Management Act

(1999) or in short FEMA has been
introduced as a replacement for earlier
Foreign Exchange Regulation Act (FERA).
FEMA came into force on the 1st day of
June, 2000.

FEMA

consolidate and amend the law relating to foreign exchange

facilitating external trade and payments

promoting the orderly development and maintenance of

foreign exchange market in India

49 sections in the Act

Important Terms (Sec-2)

Authorized Person:

Capital account transaction:

Coin and bank notes

Currency Account Transaction:

Currency notes, Money order, cheque, drafts etc

Currency Notes:

Alters the assets or liability

Currency:

Authorized under the Act to deal in foreign exchange

Transactions other than capital account transactions

Indian Currency:

Indian rupees

Export:

Goods and services from India to outside

Foreign

Other than Indian currency

Foreign

Exchange:

Means foreign currency

Foreign

Currency:

Security:

Security expressed in foreign currency

Import:

Goods and services from outside to India

Security:

Shares, Stock etc as defined in the Public Debt Act of 1994

Repatriate to India:

Service:

Citizen of India residing outside

Overseas Corporate Body (OCB):

Sale, Purchase, Exchange etc

Non-Resident Indian (NRI):

Banking, Financing, insurance etc

Transfer:

Realized foreign exchange to India

A company, firm etc.. Owned at least 60% by NRIs

Person of Indian Origin (PIO):

Citizen of country other then Bangladesh and Pakistan, if

Any time held Indian passport or

Either of his parents or grandparents was citizen of India

The Person is spouse of an Indian citizen

To Whom Act is Applicable ?

The

FEMA, is applicable-

To the whole of India.

Any Branch, office and agency, which is situated outside India,

but is owned or controlled by a person resident in India.

Broadly

speaking FEMA, covers, three

different types of categories, and deals
differently with them. These categories
are:
a)

Person

b)

Person Resident In India

c)

Person Resident Outside India

A. Person
For

the purpose of provisions, a person

shall include any of the following:
1.

An individual

2.

A Hindu Undivided family

3.

A company

4.

A Firm

5.

An association of persons or a body of individuals, whether

incorporated or not,

6.

Every artificial judicial person, not falling within any of the

preceding sub clauses, and

7.

Any agency, office or branch owned or controlled by such

person.

B. Person resident in
India

1.

A person who has been residing in India for more than 182
days, in the last financial year. This means if a person has to
be assessed, as to whether he is person resident in India, for
any offence committed in August 2001, then he should be
residing in India for more than 182 days during April 2000 to
March 2001

2.

Any person or body corporate registered or incorporated in

India, or

3.

An office, branch or agency in India owned or controlled by a

person resident outside India, or

4.

An office, branch or agency outside India owned or controlled

by a person resident in India.

C. Person resident
outside
India
Simply

putting it, "a person resident

outside India" means "a person who is not
resident in India"

Provisions in Section 3
Prohibits

dealings in foreign exchange except

through an authorized person

Make

any payment to or for the credit of any

person resident outside India in any manner

Receive

otherwise through an authorized

person, any payment by order or on behalf of
any person resident outside India in any
manner

Enter

into any financial transaction in India

for acquisition or creation or transfer of a
right to acquire, any asset outside India by
any person

Provisions in Sections

SECTION 4

SECTION 5 deals with current account

transaction

Restrains any person resident in India from acquiring, holding,

owning, possessing or transferring any foreign exchange, foreign
security or any immovable property situated outside India except
as specifically provided in the Act.

Any person may sell or draw foreign exchange to or from an

authorized person if such sale or drawl is a current account
transaction

SECTION 6 - deals with capital account

transactions.

This section allows a person to draw or sell foreign exchange from

or to an authorized person for a capital account transaction.

Transactions Regulated
by Exchange Control

Transactions having international financial

implications matters are regulated by
Exchange Control:
a)

Purchase and sale of and other dealings in foreign exchange and

maintenance of balances at foreign centers

b)

Procedure for realization of proceeds of exports

c)

Payments to non-residents or to their accounts in India

d)

Transfer of securities between residents and non-residents and

acquisition and holding of foreign securities

e)

Foreign travel with exchange

f)

Export and import of currency, cheques, drafts, travelers

cheques and other financial instruments, securities, etc.

g)

Activities in India of branches of foreign firms and companies

and foreign nationals

h)

Foreign direct investment and portfolio investment in India

including investment by non-resident Indian nationals/persons of
Indian origin and corporate bodies predominantly owned by such
persons

i)

Appointment of non-residents and foreign nationals and foreign

companies as agents in India

j)

Setting up of joint ventures/subsidiaries outside India by Indian

companies

k)

Acquisition, holding and disposal of immovable property in India

by foreign nationals and foreign companies

l)

Acquisition, holding and disposal of immovable property outside

India by Indian nationals resident in India.

Provisions in Sections

SECTION 7 - deals with export of goods and

services.

SECTION 8 and 9

Every exporter is required to furnish to the RBI or any other

authority, a declaration etc. etc. regarding full export value.
casts the responsibility on the persons resident in India who have
any amount of foreign exchange due or accrued in their favor to
get same realized and repatriated to India within the specific
period and the manner specified by RBI.

SECTIONS 10 and 12

deals with duties and liabilities of the Authorized persons

authorized dealer, money changer, off shore banking unit or any
other person for the time being authorized to deal in foreign
exchange or foreign securities.

DUTIES OF AN
AUTHORIZED PERSON
To

comply with RBI directions

Not

to engage in un authorized

transactions
Ensure
To

compliance of FEMA provisions

produce books, accounts etc

POWERS OF AN
AUTHORISED PERSON

To deal in or transfer any foreign exchange

Receive payments by order

To open NRO, NRE, FCNR, NRNR, NRSR accounts

To sell or purchase foreign exchange for current

account transactions

To

sell

or

purchase

foreign

exchange

permissible capital account transactions

for

Powers of Reserve Bank of India

Verifying the correctness of any

statements, information or particular

Obtaining information which such

authorized person has failed to furnish

Securing compliance with the

provisions of Act

Provisions in Sections
SECTION

13

Any contravention, under FEMA, may invite

following kinds of penalties:

If, the amount against which offence is quantities,

then penalty will be "THRICE" the sum involved in
contravention.

Where the amount cannot be quantified the penalty

may be imposed up to two lakh rupees.

If, the contravention is continuing everyday, then Rs.

Five Thousand for every day after the first day during
which the contravention continues.

Further

in addition to the penalty, any currency,

security or other money or property involved in
the contravention may also be confiscated.

Provisions in Sections
SECTION 14

If a person fails to make full payment of the penalty imposed

with in a period of 90 days, he shall be liable to civil
imprisonment.

SECTION

Empowers the Directorate of Enforcement and Officers of the

Reserve Bank of India as may be authorized by the central
Govt. in this behalf to compound the offences.

SECTION

15

16

Empowers the central Govt. to appoint the as many

adjudicating authorities as it may think fit for holding enquiries.

Provisions in Sections
SECTION

Empowers the central Govt. to appoint one or more special

Directors to hear the appeals against the orders of the
Adjudicating Authorities.

SECTION

18

Empowers the central Govt. to establish Appellate Tribunal to

hear appeals against the orders of Adjudicating Authorities and
special Director.

SECTION

17

19

It makes provisions as regards appeals to Appellate Tribunal.

Provisions in Sections
SECTION

20

Composition of Appellate Tribunal.

SECTION 21

Qualifications for appointment of Chairperson member and

Special Director.

SECTION

Term of Office.

SECTION

23

Terms and Conditions of service.

SECTION

22

Vacancies.

24

Provisions in Sections

SECTION 25

SECTION 26

Power of Appellate Tribunal and Special Director.

SECTION 29

Staff of Appellate Tribunal and Special Directorate.

SECTION 28

Member to act as Chairperson in certain circumstances.

SECTION 27

Resignation and Removal.

Distribution of business among benches.

SECTION 30

Power of Chairperson to Transfer cases.

Provisions in Sections
SECTION

Decision to be by majority.

SECTION

34

Civil court not to have jurisdiction.

SECTION

33

Members, etc to public servants.

SECTION

32

Right of Appellant to take assistance of legal practitioner or CA

and of Govt. to appoint presenting officer.

SECTION

31

35

Appeal to High Court.

Provisions in Sections
SECTION

36 to 38 Directorate of Enforcement

enforcement of the provisions of the Foreign Exchange

Management Act
prevent leakage of foreign exchange
Remittances of Indians abroad otherwise than through
normal banking channels, i.e. through compensatory
payments.
Acquisition of foreign currency illegally by person in India.
Non-repatriation of the proceeds of the exported goods.
Unauthorized
maintenance of accounts in foreign
countries.
Siphoning off of foreign exchange against fictitious and
bogus imports land by.

Illegal acquisition of foreign exchange through Hawala

Indian Computer
Hardware Industry
Electronic

Corporation India Limited

To tie up with international companies for local manufacture of

computers

To increase the local content to a point of "self sustenance".

Tie

up between ECIL and IBM

Import of computers was carefully regulated, depending on

ECILs production capacity, and the entry of the local private
sector was controlled.

The

Implementation of FERA (in 1977) led

to exit of IBM from India.

Because FERA restricts any foreign company from holding 40%

shares but IBM had 70%.

THANK YOU !!