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Overview of FEMA:FOREIGN EXCHANGE

MANAGEMENT, 1999 [42 of1999]

The Parliament has enacted the ForeignExchange Management Act,1999 to replace

the Foreign Exchange Regulation Act,1973(FERA). This Act came into force on the1st day of June,2000.

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Main Objects

The object of the Act is to consolidate and amend the law relating toforeign exchange with objective of facilitating external trade andpayments and for promoting the orderly developnent andmaintenance of foreign exchange market in India.

also apply to all branches, offices and agencies outside India ownedor controlled by a person resident in India. It will also be applicableto any contravention committed outside India by any person towhom this Act is applicable.

investigate provisions of the Act, the Central Govt. have establishedthe Directorate of Enforcement with Director and other officers as

officers of the Enforcement Repeals Foreign Exchange Regulation Act, 1973 : Which provided

for jail for any foreign exchange related offences.in past

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Sec.3 - Prohibits dealings in foreign exchangeexcept through an authorised person-RBI

Permission required to:.

(a)Deal in or transfer any foreign exchange or foreignsecurities to any person being an authorised person(corresponding to sections 8 and 19 of FERA).

(b)Make any payment to or for the credit of any personresident outside India in any manner (corresponding tosection 9(l)(a) of FERA).

(c)Receive otherwise through an authorised person, anypayment by order or on behalf of any person residentoutside India in any manner (corresponding to section9(1)(b) of FERA) and

(d)Enter into any financial transaction in India asconsideration for or in association with acquisition orcreation or transfer of a right to acquire, any assetoutside India by any person (corresponding tosections9(l)(f) & (g) ofFERA).

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It controls all foreign transaction:

Sec. 2 provides definitions of words and phrases used in the Act. Sec 4 - restrains any person resident in India from acquiring, holding,

owning, possessing or transferring any foreign exchange, foreign security orany immovable property situated outside India except as specificallyprovided in the Act. The terms "foreign exchange" and "foreign security" aredefined in sections 2(n) and 2(o) respectively of the Act. The Central Govt.

has made Foreign Exchange Management (Current Account Transactions)Rules, 2000. SECTION 6 - deals with capital account transactions. This section allows a

person to draw or sell foreign exchange from or to an authorised person fora capital account transaction. RBI in consultation with Central Govt. hasissued various regulations on capital account transactions in terms of sub-

sect ion (2)and (3 )f section 6. SECTION 7 - deals with export of goods and services. Every exporter is

required to furnish to the RBI or any other authority, a declaration etc. etc.regarding full export value.

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Repatriation,A.Dealers,Penalties,Executive Arm

Sec.7 casts responsibility on exporters of goods and services to

declare true values of amounts due ; Sec. 8- casts the responsibility onthe persons resident in India who have any amount of foreign exchange dueor accured in their favour to get same realised and repatriated to India withinthe specific period and the manner specified by RBI.

Sec 9exempts repatriation in cases of specified foreign exchangeholdings,accounts, gifts,,inhertiance,foreign income earned

Sec.10 and 12 - deals with duties and liabilities of the Authorized persons.

Authorised person has been defined in Sec.2(c) of the Act which means anauthorised dealer, money changer, off shore banking unit or any otherperson for the time being authorized to deal in foreign exchange or foreignsecurities.

Sec 11 : RBI power to give mandatory directions to Authorised persons.

Sec.13 and 15 - of the Act with penalties and enforcement of the orders ofAdjudicating Authority as well power to compound contravent ions under theAct.

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Penalties u/s 13( no Jail): up to thrice the sum of quantifiable

contravention,or up to two lakh rupeeswhere the amount is not quantifiable

+ Rs 5000 per day for continuing offence.

confisicate any currency, security or anyother money or property in contravention

Property includes:(a) deposits in a bank, where the said property is

converted into such deposits;(b) Indian currency, where the said property is convertedinto that currency; and(c) any other property which has resulted out of theconversion of that property.

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Jail u/s 14 only if penalty not paid u/s14(1) fails to make full payment of the penalty in liable to jail.

u/s 14(2) No order for JAIL before show cause notice to defaulter andthe Adjudicating Authority, for reasons in writing, is

satisfied -(a) defaulter( after show cause notice) has dishonestly transferred,concealed, or removed any part of his property, or(b) defaulter has the means to pay the arrears or some substantial partthereof and refuses or neglects or has refused or neglected to pay thesame.

u/s 14 (3) a warrant for arrest may be issued if satisfied, by affidavit orotherwise, that defaulter is likely to abscond.

u/s 14(4) Where no appearance after serving notice mayissue a warrant for the arrest of the defaulter.

u/s 14(6) arrested person is to be produced before the AdjudicatingOfficer; If amount is paid he will be released.

u/s 14(7) defaulter is given the opportunity to show cause why he shouldnot be sent to jail. u/s 14 (8) During hearing he can either be detained orreleased under bond to attend hearings.

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Compounding of offences u/s 15:

u/s 15(1) Any contravention u/s 13 may becompounded within one hundred and eightydaysu/s 15 (2) Where a contravention has beencompounded no further proceeding shall beinitiated or continued

u/s 16 power to appoint adjudicating officers andthe procedure to be followed by them

u/s 17 Appeals against orders and procedure forhearing appeals.

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Appeal to Appellate Tribunal

u/s 19(1) to deposit penalty while filingappeal before Tribunal. If undue hardshipTribunal may dispense with deposit.

Procedure for hearing appeals laid down u/s 20 ,21: Powers to appoint members of

Tribunal and qualifications thereof

u/s 22 to 33 matters related to thefunctioning of the Tribunal and its benchesand procedures therefor.

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2nd Appeals and Enforcement Jurisdiction of Civil Courts barred u/s 34

Appeals to High Courts u/s 35 only on questions oflaw

Sec.36,37 - establish Directorate of Enforcement

& give powers to investigate violation of anyprovisions of Act, rule, regulation, notifications,directions or order issued in exercise of the

powers under this Act. Enforcement officers(Asstt. Director &above) empowered toinvestigate offences like:

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:

1) Remittances of Indians abroad otherwise than throughnormal banking channels, i.e. through compensatory payments.

2) Acquisition of foreign currency illegally by person in India.

3) Non-repatriation of the proceeds of the exported goods.

4) Unauthorised maintenance of accounts in foreign countries.

5) Under-invoicing of exports and over-invoicing of imports andany other type of invoice manipulation.

6) Siphoning off of foreign exchange against fictitious and

bogus imports 7) Illegal acquisition of foreign exchange through Hawala.

8) Secreting of commission abroad. (See details on Enforcement Directorate:

http://www.finmin.nic.in/the_ministry/dept_revenue/fema_directorate/index.html)

u/s 38 power to authorise customs. Excise and police officersto assume powers under this Act.

http://www.finmin.nic.in/the_ministry/dept_revenue/fema_directorate/index.htmlhttp://www.finmin.nic.in/the_ministry/dept_revenue/fema_directorate/index.html

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Evidence u/s 39: where any Document (i) is produced or furnished or has been seized from the

custody or control of any person, in either case, under this Actor under any other law; or

(ii) has been received from any place outside India (dulyauthenticated by such authority or person and in such manneras may be prescribed) in the course of investigation

and such document is tendered in any proceeding under thisAct in evidence against him the court or the Adjudicating

Authority, shall- (a) presume, unless the contrary is proved, that the signature

and every other part of such document which purports to be inthe handwriting of any person or which the court mayreasonably assume to have been signed by, is in that person's

handwriting, and in the case or a document executed orattested, that it was executed or attested by the person bywhom it purports to have been so executed or attested;

(b) admit the document in evidence even if it is not dulystamped, if such document is otherwise admissible in evidence;

(c) in a case falling under clause (i), also presume, unless thecontrary is proved, the truth of the contents of such document

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P li i f C i / 42

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Penalities for Companies u/s 42

and deceased Offenders u/s 43 u/s42 (1) Where the offender is a company, every person who was in

charge of, and was responsible as well as the company, shall be deemed tobe guilty of the contravention and shall be liable to be proceeded againstand punished accordingly;( exempt if person proves that the contraventiontook place without his knowledge or that he exercised due diligence toprevent such contravention).

u/s 42(2) where offence is by company and it is proved that the

contravention has taken place with the consent or connivance of, or isattributable to any neglect on the part of, any director, manager, secretary orother officer of the company, such director, manager, secretary or otherofficer shall also be deemed to be guilty of the contravention and shall beliable to be proceeded against and punished accordingly.

Death or insolvency in certain cases.

u/s 43. Any right, obligation, liability, proceeding or appeal arising in relationto the provisions of section 13 shall not abate by reason of death orinsolvency of the person liable under that section and upon such death orinsolvency such rights and obligations shall devolve on the legalrepresentative of such person or the official receiver or the official assignee,as the case may be; Provided that a legal representative of the deceasedshall be liable only to the extent of the inheritance or estate of the deceased

P t k l / 46 & l ti / 47

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Power to make rules u/s 46 & regulations u/s 47:

u/s 46. Government has power to notify rules to carry out the provisions ofthis Act.. They inlude powers to make rules to provide for:,---

(a) imposition of reasonable restrictions on current account transactions u/s

5; (b) the manner of contravention compounding u/s 15 (1)

(c) the manner of holding inquiry by the Adjudicating Authority u/s 16(1)

(d) the form of appeal and fee for filing such appeal under sections 17 and19;

(e) salary /allowances and terms and conditions of service of theChairperson and other Members of the Appellate Tribunal and the SplDirector (Appeals) u/s 23;

(f) salaries/ allowances and other conditions of service of the officers andemployees of the Appellate Tribunal and the office of Special Director(Appeals) u/s 27 (3)

(g) he additional matters in respect of which the Appellate Tribunal and theSpecial Director (Appeals) may exercise the powers of a civil court u/s 28(2)

(h) he authority or person and the manner in which any document may beauthenticated under clause (ii) of section 39; and

(i) Any other matter which is required to be, or may be, prescribed.

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Power u/s 47(1) to RBI to make regulations under theAct and the rules made thereunder; also includes foll:

(a) the permissible classes of capital account transactions, the limits ofadmissibility of foreign exchange for such transactions, and the prohibition,restriction or regulation of certain capital account transactions under section6;

(b) the manner and the from in which the declaration is to be furnishedunder clause (a) of sub-section (1) of section 7;

(c) the period within which and the manner of repatriation of foreignexchange under section 8; (d) the limit up to which any person may possess foreign currency or foreign

coins under clause (a) of section 9; (e) the class of persons and the limit up to which foreign currency account

may be held or operated under clause (b) of section 9; (f) the limit up to which foreign exchange acquired may be exempted under

clause (d) of section 9; (g) the limit up to which foreign exchange acquired may be retained under

clause (e) of section9; (h) any other matter which is required to be, or may be specified.

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FERA repealed u/s 49(1) with saving clauses

u/s 49 (3) two Sunset clause No court shall take cognizance of an offence under therepealed Act and no adjudicating officer shall take notice of any contravention under section

51 of the repealed Act after the expiry of a period of two years from the date of thecommencement of this Act. u/s (4) Subject to sub-section (3) all offences committed under the repealed Act shall

continue to be governed by the provisions of the repealed Act as if that Act had not beenrepealed.

u/s 49 (5) Notwithstanding such repeal,- (a )anything done or any action taken or purported to have been done or taken including any

rule, notification, inspection, order or notice made or issued or any appointment, confirmationor declaration made or any license, permission, authorization or exemption granted or anydocument or instrument executed or any direction given under the Act hereby repealed shall,in so far as it is not inconsistent with the provisions of this Act, be deemed to have been doneor taken under the corresponding provisions of this Act;

(b) any appeal preferred to the Appellate Board under sub-section (2) of section52 of therepealed Act but not disposed off before the commencement of this Act shall standtransferred to and shall disposed of by the Appellate Tribunal constituted under this Act;

(c) every appeal from any decision or order of the appellate Board under sub-section (3) orsub-section (4) of section 52 of the repealed Act shall, it not filed before the commencementof this Act, be filled before the High Court within a period of sixty days of suchcommencement:

Provided that the High Court may entertain such appeal after the expiry of the said period ofsixty days if it is satisfied that the appellant was prevented by sufficient cause from filing theappeal with the said period.

For bare Act see:

http://www.finmin.nic.in/the_ministry/dept_eco_affairs/america_canada/fema_acts/index.htm