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SYNOPSIS
1. INTRODUCTION 2. FERA v. FEMA 3. PROVISIONS RELATING TO AUTHORISED PERSON 4. REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE 5. CONTRAVENTION, PENALTIES AND APPEAL 6. DIRECTORATE OF ENFORCEMENT 7. MISCELLANEOUS PROVISIONS
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INTRODUCTION With liberalization, need was felt to remove the drastic measures of FERA and replace them by a set of liberal foreign exchange management regulations. FEMA was enacted to replace FERA. FEMA A major shift in Indias approach to foreign exchange control. Facilitates Foreign Direct Investments in Indian entities. Eliminates RBI approvals to a very large extent.
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FERA v. FEMA
Preamble to FERA reads An act to consolidate and amend the law relating to certain payments, dealing in foreign exchange and securities, transactions affecting foreign exchange and import and export of currency for the conservation of foreign exchange resources of the country and proper utilisation thereof in the interest of economic development. FEMA 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. Shift from a regulatory mechanism to management mechanism w.r.t. foreign exchange.
FERA
1. Control exchange. of foreign
FEMA
1. Regulate and manage foreign exchange.
2. FERA prohibited almost all foreign transactions unless there was a general/specific permission. 3. Offences criminal in nature 4. Presumption of existence of guilty mind unless accused proved otherwise.
2. FEMA permits almost all foreign transactions unless there is a general/specific prohibition.
3. Offences civil in nature. 4. Prosecution has to prove existence of offence. Offence compoundable in nature. 5. Describes an elaborate redressal machinery for total justice and fairness.
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Similarity
-Both FERA and FEMA are governed by notifications issued by the Central Government or RBI for granting general permission. -FEMA enumerates areas where specific permission of RBI or Central Government is required.
Introduction..contd.
Applicability:
- Extends to the whole of India. - Applicable to all branches/offices and agencies outside India owned/controlled by a person resident in India
Introduction..contd.
2. Capital Account Transaction: Essentially an economic definition, intended to cover cross-border investments, cross border loans and transfer of wealth across borders.
A transaction which-
Introduction..contd.
3. Currency Account Transaction: transactions other than capital account transaction, includes a. Business transactions between residents and non-residents. b. Short-term banking and credit facilities in the ordinary course of business. c. Payment towards interest of loans and by way of income from investments. d. Payment of expenses of parents, spouse or children living abroad or expenses on their foreign travel, medical and education. e. Gifts.
Introduction..contd.
4. Foreign Exchange: means foreign currency and includesi. deposits, credits and balances payable in any foreign currency, ii. drafts, travelers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency, iii. drafts, travelers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency. 5. 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.
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Introduction..contd.
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Introduction..contd.
Introduction..contd.
8. Repatriate to India: means bringing into India the realized foreign exchange and (i) the selling of such foreign exchange to an authorized person in India in exchange for rupees, or (ii) the holding of realized amount in an account with an authorized person in India to the extent notified by the Reserve Bank, and includes use of the realized amount for discharge of a debt or liability denominated in foreign exchange and the expression "repatriation" shall be construed accordingly.
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Authorised Personcontd.
Duties of Authorised Person: 1. Comply with RBI directions. 2. Not to engage in unauthorised transactions involving foreign exchange and foreign security not in conformity with terms of authorisation. 3. Ensure compliance of FEMA provisions
2. Receive any payment by order or on behalf of any person resident outside India in any name.
3. To open NRO, NRE, FCNR accounts. 4. To sell/purchase foreign exchange for current account transaction/capital account transaction.
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Authorised Personcontd.
Sec.11 RBI is empowered to issue directions to authorised person in regard to making payment or to do or abstain from doing any act relating to foreign exchange or foreign security.
RBI may direct authorised person to furnish information as and when necessary.
Sec. 12 RBI has powers to inspect authorised persons for (a) Verifying the correctness of any statement, informations or particulars furnished to the RBI. (b) obtain any information which such authorised person has failed to furnish on being called upon to do so.
REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE (Sec.3-9) Sec. 3 Dealing in Foreign Exchange etc. All dealings in foreign exchange or foreign securities will be governed by the provisions of FEMA. Receipts and payments in foreign exchange will be through an authorised person in the manner prescribed. Except for section 3, which relates to dealing in foreign exchange, etc. no other provisions of FEMA stipulate obtaining RBI permission
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Sec. 3- Except with the general or special permission of the Reserve Bank, no person can :(a.) deal in or transfer any foreign exchange or foreign security to any person not being an authorized person; (b) make any payment to or for the credit of any person resident outside India in any manner; (c ) receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner; (d) 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 Explanation: 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.
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The Reserve Bank can, by regulations, prohibit, restrict or regulate:(a)transfer or issue of any foreign security by a person resident in India; (b) transfer or issue of any security by a person resident outside India; (c ) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India; (d) any borrowing or lending in foreign exchange; (e) any borrowing or tending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India; (f) deposits between persons resident in India and persons resident outside India; (g) export, import or holding of currency or currency notes; (h) transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India; (i) acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India; (j) 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.
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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 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. Note:
1. 2. 3. Rupee rates in the FX market are market determined and not RBI prescribed. Most of the transactions for inward foreign investment are liberalised. For outward investments, upto U.S. $ 15 million, automatic permission is available. Larger outward investments are also permissible if one can satisfy RBI about the project. 22
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Contravention, Penalties.contd.
If the person does not pay upon the penalty within 90 days, he will be liable to civil imprisonment. There is a right to appeal given at every stage and an appeal against the order of the adjudicating authority can be made to the Special Director (Appeal). An appeal against the Special Director (Appeal) can be made to the Appellate Tribunal (Sec. 20 deals with the Composition of Appellate Tribunal) An appeal, on question of law, against the order of the Appellate Tribunal can be made to the High Court.
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DIRECTORATE OF ENFORCEMENT
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MISCELLANEOUS PROVISIONS
Section 42 Provides for contravention by companies where a person committing contravention of any provisions of the Act on behalf of the company. However, such a person would not be liable to punishment if he proves that the contravention took place without his knowledge or that he exercised due diligence to prevent such contravention.
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4. Foreign Exchange Management ( Foreign Currency Accounts by a person Resident in India) Regulations 2000 - Prescribes rules for opening, holding, maintaining of Foreign Currency Accounts and the limits upto which amounts can be held in such accounts by a person resident in India. 5. Foreign Exchange Management Regulations, 2000 - provides for manner of receipt of foreign exchange and receipt of payment for export in certain cases and the manner of payment in foreign exchange. 6. Foreign Exchange Management ( Transfer or Issue of Security by a person resident outside India) Regulations, 2000 - governs issue of or recording of a transfer of security, acquisition of right shares, issue of shares under ESO scheme, remittance of sale proceeds of Indian security, purchase by person resident outside India of equity/preference shares or debentures issued by an Indian company.
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7. Foreign Exchange Management ( Acquisition and Transfer of Immovable Property outside India) Regulations, 2000 - governs acquisition or transfer of immovable property situated outside India by a person resident in India. 8. Foreign Exchange Management (Acquisition and Transfer of Immovable Property) Regulations, 2000 - governs acquisition or transfer of immovable property situated in India by (i) an Indian citizen resident outside India and (ii) a person of Indian origin. 9. Foreign Exchange Management ( Establishment in India of branch or office or other place of business) Regulations, 2000 10. Foreign Exchange Management ( Export of Goods or Services) Regulations, 2000
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