ECONOMIC AND ECONOMIC AND COMMERCIALCOMMERCIAL ...

COMMERCIALCOMMERCIALCOMMERCIALCOMMERCIAL LAWLAWLAWLAWSSSS
MODULE 1
PAPER 3
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Laser Typestting by Delhi Computer Services, Dwarka, New Delhi November, 2016
EXECUTIVE PROGRAMME
ECONOMIC AND COMMERCIAL LAWS
India has made considerable economic progress since its Independence. Over the years, the
various policy initiatives and economic reforms in India have made India one of the fastest growing
economies in the world today. The emerging economic environment involving rapid technology
changes, response in terms of change in methods, trade and services, globalisation of economy,
liberalisation of trade and industry and emphasis on international competitiveness and bringing the
existing laws in tune with the future market needs, the Government has also initiated legislative
reforms in the area of economic and commercial laws. The Government enacted Foreign Exchange
Management Act, The Competition Act, 2002 replacing the MRTP Act and amended the Consumer
Protection Act in the year 2002. The Legal Metrology Act, 2009 replacing Standards of Weights and
Measures Act, 1976 and Foreign Contribution (Regulation) Act, 2010 replacing Foreign Contribution
(Regulation) Act, 1976. In the area of Intellectual property, the Government has enacted Trade Marks
Act and Designs Act, and amended the Patents Act and the Copyright Act. In this regard the
Government has further amended the Patents Act in 2005 and Copyright Act in 2012. The Foreign
Trade Policy 2009-14 has also been announced in line with the reform agenda and amended from
time to time. Further, the Prevention of Money Laundering Act to deal with new categories of economic
offences, has also been made effective w.e.f. 1st July, 2005 and amended in 2009 and 2012.
Similarly, in the area of Environment Laws, the process of reforms is going on and Parliament enacted
National Green Tribunal Act, 2010.
In the light of above developments, this study material has been prepared to provide an
understanding of certain economic and commercial legislations which have direct bearing on the
functioning of companies. The study material has been divided into two parts consisting of fifteen study
lessons. Part A consists of Study Lessons I to IX, whereas Part B consists of Study Lessons X to XV.
This study material has been published to aid the students in preparing for the Economic and
Commercial Laws paper of the CS Executive Programme. It is part of the education kit and takes the
students step by step through each phase of preparation stressing key concepts, pointers and
procedures. Company Secretaryship being a professional course, the examination standards are set
very high, with emphasis on knowledge of concepts, applications, procedures and case laws, for which
sole reliance on the contents of this study material may not be enough. Besides, as per the Company
Secretaries Regulations, 1982, students are expected to be conversant with the amendments to the
laws made upto six months preceding the date of examination. The material may, therefore, be
regarded as the basic material and must be read alongwith the original Bare Acts, Rules, Regulations,
Case Law, as well as recommended readings given with each study lesson.
As the area of economic and commercial laws undergoes frequent changes, it becomes
necessary for every student to constantly update himself with the various legislative changes made as
well as judicial pronouncements rendered from time to time by referring to the Institute’s journal
‘Chartered Secretary’ as well as other law/professional journals.
(iv)
The legislative changes made upto October 30, 2016 have been incorporated in the study
material. However, it may so happen that some developments might have taken place during the
printing of the study material and its supply to the students. The students are therefore, advised to
refer to the e-bulletin and other publications for updation of the study material.
In the event of any doubt, students may write to the Directorate of Academics in the Institute for
clarification at [email protected]. Although due care has been taken in publishing this study
material yet the possibility of errors, omissions and/or discrepancies cannot be ruled out. This
publication is released with an understanding that the Institute shall not be responsible for any errors,
omissions and/or discrepancies or any action taken in that behalf.
Should there be any discrepancy, error or omission noted in the study material, the Institute shall be
obliged if the same are brought to its notice for issue of corrigendum in the `e-bulletin’.
(v)
Level of Knowledge: Part A-Advance Knowledge
Part B- Working Knowledge
Objective: To acquire knowledge and understanding of Economic and Commercial Laws.
Detail Contents:
• Objectives and Definitions under FEMA, 1999
• Current Account Transactions and Capital Account Transactions
• FDI Policy
• Acquisition and Transfer of Immovable Property in India and Abroad
• Establishment of Branch, Office etc. in India
• Export of Goods and Services
• Realization and Repatriation of Foreign Exchange
• Authorized Person
• Foreign Contributions and Hospitality
• Main Features
(vi)
• Focus Market Scheme; Focus Product Scheme; Duty Exemption and Remission Schemes;
Advance Authorization Scheme; DFRC; DEPB; EPCG, etc.
• EOUs, EHTPs, STPs, BPTs and SEZs
3. Competition and Consumer Protection
• Concept of Competition
• Competition Act, 2002 – Anti Competitive Agreements, Abuse of Dominant Position,
Combination, Regulation of Combinations, Competition Commission of India; Appearance
before Commission, Compliance of Competition Law
• Consumer Protection Act, 1986
• Consumer Protection in India
• Rights of Consumers
• Appearance before Consumer Dispute Redressal Forums
4. Intellectual Property Rights
• Concept and Development of Intellectual Property Law in India
• Law and Procedure Relating to Patents, Trade Marks and Copyrights
• Geographical Indications
• Design Act
• Intellectual Property Appellate Board 5. Law relating to Arbitration and Conciliation
• Introduction to UNCITRAL MODEL LAW
• Law of Arbitration in India
• Types of Arbitration
• Recourse against Award – Appeals
• Arbitration Agencies – ICADR, ICA, Chambers of Commerce, Professional Arbitrators
• Alternate Disputes Resolution 6. Law relating to Transfer of Property
• Important Definitions
• Rule Against Perpetuities
• Provisions Relating to Sale
• Mortgage, Charge, Lease, Gift and Actionable Claim 7. Law relating to Stamps
• Methods of Stamping
• Impounding of Instruments
• Adjudication
• Contract – Introduction
• Strategies and Constraints to enforce Contractual Obligations
• Special Contracts: Indemnity and Guarantee; Bailment and Pledge; Law of Agency
9. Prevention of Money Laundering
• Genesis
• RBI Guidelines on KYC
PART B: (30 Marks)
• Overview of Essential Commodities Act, 1955
• Objects
• Summary Trial
• General Concept Relating to Registration of Societies
• Property of Societies
• Dissolution of Societies
• Creation of Trust
• Rights and Powers of Trustees, Disabilities of Trustees
• Rights and Liabilities of the Beneficiary
13. Industries Development and Regulation
• Objects and Definitions
• Regulatory Mechanism under IDRA
• Concept of Sustainable Development and Bio Diversity
• Government Policy Regarding Environment
• Law Relating to Prevention and Control of Air Pollution and Water pollution
• Environment (Protection) Act, 1986
15. Law relating to Registration of Documents
• Registration of Documents – Compulsory and Optional
• Time and Place of Registration
• Consequences of Non-Registration
• Description of Property
1. Vinod Dhall : Competition Law Today – Concepts, Issues and the
Law in Practice; Oxford University Press, New Delhi.
2. T. Ramappa : Competition Law in India – Policies, Issues, and
Developments; Oxford University Press, New Delhi.
3. ICSI : Practitioner’s Guide to Consumer Protection Law.
4. Dr. K.R. Chandratre : Handbook on Consumer Protection Law; Vidhi
Publishing, New Delhi.
5. Dr. V.K. Aggarwal : Consumer Protection Law and Practice; Bharat Law
House, 22, Tarun Enclave, Pitampura, New Delhi -
110 034.
6. Dr. Gurbax Singh : Law of Consumer Protection; Bharat Law
Publications, 22, Tarun Enclave, Pitampura, New
Delhi - 110 034.
8. Sumeet Malik : Environmental Law; Eastern Book Company,
Lucknow.
9. Dr. H.N. Tripathi : The Environment Pollution Control Manual; Hari Law
Agency, Allahabad.
10. Lall’s : Commentaries on Water and Air Pollution Laws; Delhi
Law House, Delhi.
11. Rajiv Jain : Guide to New Industrial Policy, with Procedure; India
Investment Publications, New Delhi.
13. Richard Parlour : International Guide to Money-Laundering Law and
Practice.
15. SnowWhite : Foreign Exchange Management Manual.
16. S.K. Roy Chaudhary & H.K.
Saharay
Design.
Designs and Geographical Indications.
19. Satyawrat Ponkse : The Management of Intellectual Property.
(x)
: Foreign Trade Policy and Procedure.
21. A.M. Satarvad : Mulla on the Transfer of Property Act, 1882; N.M.
Tripathy Pvt. Ltd., Bombay
Saharay
House, Calcutta
(i) Students are advised to read the relevant Bare Acts.
(ii) The latest available editions of the books referred to above may be read.
(iii) Students may refer e-bulletin available on ICSI website www.icsi.edu regularly for academic guidance.
(xi)
PART A
III. Competition and Consumer Protection
IV. Intellectual Property Rights
VII. Law relating to Stamps
VIII. Law relating to Contract
IX. Prevention of Money Laundering
PART B
XI. Law relating to Societies
XII. Law relating to Trusts
XIII. Industries Development and Regulation
XIV. Law relating to Pollution Control and Environmental Protection
XV. Law relating to Registration of Documents
TEST PAPER
EXECUTIVE PROGRAMME
Current Account Transactions … 4
Capital Account Transaction … 7
Intent and Objective … 9
Prohibited Sectors … 17
Provisions Relating to Issue/Transfer of Shares … 20
Prior Permission of RBI in Certain Cases for Transfer of Capital Instruments … 23
Conversion of ECB/Lumpsum Fee/Royalty etc. into Equity … 24
Issue of Rights/Bonus Shares … 25
Remittance and Repatriation … 28
Reporting of FDI … 29
Penalties … 31
Investment in Equity of Companies Registered Overseas/Rated Debt Instruments … 35
Acquisition and Transfer of Immovable Property Outside India … 39
Acquisition and Transfer of Immovable Property in India … 40
Establishment in India of Branch/Liaison/Project Office … 42
(xiii)
Page
Realisation, Repatriation and Surrender of Foreign Currency … 47
Possession and Retention of Foreign Currency or Foreign Coins … 49
Authorised Person … 49
Compounding of Contraventions … 52
Payment of Compounded Amount … 53
Adjudication and Appeal … 54
Appeal to Special Director (Appeals) … 54
Establishment of Appellate Tribunal … 54
Appeal to High Court … 55
Directorate of Enforcement … 55
Section II
Prohibition to accept foreign contribution … 63
Person to whom section 3 does not apply … 63
Procedure to notify an organization of a political nature … 64
Restriction on acceptance of foreign hospitality … 64
Prohibition to transfer foreign contribution to other person … 65
Utilization of foreign contribution … 65
Power of Central Government to prohibit receipt of foreign contribution … 66
Power to prohibit payment of currency received in contravention of the Act … 66
Registration of certain persons with Central Government … 66
Grant of certificate of registration … 67
Suspension of certificate … 69
Management of foreign contribution of person whose certificate has been cancelled … 69
Renewal of certificate … 69
Application for Renewal … 70
Foreign contribution through scheduled bank … 70
Intimation … 70
Disposal of assets created out of foreign contribution … 71
Inspection, Search and Seizure … 71
Seizure of accounts or records … 71
Adjudication of confiscation … 71
LESSON ROUND-UP … 73
Section I
Legal Basis of the Foreign Trade Policy (FTP) … 76
Amendment to Foreign Trade Policy (FTP) … 77
Transitional Arrangements … 77
IEC No: Exempted Categories … 83
Principles of Restriction … 85
Export from India Schemes … 85
Merchandise Export from India Schemes (MEIS) … 86
Service Exports from India Schemes (SEIS) … 87
(xv)
Page
Eligible Applicant/Export/Supply … 91
Eligibility Condition to obtain Advance Authorisation for Annual Requirement … 91
Value Addition … 92
Importability/Exportability of items that are Prohibited/Restricted/
State Trading Enterprise … 93
Domestic sources of Inputs … 93
Currency for Realisation of Export Proceeds … 94
Export Obligation … 94
Export Obligation Period (EOP) Extension for units under Board of
Industrial and Financial Reconstruction (BIFR)/ Rehabilitation … 94
Duty Free Import Authorisation Scheme (DFIA) … 95
Duty Exempted and Admissibility of CENVAT and Drawback … 95
Eligibility … 95
Sensitive Items under Duty Free Import Authorisation ... 96
Schemes for Exporters of Gems and Jewellary … 96
Items of Export … 96
Export Obligation … 98
Introduction and Objective … 100
Second hand Capital Goods … 102
Leasing of Capital Goods … 102
Net Foreign Exchange Earnings … 102
Letter of Permission/Letter of Intent and Legal Undertaking … 102
Investment Criteria … 103
(xvi)
Page
Other Entitlements … 106
Reconditioning/Repair and Re-engineering … 108
Conversion … 110
Abroad/Duty Free Shops … 110
Export/Import by Post/Courier … 110
Approval of EHTP/STP … 110
Approval of BTP … 110
Quality Complaints/Trade Disputes … 111
Provisions in FT (D&R) Act & FT (Regulation) Rules for necessary
Action against Erring Exporter/Importer … 111
Mechanism for handling of Complaints/Disputes … 112
Proceedings under CQCTD … 113
Corrective Measures … 113
Nodal Officer … 113
Section II
(xvii)
Page
Special Economic Zone … 118
The Processing and Non-Processing areas … 119
Exemption from taxes, duties or cess … 119
Constitution of Board of Approval … 119
Duties, powers and functions of Board of Approval … 119
Suspension of letter of approval and transfer of Special Economic
Zone in certain cases … 120
Development Commissioner … 121
Constitution of Approval Committee … 121
Powers and Functions of Approval Committee … 122
Setting up of Unit … 122
Cancellation of letter of approval granted to entrepreneur … 122
Setting up and operation of Offshore Banking Unit … 123
Setting up of International Financial Services Centre … 123
Single application form, return, etc. … 123
Agency to inspect … 123
Investigation, Inspection, Search or Seizure … 124
Designated Courts to try suits and notified offences … 124
Appeal to High Court … 124
Offences by Companies … 124
and entrepreneur … 125
Application of the provisions of the Income Tax Act, 1961 with certain
modifications in relation to Developers and entrepreneurs … 125
Duration of goods & services in Special Economic Zones … 125
Transfer of ownership and removal of goods … 125
Domestic clearance by Units … 125
Special Economic Zone Authority … 125
Functions of Authority … 126
Returns and reports by the Authority … 126
Power of the Central Government to Supersede Authority … 126
Reference of Dispute and Limitation … 127
Person to whom a communication to be sent … 127
Identity card … 127
Power of the Central Government to modify provisions of the Act
or other enactments in relation to Special Economic Zones … 127
Power of State Government to grant exemption … 128
(xviii)
Page
Special Economic Zones to be ports, airports inland container depots,
land stations etc. in certain cases … 128
Special Economic Zones Rules, 2006 … 128
SELF-TEST QUESTIONS … 129
Competition Law—Evaluation and Development ... 136
Background to the MRTP Act, 1969 ... 136
MRTP (Amendment) Act, 1991 ... 138
Scope and Applicability of the MRTP Act ... 139
Monopolistic Trade Practices … 140
Restrictive Trade Practices … 141
Unfair Trade Practices … 142
Recommendations of Sachar Committee … 143
Competition Act, 2002 ... 144
Combinations ... 154
Inquiry into certain agreements and dominant position of enterprise ... 162
Inquiry into Combination by Commission ... 164
Reference by a statutory authority ... 165
Meetings of Commission ... 166
(xix)
Page
Abuse of Dominant Position … 167
Division of Enterprise Enjoying Dominant Position … 167
Procedure for investigation of combination ... 168
Inquiry into disclosures under Section 6(2) ... 168
Orders of Commission on certain combinations … 169
Appearance before Commission ... 170
Rectification of orders ... 172
Execution of orders of the Commission Imposing Monetary Penalty ... 172
Duties of Director General ... 173
Penalties ... 173
Compensation in case of Contravention of Orders of Commission … 174
Contravention by companies ... 175
Competition Appellate Tribunal … 177
Procedures and Powers of Appellate Tribunal … 179
Appeal to Supreme Court … 181
Miscellaneous … 181
Section II
Basic Rights of Consumers ... 193
Definitions ... 193
District Forum ... 199
State Commission ... 201
National Commission ... 203
(xx)
Page
Powers of the Redressal Agencies ... 206
Nature and scope of remedies under the Act ... 207
Appeal ... 208
Penalties ... 208
SELF-TEST QUESTIONS ... 215
World Intellectual Property Organization … 219
Trade-Related Aspects of Intellectual Property Rights … 219
Concept and development of Intellectual property Law in India … 220
Concept of patent … 222
Concept of Design … 222
Persons Entitled to make Application for Patent … 232
Form of Application and Provisional & Complete Specification … 232
Contents of Specifications … 233
Publication of Applications … 234
Request for Examination … 235
Examination of Application … 235
Search for Anticipation by Previous Publication and by Prior Claim … 235
(xxi)
Page
Power of Controller to Refuse or Require Amended Application in
Certain matters … 236
Power of Controller to make Orders Respecting Dating of Application
and Cases of Anticipation … 236
Potential infringement … 237
Time for Putting Application in Order for Grant … 238
Opposition to the Patent … 238
Controller to Treat Application as Application of Opponent … 240
Constitution of Opposition Board and its proceeding … 240
Secrecy of Certain Inventions … 241
Secrecy Directions for Defence Purposes … 241
Review of Secrecy directions … 241
Residents not to Apply for Patents Outside India Without Prior
Permission … 242
Term of Patent … 243
Patents of Addition … 243
Restoration of Lapsed Patents … 244
Procedure for disposal of applications for restoration of lapsed patents … 244
Rights of patentees of lapsed patents which have been restored … 244
Surrender and Revocation of Patents … 244
Working of Patented Inventions – General Principles … 245
Compulsory Licences … 245
Procedure for dealing with applications … 247
Powers of Controller in granting compulsory licences … 247
Terms and conditions of compulsory licences … 248
Licensing of Related Patents … 249
Compulsory licences on Notifications by Central Government … 249
Compulsory Licence for Export of Patented Pharmaceutical Products
in Certain Exceptional Circumstances … 249
Termination of compulsory licence … 250
International Arrangements … 250
Patent Agent … 251
Rights and Powers of the Patent Agent … 252
LESSON ROUND UP … 250
SELF TEST QUESTIONS … 253
Section III
Absolute Grounds for Refusal of Registration ... 258
Procedure for Registration ... 259
Infringement of Registered Trade Marks ... 259
Limits on Effect of Registered Trade Mark ... 260
Assignment and Transmission ... 262
Proposed Use of Trade Mark by Company to be formed etc. ... 262
Removal of Trade Mark for Non-Use ... 262
Registered User ... 262
Collective Marks ... 263
Offences and Penalties ... 264
Offences by Companies ... 265
Trade Mark Agent ... 265
Assignment of copyright ... 274
(xxiii)
Page
Author's special rights ... 288
Offences and penalties ... 288
Section V
Application for Registration … 293
Infringement of GI … 294
Assignment or Transmission … 295
Piracy of Registered Design … 299
Learning Objectives … 301
Important Definitions ... 303
Grounds for Challenge … 309
Interim Measures Ordered by Arbitral Tribunal … 311
Equal Treatment of Parties … 311
Determination of Rules of Procedure … 311
Place of Arbitration … 312
Language … 312
Hearings and Written Proceedings … 313
Default of a Party … 313
Expert Appointment by Arbitral Tribunal … 313
Court Assistance in taking Evidence … 314
Rules Applicable to Substance of Dispute … 314
Decision Making by Penal of Arbitrators … 315
Time Limit for Arbitral Award … 315
Fast Track Procedures … 316
Termination of Proceedings … 318
Application for Setting Aside Arbitral Award … 319
Finality of Arbitral Award … 321
Enforcement … 321
Lien on Arbitral Award and Deposits as to Costs … 322
Enforcement of Certain Foreign Arbitral Awards ... 323
Awards made under New York Convention or Geneva Convention … 323
Conciliation ... 327
Moveable and Immovable Property ... 338
Rules relating to Transfer of Property (Whether moveable or immovable) ... 341
Who can transfer the Property ... 342
Subject Matter of Transfer ... 342
Formalities of Transfer ... 342
Transfer for benefit of Unborn Person ... 346
Conditional Transfer ... 347
Transfer by Ostensible Owner or Doctrine of Holding Out ... 350
Doctrine of Feeding the Grant by Estoppel ... 350
Doctrine of Fraudulent Transfer ... 351
Doctrine of Part-Performance ... 352
Rule against Perpetuity ... 356
Accumulation of Income ... 357
Provisions relating to Specific Transfers ... 358
Sale ... 359
Exchange ... 359
Gift ... 360
Leases ... 362
Lease and Licence ... 362
Determination of Leases ... 363
Actionable Claims ... 366
Essentials of a Mortgage ... 367
Form of a Mortgage Contract ... 368
Kinds of Mortgages ... 368
Rights of Mortgagee and his Remedies ... 373
Charges ... 373
Floating Charge ... 374
Extent of liability of Instruments to Duty ... 387
Section 4 not applicable ... 388
Instruments coming within several descriptions in Schedule-I ... 390
Bonds, Debentures issued under the Local Authorities 272
Loan Act 1879 ... 390
Securities dealt in depository not liable to stamp duty … 390
Corporatisation and demutulisation schemes and related
instruments not liable to duty … 391
Reduction, Remission and Compounding of Duties ... 392
Valuation for Duty under the Act ... 392
Consideration to be Set Out ... 394
Apportionment ... 395
(xxvii)
Page
Methods of Stamping ... 397
Mode of cancellation of Adhesive Stamps ... 398
Instruments stamped with impressed Stamps how to be Written ... 399
Denoting Duty ... 399
Instruments not duly Stamped - Treatment and Consequences ... 402
Unstamped Receipts ... 403
Admission of Instruments ... 404
Dealing with Instruments Impounded ... 405
Collector's power to Stamp Instrument Impounded ... 405
Instruments unduly stamped by Accident ... 406
Endorsement of Instrument on which duty has been paid under 366
Sections 35, 40 and 41 ... 406
Prosecution for offences against Stamp Law ... 406
Recovery of Duty or Penalty in certain Cases ... 407
Refund of Duty or Penalty in certain cases by Revenue Authority ... 407
Non-liability for loss of Instruments sent under Section 38 ... 408
Power to Stamp in Certain Cases ... 408
Recovery of Duties and Penalties ... 408
Allowance and Refund ... 408
Essential Elements of a Valid Contract ... 419
Offer or Proposal and Acceptance ... 420
Intention to Create Legal Relations ... 423
Consideration ... 424
Flaws in Contract ... 428
Mistake ... 433
Misrepresentation ... 435
Coercion … 437
Wagering Agreements ... 442
Void Agreements ... 443
Discharge or Termination of Contracts … 447
Performance of Contracts ... 447
Discharge by Lapse of Time ... 449
Discharge by Operation of the Law ... 449
Discharge by Impossibility or Frustration ... 450
Discharge by Breach ... 451
Remedies for Breach ... 452
Bailment ... 458
Pledge ... 462
Impact of Money laundering on the Development ... 474
Prevention of Money laundering—Global Initiatives ... 475
Prevention of Money laundering—Indian Initiatives ... 478
Prevention of Money laundering Act, 2002 ... 478
Major Provisions of the Act ... 479
Definitions ... 479
and Intermediaries ... 480
Retention of Property … 481
Appellate Tribunal ... 483
Special Courts ... 483
Offences to be cognizable and non-bailable ... 483
Power of Central Government to issue directions … 483
Agreement with Foreign Countries ... 484
Assistance to a Contracting state in Certain Cases ... 484
Reciprocal arrangements for Processes and assistance
for transfer of accused Persons ... 484
Know Your Customer Guidelines … 485
Objective of KYC Guidelines … 485
ESSENTIAL COMMODITIES ACT, 1955
Definitions … 490
Powers of the Central Government to control production,
supply and distribution etc., of essential commodities ... 492
- Power to issue orders … 492
- Fixing the price of essential commodities being sold to
Government … 494
- Fixing the price of essential commodities during emergency ... 494
- Payment of procurement price for food grains and edible oils ... 494
- Fixing price for sugar to be paid to producer ... 495
- Power to appoint Authorised Controller ... 496
- Imposition of duties on State Government ... 496
Delegation of powers ... 496
Effect of the Order ... 497
Presumption as to Orders ... 497
Burden of proof in certain cases ... 497
Protection for acts done in pursuance of order … 497
Confiscation of essential commodities ... 498
Seizure and confiscation of essential commodities ... 498
Sale of the confiscated commodity … 500
Disposal of sale proceeds of confiscated goods ... 500
Issue of show cause notice before confiscation
of essential commodity ... 500
Confiscation and punishment … 501
Cognizance of Offences ... 501
Penalties ... 501
Attempt and Abetment ... 503
(xxxi)
Page
Section II
Definitions … 507
Forfeiture … 512
Declarations on pre-packaged commodities … 512
Approval of model … 512
measure without licence … 513
Offences and penalties … 513
Compounding of offence … 515
Offences by companies … 515
Power of State Government to make rules … 517
Members –Their Rights and Liabilities ... 523
When Members Treated as Strangers ... 523
(xxxii)
Page
Working and Management of Society ... 525
Amendment or Alteration ... 526
Amalgamation or Division of the Society ... 527
Dissolution of Society ... 527
Consequences of Dissolution ... 529
Classification of Trusts ... 534
Creation of Trusts ... 536
Who Can Create a Trust ... 537
Who May be a Trustee ... 537
Duties of Trustee ... 537
Liabilities of Trustees ... 539
Meaning of a Beneficiary ... 541
Who may be a Beneficiary ... 541
Doctrine of Cypres ... 542
Extinction of a Trust ... 543
Revocation of a Trust ... 543
The Industries (Development and Regulation) Act, 1951 ... 548
Definitions ... 550
Registration of existing industrial undertakings ... 554
Issue of Certificate of Registration ... 554
Circumstances when registration is not necessary ... 555
Penalty for failure to register ... 555
Power to revoke registration ... 555
Licensing of industrial undertakings ... 555
What is an industrial licence ... 555
Power of the Central Government to revoke/amend
licences in certain cases ... 557
Investigation ... 557
Investigation into the affairs of a company in liquidation ... 558
Directions after investigation ... 559
Contracts in bad faith to be cancelled or varied ... 561
Take-over without investigation ... 562
Notice before passing an order under Section 18AA – whether
necessary ... 563
Take-over of industrial undertaking owned by company in liquidation ... 565
Cancellation of the notified order ... 566
Preparation of inventory of assets and liabilities, List of Members etc. ... 566
Power to provide relief to certain industrial undertakings ... 567
Liquidation or reconstruction of companies ... 567
(xxxiv)
Page
Reconstruction of the company owning the industrial undertaking ... 569
Power to control supply, distribution, price, etc. of certain Articles ... 571
General prohibition of taking over management or control
of industrial undertakings by State Government ... 572
Power to exempt in special cases ... 572
Constitution of Advisory Committee ... 572
Penalties ... 573
Cognizance of Offences ... 574
Registration and Licensing of Industrial Undertakings Rules, 1952 ... 574
DEVELOPMENT ACT, 2006
Measures for Promotion, Development and Enhancement of
Competitiveness ... 585
Section I
Bio-Diversity … 594
The Environment (Protection) Act, 1986 … 597
Scope and scheme of the Act ... 598
Definitions ... 598
Nature and type of regulation ... 601
Power to enter, inspect, take samples, etc. ... 601
Environmental Laboratories ... 602
Offences and penalties ... 603
Environmental Audit ... 604
Section II
Offences and Penalties … 613
Section III
Jurisdiction, Powers and Proceedings of the Tribunal … 618
Tribunal to Settle Dispute … 618
Relief, Compensation and Reconstitution … 619
(xxxvi)
Page
Liability to pay relief or compensation … 621
Application or Appeal to the Tribunal … 621
Procedure and Powers of Tribunal … 621
Tribunal to Apply Certain Principle … 622
Appeal to the Supreme Court … 622
Penalty for failure to comply with order of the Tribunal … 622
Offence by Companies … 623
Section IV
Composition of State Board ... 628
Powers and functions of Central Board ... 629
Functions of State Board ... 630
Prevention and control of Air Pollution ... 631
Restrictions on use of certain industrial plants ... 632
Furnishing of information to State Board and other agencies
in certain cases ... 633
Power to obtain information ... 634
Power to take samples ... 634
Report of analysis ... 635
State Air Laboratory ... 635
Penalties and procedure ... 636
Cognizance of offences ... 637
Control of Noise Pollution ... 638
Section V
Disqualifications ... 644
Special provisions relating to giving of directions ... 646
Functions of Central Board ... 646
Functions of State Board ... 647
Prevention and Control of Water Pollution ... 648
Power to obtain Information ... 648
Power to take Samples of Effluents ... 649
Reports of analysis of samples ... 649
Powers of entry and inspection ... 650
Prohibition on use of Stream or Well for disposal of polluting matter ... 650
Restriction on New Outlets and New Discharges ... 651
Refusal or Withdrawal of consent by a State Board ... 652
Appeal ... 652
Power of the State Boards to carry out certain works ... 652
Furnishing of Information to State Board and other Agencies ... 652
Emergency measures in case of pollution of Stream or Well ... 653
Board's Power to make application to Courts ... 653
Power to give directions ... 653
Penalties and Procedure ... 654
Offences by companies ... 655
Water (Prevention and Control of Pollution) Cess Act, 1977 ... 655
Documents of which registration is Optional ... 661
(xxxviii)
Presentation of a Will ... 662
Place of Registration ... 662
Registration in certain Cities ... 663
Presenting of documents for Registration ... 663
Enquiry before registration by Registering Officer ... 664
Presenting Wills and Authorities to Adopt ... 664
Deposit of Wills ... 664
Registered document relating to priority when to take effect
against oral Agreement ... 665
to be Registered ... 665
effect against oral Agreement ... 666
Certain registered documents relating to land which will take
effect against unregistered Documents ... 666
Miscellaneous Provisions ... 667
Certificate of Registration ... 668
Procedure after Registration ... 668
Appeal to Registrar ... 669
Application to Registrar ... 669
Order by Registrar to register and procedure thereon ... 669
Institution of suit in case of order of refusal by Registrar ... 670
Exemption of certain documents executed by or in
favour of Government ... 670
Section I
Direct Investment outside India
Establishment of Branch office in India
Export of Goods and services
Realisation & Repatriation of foreign exchange
Authorised Person
As per Article 246 of the Constitution of India, the
Parliament has exclusive power to make laws with
respect to any of the matters enumerated in the Union
List in the Seventh Schedule. The Foreign Exchange
Management Act, 1999 can be traced to various
entries in the Union List. Entry 16 of the Union List
deals with Foreign jurisdiction. Entry 36 of the Union
List deals with Currency, coinage and legal tender;
foreign exchange. Entry 37 of the Union List deals
with Foreign loans and Entry 41 of the Union List
deals with Trade and commerce with foreign
countries; import and export across customs frontiers;
definition of customs frontiers.
investments abroad, it deals in foreign exchange.
Foreign exchange means 'foreign currency' and
includes deposits, credits and balances payable in
any foreign currency; drafts, travellers' cheques,
letters of credit or bills of exchange, expressed or
drawn in Indian currency but payable in any foreign
currency; and drafts, travellers' cheques, letters of
credit or bills of exchange drawn by banks, institutions
or persons outside India, but payable in Indian
currency.
important in the present day business. This lesson
deals with how FEMA facilitates external trade and
payments and promotes the orderly development and
maintenance of foreign exchange market. The Act has
assigned an important role to the Reserve Bank of
India (RBI) in the administration of FEMA. The rules,
regulations and norms pertaining to several sections
of the Act are laid down by the Reserve Bank of India,
in consultation with the Central Government.
Foreign Exchange Management Act, 1999 is an Act to facilitate external trade and payments and for promoting the
orderly development and maintenance of foreign exchange market in India.
LESSON OUTLINE
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INTRODUCTION
The Foreign Exchange Regulation Act, 1973, which was enacted to consolidate and amend the law in
several respects encompassing the experience gained over few decades of implementation of the earlier
enactment of 1947, outlived its purpose in the light of the liberalization policies introduced in 1991.
The Foreign Exchange Regulation Act, since then had been reviewed and amendments were made as part
of the on going process of economic liberalization relating to foreign investment and foreign trade for closer
interaction with the world economy. During the subsequent period, the Central Government decided further
review of the Foreign Exchange Regulation Act in the light of developments and experience in relation to
foreign trade and investment. It was at that time felt, that a better course would be to repeal the Foreign
Exchange Regulation Act and enact a new legislation.
Taking into consideration the developments such as substantial increase in foreign exchanges reserves,
growth in foreign trade, rationalization of tariffs, current account convertibility etc., the Foreign Exchange
Management Bill, to repeal and replace the Foreign Exchange Regulation Act was introduced in the Lok
Sabha. But before the Bill came up for discussion and approval, the Lok Sabha was dissolved.
Subsequently, certain modifications were made to the original Bill and a modified Bill was presented and
passed by both the Houses of Parliament. The Foreign Exchange Management Act received the assent of
the President on 9th December, 1999 and brought into force with effect from 1.6.2000.
DEFINITIONS
Section 2 of the Foreign Exchange Management Act defines various terms used in the Act, as given below:
Adjudicating Authority [Section 2(a)]
According to clause (a) of Section 2 ‘Adjudicating Authority’ means an officer authorised under Sub-section
(1) of Section 16 for the purposes of adjudication in respect of penalties under Section 13. Section 16
empowers the Central Government, to appoint, by an order published in the Official Gazette, as many
officers as it may think fit as the adjudicating authorities for holding an enquiry in the manner prescribed after
giving the person alleged to have committed any contravention, an opportunity of being heard.
Appellate Tribunal [Section 2(b)]
‘Appellate Tribunal’ means Appellate Tribunal for Foreign Exchange to hear appeals against the orders of the
adjudicating authorities and Special Directors (Appeals) under the Act.
Authorised Person [Section 2(c)]
The term authorised person is defined to include an authorised dealer, money changer, offshore banking unit
or any other person for the time being authorised to deal in foreign exchange or foreign securities.
Capital Account Transaction [Section 2(e)]
‘Capital account transaction’ has been defined to mean any transaction 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 the transactions specified in Sub-section (3) of Section 6 of the
Act.
Currency Notes [Section 2(i)]
‘Currency Notes’ means and includes cash in the form of coins and bank notes. In fact, it means money and
such bank notes or other paper money as are authorised by law and circulate from hand to hand as a
medium of exchange.
Current Account Transaction [Section 2(j)]
The term current account transaction has been defined 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.
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. The Central Government has framed Foreign Exchange Management (Current Account
Transactions) Rules, 2000 dealing with various aspects of current account transactions.
Foreign Exchange [Section 2(n)]
The term ‘foreign exchange has been defined to mean foreign currency and includes deposits, credits,
balance payable in foreign currency, drafts, travellers cheques, letters of credit, bills of exchange expressed
or drawn in Indian currency but payable in any foreign currency. Any draft, travellers cheque, letters of credit
or bills of exchange drawn by banks, institutions or persons outside India but payable in Indian currency has
also been included in the definition of foreign exchange.
Foreign Security [Section 2(o)]
The term Foreign Security has been defined 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.
Transfer or issue of a foreign security is a capital account transaction within the meaning of Section 6(3)(a) of
the Act. The Reserve Bank of India has made Foreign Exchange Management (Transfer or Issue of Any
Foreign Security) Regulations, 2000 for regulation, acquisition and transfer of a foreign security by a person
resident in India i.e. investment by Indian entities in overseas joint ventures and wholly owned subsidiaries
as also investment by a person resident in India in shares and securities issued outside India.
Person [Section 2(u)]
The definition of the term ‘person includes, an individual, a Hindu Undivided Family, a company, a firm, an
association of persons or body of individuals whether incorporated or not; any agency, office or branch
owned or controlled by such persons. Even every artificial juridical person not falling within the above
definition has been treated as person as per clause (u) of Section 2.
Person Resident in India [Section 2(v)]
The expression ‘Person resident in India has been defined to mean a person residing in India for more than
182 days during the course of the preceding financial year. However, two categories of persons are excluded
from the purview of definition.
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The first category includes any person who has gone out of India or who stays outside India for or on taking
up employment outside India, or for carrying on outside India a business or vocation. The definition also
includes person who stays outside India for any other purpose in such circumstances as would indicate his
intention to stay outside India for an uncertain period. The second category of persons which have been
excluded from the definition of person resident in India include:
A person who has come to stay or stays in India, in either case otherwise than—
(i) for or taking up employment in India; or
(ii) for carrying on in India a business or vocation in India; or
(iii) for any other purpose, in such circumstances as would indicate his intention to stay in India for an
uncertain period.
REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE
Chapter II of the Act containing Sections 3-9 deals with Regulation and Management of Foreign Exchange.
Section 3 prohibits any person other than an authorised person from dealing in or transferring any foreign
exchange or foreign security to any person or making any payment to or for the credit of any person resident
outside India in any manner or receiving otherwise through an authorised person any payment by order or on
behalf of any person resident outside India in any manner except as provided in the Act, rules or regulations
made thereunder or with the general or special permission of the Reserve Bank of India.
Section 3(d) prohibits a person to 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, except as otherwise provided in the Act and rules or regulations made thereunder. For this purpose,
financial transaction has been defined to mean making any payment to or for the credit of any person or
receiving any payment for, by order or on behalf of any person. Financial transaction also includes drawing,
issuing or negotiating any bill of exchange or promissory note or transferring any security or acknowledging
any debt.
CURRENT ACCOUNT TRANSACTIONS
Section 5 of the Act allows any person to sell or draw foreign exchange to or from an authorised person if
such sale or drawl 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 with the Reserve Bank impose
reasonable restrictions for current account transactions.
Foreign Exchange Management (Current Account Transactions) Rules, 2000 defines the term ‘Drawal as to
mean drawal of foreign exchange from an authorised person and includes opening of Letter of Credit or use
of International Credit Card or International Debit Card or ATM Card or any other thing by whatever name
called which has the effect of creating foreign exchange liability.
Prohibition on drawal of foreign exchange for certain transactions
Rule 3 prohibits the drawal of foreign exchange for the purposes of transactions specified in the Schedule I
or a travel to Nepal and/or Bhutan or a transaction with a person resident in Nepal or Bhutan. However, in
the case of transaction with a person resident in Nepal and Bhutan, the prohibition may be exempted by RBI
subject to such terms and conditions as it may consider necessary. Schedule I to the Rules enumerate the
situations in which the drawal of foreign exchange is prohibited. These are as follows:
(a) Remittance out of lottery winnings;
Lesson 1 Foreign Exchange Management 5
(b) Remittance of income from racing/riding etc. or any other hobby;
(c) Remittance for purchase of lottery tickets, banned/prescribed magazine, football pools, sweep
stakes etc.
(d) Payment of commission on exports made towards equity investment in joint ventures/wholly owned
subsidiaries abroad of Indian Companies.
(e) Payment of Commission on exports under Rupee State Credit Route, except commission upto 10%
of invoice value of exports of tea and tobacco.
(f) Payment related to ‘call back service’ of telephone.
(g) Remittance of interest income on funds held in Non-resident Special Rupee Scheme Account.
Prior approval of Government of India for certain transactions
Rule 4 requires prior approval of the Government of India for the transactions as specified in Schedule II.
However, this does not apply to the cases where the payment is made out of funds held in Resident Foreign
Currency Account (RFC) of the remitter.
Prior approval of Reserve Bank for certain transaction
As per Rule 5 of the Foreign Exchange Management (Current Account Transactions) Amendment Rules,
2015, every drawal of foreign exchange for transactions included in Schedule III shall be governed as
provided therein:
Provided that this rule shall not apply where the payment is made out of funds held in Resident Foreign
Currency (RFC) Account of the remitter.
Transactions included in Schedule III
1. Facilities for individuals—
1. Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 2,50,000
only. Any additional remittance in excess of the said limit for the following purposes shall require prior
approval of the Reserve Bank of India.
(i) Private visits to any country (except Nepal and Bhutan)
(ii) Gift or donation.
(iv) Emigration
(v) Maintenance of close relatives abroad
(vi) Travel for business, or attending a conference or specialised training or for meeting expenses for
meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient
going abroad for medical treatment/ check-up.
(vii) Expenses in connection with medical treatment abroad
(viii) Studies abroad
(ix) Any other current account transaction
Provided that for the purposes mentioned at item numbers (iv), (vii) and (viii), the individual may avail of
exchange facility for an amount in excess of the limit prescribed under the Liberalised Remittance Scheme
as provided in regulation 4 to FEMA Notification 1/2000-RB, dated the 3rd May, 2000 (here in after referred
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to as the said Liberalised Remittance Scheme) if it is so required by a country of emigration, medical institute
offering treatment or the university, respectively:
Provided further that if an individual remits any amount under the said Liberalised Remittance Scheme in a
financial year, then the applicable limit for such individual would be reduced from USD 250,000 (US Dollars
Two Hundred and Fifty Thousand Only) by the amount so remitted:
Provided also that for a person who is resident but not permanently resident in India and
(a) is a citizen of a foreign State other than Pakistan; or
(b) is a citizen of India, who is on deputation to the office or branch of a foreign company or subsidiary
or joint venture in India of such foreign company,
may make remittance up to his net salary (after deduction of taxes, contribution to provident fund and other
deductions).
Explanation: For the purpose of this item, a person resident in India on account of his employment or
deputation of a specified duration (irrespective of length thereof) or for a specific job or assignments, the
duration of which does not exceed three years, is a resident but not permanently resident:
Provided also that a person other than an individual may also avail of foreign exchange facility, mutatis
mutandis, within the limit prescribed under the said Liberalised Remittance Scheme for the purposes
mentioned herein above.
2. Facilities for persons other than individual
The following remittances by persons other than individuals shall require prior approval of the Reserve Bank
of India.
(i) Donations exceeding one per cent. of their foreign exchange earnings during the previous three
financial years or USD 5,000,000, whichever is less, for-
(a) creation of Chairs in reputed educational institutes,
(b) contribution to funds (not being an investment fund) promoted by educational institutes; and
(c) contribution to a technical institution or body or association in the field of activity of the donor
Company.
(ii) Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in
India exceeding USD 25,000 or five percent of the inward remittance whichever is more.
(iii) Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of
infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from
outside India.
(iv) Remittances exceeding five per cent of investment brought into India or USD 100,000 whichever is
higher, by an entity in India by way of reimbursement of pre-incorporation expenses.”
3. Procedure
The procedure for drawal or remit of any foreign exchange under this schedule shall be the same as
applicable for remitting any amount under the said Liberalised Remittance Scheme.
Liberalised Remittance Scheme (LRS)
Under Liberalised Remittance Scheme allow remittances by a resident individual up to USD 250,000 per
financial year for any permitted current or capital account transaction or a combination of both. If an
individual has already remitted any amount under the LRS, then the applicable limit for such an individual
would be reduced from the present limit of USD 250,000 for the financial year by the amount already
remitted. The permissible capital account transactions by an individual under LRS are:
(i) opening of foreign currency account abroad with a bank;
(ii) purchase of property abroad;
(iii) making investments abroad;
(iv) setting up Wholly owned subsidiaries and Joint Ventures abroad;
(v) extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives
as defined in Companies Act, 2013.
The Scheme cannot be made use for making remittances for any prohibited or illegal activities such as
margin trading, lottery, etc.
Requirements to be complied with by the remitter under LRS
The resident individual seeking to make the remittances should furnish an application cum declaration in the
prescribed format to the Authorised Dealer / full fledged money changer (FFMC) concerned regarding the
purpose of the remittances and declaration to the effect that the funds belong to the remitter and will not be
used for the prohibited purposes. Resident individuals can also purchase foreign exchange from a full
fledged money changer (FFMC) for private/business visits. Foreign exchange thus purchased from an FFMC
should also be reckoned within the overall LRS limit USD 250,000 and declared accordingly in the
application-cum-declaration form submitted to the Authorise Dealer bank.
CAPITAL ACCOUNT TRANSACTION
Section 6 allows capital account transactions subject however to certain conditions. This section empowers
the Reserve Bank of India to specify, in consultation with the Central Government, any class or classes of
capital account transactions permissible and the limit upto which foreign exchange shall be admissible for
such transactions. However, Reserve Bank shall not impose any restrictions on the drawal of foreign
exchange for payments due on account of amortization of loans or for depreciation of direct investments in
the ordinary course of business.
The Reserve Bank of India may, by regulations, prohibit, restrict or regulate the transfer or issue of any
foreign security by a person resident in India or by a person resident outside India. Reserve Bank of India
may also regulate, prohibit or restrict transfer or issue of any security or foreign security through any branch
office, or agency in India of a person resident outside India. Any borrowing or lending in foreign exchange in
whatever form or by whatever name called may also be regulated or prohibited by the Reserve Bank.
Similarly, RBI may also prohibit or restrict any borrowing or lending in rupees in whatever form or by
whatever name called between a person resident in India and a person resident outside India. Deposits
between persons resident in India and persons resident outside India may be regulated or prohibited by the
Reserve Bank of India. RBI may also regulate the export, import or holding of currency or currency notes.
Acquisition or transfer of immovable property other than on lease not exceeding five years in India by person
resident in India or a person resident outside India may be prohibited or regulated by the Reserve Bank of
India. RBI has also been empowered to prohibit or regulate giving of guarantee or surety in respect of any
debt, obligation or other liability incurred by a person resident in India and owed to a person resident outside
India or by a person resident outside India.
Sub-section (4) allows a person resident in India to hold, own, transfer or invest in foreign currency, foreign
EP-ECL 8
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. Similarly, a person resident outside India is permitted to 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.
Reserve Bank of India under sub-section (6) has been empowered to regulate, prohibit, restrict
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.
Permissible Capital Account Transactions
Schedule 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.
1. Classes of capital account transactions of persons resident in India.
2. Classes of capital account transactions of persons resident outside India.
Classes of Capital Account Transactions of Persons Resident in India
(i) investment by a person resident in India in foreign securities.
(ii) foreign currency loans raised in India and abroad by a person resident in India;
(iii) transfer of immovable property outside India by a person resident in India;
(iv) guarantees issued by a person resident in India in favour of a person resident outside India;
(v) export, import and holding of currency/currency notes;
(vi) loans and overdrafts by a person resident in India from a person resident outside India;
(vii) maintenance of foreign currency accounts in India and outside India by a person resident in India;
(viii) taking out of insurance policy by a person resident in India from an insurance company outside
India;
(ix) loans and overdrafts by a person resident in India to a person resident outside India;
(x) remittance outside India of capital assets of a person resident in India;
(xi) sale and purchase of foreign exchange derivatives in India and abroad and commodity derivatives
abroad by a person resident in India.
However, Notification No. FEMA.165 /2007-RB Dated October 10, 2007 on Foreign Exchange Management
(Permissible Capital Account Transactions) (Amendment) Regulations, 2007 provides that subject to the
provisions of the Act or the rules or regulations or directions or orders made or issued thereunder, a resident
individual may, draw from an authorized person foreign exchange not exceeding USD 50,000 per financial
year with effect from December 20, 2006, USD 100,000 per financial year with effect from May 8, 2007 and
USD 2,00,000 per financial year with effect from September 26, 2007, for a capital account transaction
specified in Schedule I.
It may be noted that no part of the foreign exchange of USD 50,000 or USD 100,000 or USD 200,000, as the
case may be, drawn can be used for remittance directly or indirectly to countries notified as non-co-operative
countries and territories by Financial Action Task Force (FATF) from time to time and communicated by the
Reserve Bank of India to all concerned."
Classes of Capital Account Transactions of Persons Resident Outside India
(i) Investment in India by a person resident outside India, that is to say:
(a) issue of security by a body corporate or an entity in India and investment therein by a person
resident outside India; and
(b) investment by way of contribution by a person resident outside India to the capital of a firm or a
proprietorship concern or an association of persons in India.
(ii) Acquisition and transfer of immovable property in India by a person resident outside India.
(iii) Guarantee by a person resident outside India in favour of, or on behalf of a person resident in India.
(iv) Import and export of currency/currency notes into/from India by a person resident outside India.
(v) Deposits between a person resident in India and a person resident outside India.
(vi) Foreign Currency accounts in India of a person resident outside India.
(vii) Remittance outside India of capital assets in India of a person resident outside India.
Subject to the provisions of the Act, or the rules, or regulations or directions or orders made or issued
thereunder, 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.
FOREIGN DIRECT INVESTMENT POLICY 2016
INTENT AND OBJECTIVE
It is the intent and objective of the Government of India to attract and promote foreign direct investment in
order to supplement domestic capital, technology and skills, for accelerated economic growth. Foreign Direct
Investment, as distinguished from portfolio investment, has the connotation of establishing a ‘lasting interest’
in an enterprise that is resident in an economy other than that of the investor.
The Government has put in place a policy framework on Foreign Direct Investment, which is transparent,
predictable and easily comprehensible. This framework is embodied in the Circular on Consolidated FDI
Policy, which may be updated every year, to capture and keep pace with the regulatory changes, effected in
the interregnum. The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce &
Industry, Government of India makes policy pronouncements on FDI through Press Notes/Press Releases
EP-ECL 10
which are notified by the Reserve Bank of India as amendments to the Foreign Exchange Management
(Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No. FEMA
20/2000-RB dated May 3, 2000). These notifications take effect from the date of issue of Press Notes/ Press
Releases, unless specified otherwise therein. In case of any conflict, the relevant FEMA Notification will
prevail. The procedural instructions are issued by the Reserve Bank of India vide A.P. (DIR Series) Circulars.
The regulatory framework, over a period of time, thus, consists of Acts, Regulations, Press Notes, Press
Releases, Clarifications, etc.
‘AD Category-I Bank’ means a bank(Scheduled Commercial, State or Urban Cooperative) which is
authorized under Section 10(1) of FEMA to undertake all current and capital account transactions according
to the directions issued by the RBI from time to time.
‘Authorized Bank’ means a bank including a co-operative bank (other than an authorized dealer) authorized
by the Reserve Bank to maintain an account of a person resident outside India.
‘Authorized Dealer’ means a person authorized as an authorized dealer under sub-section (1) of section 10
of FEMA.
‘Authorized Person’ means an authorized dealer, money changer, offshore banking unit or any other
person for the time being authorized under sub-section (a) of section 10 of FEMA to deal in foreign exchange
or foreign securities.
compulsorily & mandatorily convertible debentures and warrants.
The equity shares issued in accordance with the provisions of the Companies Act, as applicable, shall
include equity shares that have been partly paid. Preference shares and convertible debentures shall be
required to be fully paid, and should be mandatorily and fully convertible. Further, ‘warrant’ includes Share
Warrant issued by an Indian Company in accordance to provisions of the Companies Act, as applicable.
‘Capital account transaction’ means a transaction which alters the assets or liabilities, including contingent
liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside
India, and includes transactions referred to in sub-section (3) of section 6 of FEMA.
‘Control’ shall include the right to appoint a majority of the directors or to control the management or policy
decisions including by virtue of their shareholding or management rights or shareholders agreements or
voting agreements. For the purposes of Limited Liability Partnership, ‘control’ will mean right to appoint
majority of the designated partners, where such designated partners, with specific exclusion to others, have
control over all the policies of the LLP.
‘Depository Receipt’ (DR) means a negotiable security issued outside India by a Depository bank, on
behalf of an Indian company, which represent the local Rupee denominated equity shares of the company
held as deposit by a Custodian bank in India. DRs are traded on Stock Exchanges in the US, Singapore,
Luxembourg, etc. DRs 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).
“Employees’ Stock Option” means the option given to the directors, officers or employees of a company or
of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries, if any, which gives
such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the
company at a future date at a pre-determined price.
‘Erstwhile Overseas Corporate Body’(OCB) means a company, partnership firm, society and other
corporate body owned directly or indirectly to the extent of at least sixty percent by non-resident Indians and
includes overseas trust in which not less than sixty percent beneficial interest is held by non-resident Indians
directly or indirectly but irrevocably and which was in existence on the date of commencement of the Foreign
Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs) )
Regulations, 2003 (the Regulations) and immediately prior to such commencement was eligible to undertake
transactions pursuant to the general permission granted under the Regulations.
‘Foreign Currency Convertible Bond’ (FCCB) means a bond issued by an Indian company expressed in
foreign currency, the principal and interest of which is payable in foreign currency. FCCBs are issued in
accordance with the Foreign Currency Convertible Bonds and ordinary shares (through depository receipt
mechanism) Scheme, 1993 and subscribed by a non-resident entity in foreign currency and convertible into
ordinary shares of the issuing company in any manner, either in whole, or in part.
‘FDI’ means investment by non-resident entity/person resident outside India in the capital of an Indian
company under Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident Outside India) Regulations,2000 .
‘FEMA’ means the Foreign Exchange Management Act, 1999 (42 of 1999).
‘FIPB’ means the Foreign Investment Promotion Board constituted by the Government of India.
‘Foreign Institutional Investor’(FII) means an entity established or incorporated outside India which
proposes to make investment in India and which is registered as a FII in accordance with the Securities and
Exchange Board of India (SEBI) (Foreign Institutional Investor) Regulations 1995.
‘Foreign Portfolio Investor’(FPI) means a person registered in accordance with the provisions of Securities
and Exchange Board of India (SEBI) (Foreign Portfolio Investors) Regulations, 2014, as amended from time
to time.
‘Foreign Venture Capital Investor’ (FVCI) means an investor incorporated and established outside India,
which is registered under the Securities and Exchange Board of India (Foreign Venture Capital Investor)
Regulations, 2000 {SEBI(FVCI) Regulations} and proposes to make investment in accordance with these
Regulations.
‘Government route’ means that investment in the capital of resident entities by non-resident entities can be
made only with the prior approval of Government (FIPB, Department of Economic Affairs (DEA), Ministry of
Finance or Department of Industrial Policy &Promotion, as the case may be).
‘Group Company’ means two or more enterprises which, directly or indirectly, are in a position to:
(a) exercise twenty-six percent or more of voting rights in other enterprise; or
(b) appoint more than fifty percent of members of board of directors in the other enterprise.
‘Holding Company’ would have the same meaning as defined in Companies Act, as applicable.
‘Indian Company’ means a company incorporated in India under the Companies Act, as applicable.
‘Indian Venture Capital Undertaking’ (IVCU) means an Indian company:
(a) whose shares are not listed in a recognised stock exchange in India;
EP-ECL 12
(b) Which is engaged in the business of providing services, production or manufacture of articles or
things, but does not include such activities or sectors which are specified in the negative list by the
SEBI, with approval of Central Government, by notification in the Official Gazette in this behalf
‘Investment Vehicle’ shall mean an entity registered and regulated under relevant regulations framed by
SEBI or any other authority designated for the purpose and shall include Real Estate Investment Trusts
(REITs) governed by the SEBI (REITs) Regulations, 2014, Infrastructure Investment Trusts (InvIts) governed
by the SEBI (InvIts) Regulations, 2014 and Alternative Investment Funds (AIFs) governed by the SEBI (AIFs)
Regulations, 2012.
‘Investing Company’ means an Indian Company holding only investments in other Indian company/(ies),
directly or indirectly, other than for trading of such holdings/securities.
‘Investment on repatriable basis’ means investment, the sale proceeds of which, net of taxes, are eligible
to be repatriated out of India and the expression ‘investment on non-repatriable basis’ shall be construed
accordingly.
‘Joint Venture’ (JV) means an Indian entity incorporated in accordance with the laws and regulations in
India in whose capital a non-resident entity makes an investment.
‘Limited Liability Partnership’ means a Limited Liability Partnership firm, formed and registered under the
Limited Liability Partnership Act, 2008.
‘Manufacture’, with its grammatical variations, means a change in a non-living physical object or article or
thing- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or
thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or
article or thing with a different chemical composition or integral structure.
‘Non-resident entity’ means a ‘person resident outside India’ as defined under FEMA.
‘Non-Resident Indian’ (NRI) means an individual resident outside India who is a citizen of India or is an
‘Overseas Citizen of India’ cardholder within the meaning of section 7 (A) of the Citizenship Act, 1955.
‘Persons of Indian Origin’ cardholders registered as such under Notification No. 26011/4/98 F.I. dated
19.8.2002 issued by the Central Government are deemed to be ‘Overseas Citizen of India’ cardholders’
A company is considered as ‘Owned’ by resident Indian citizens if more than 50% of the capital in it is
beneficially owned by resident Indian citizens and / or Indian companies, which are ultimately owned and
controlled by resident Indian citizens. A Limited Liability Partnership will be considered as owned by resident
Indian citizens if more than 50% of the investment in such an LLP is contributed by resident Indian citizens
and/or entities which are ultimately ‘owned and controlled by resident Indian citizens’ and such resident
Indian citizens and entities have majority of the profit share.
‘Person’ includes-
(c) a company,
(d) a firm,
(e) an association of persons or a body of individuals whether incorporated or not,
(f) every artificial juridical person, not falling within any of the preceding sub-clauses, and
(g) any agency, office, or branch owned or controlled by such person.
‘Person of Indian Origin’ (PIO) means a citizen of any country other than Bangladesh or Pakistan, if
(a) he at any time held Indian Passport; or
(b) 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 (57 of 1955); or
(c) the person is a spouse of an Indian citizen or a person referred to in sub-clause (i) or (ii). ‘Person resident in India’ means-
(i) 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 stays 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 outside
India for an uncertain period;
(B) A person who has come to or stays in India, in either case, otherwise than-
(a) for or on taking up employment in India; or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for
an uncertain period;
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident outside India,
(iv) an office, branch or agency outside India owned or controlled by a person resident in India.
‘Person resident outside India’ means a person who is not a Person resident in India.
‘Portfolio Investment Scheme’ means the Portfolio Investment Scheme referred to in Schedules 2, 2A & 3
of FEMA (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000.
‘RBI’ means the Reserve Bank of India established under the Reserve Bank of India Act, 1934.
‘Resident Entity’ means ‘Person resident in India’ excluding an individual.
‘Resident Indian Citizen’ shall be interpreted in line with the definition of ‘person resident in India’ as per
FEMA, 1999, read in conjunction with the Indian Citizenship Act, 1955.
‘SEBI’ means the Securities and Exchange Board of India established under the Securities and Exchange
Board of India Act, 1992.
‘SEZ’ means a Special Economic Zone as defined in Special Economic Zones Act, 2005.
‘SIA’ means Secretariat of Industrial Assistance in DIPP, Ministry of Commerce & Industry, Government of
India.
EP-ECL 14
‘Sweat Equity Shares’ means such equity shares as issued by a company to its directors or employees at a
discount or for consideration other than cash, for providing their know-how or making available rights in the
nature of intellectual property rights or value additions, by whatever name called.
‘Transferable Development Rights’ (TDR) means certificates issued in respect of category of land
acquired for public purposes either by the Central or State Government in consideration of surrender of land
by the owner without monetary compensation, which are transferable in part or whole.
‘Unit’ shall mean beneficial interest of an investor in the Investment Vehicle and shall include shares or
partnership interests.
‘Venture Capital Fund’ (VCF) means an Alternative Investment Fund which invests primarily in unlisted
securities of start-ups, emerging or early-stage venture capital undertakings mainly involved in new products,
new services, technology or intellectual property right based activities or a new business model and shall
include an angel fund as defined under Chapter III-A of SEBI (AIF) Regulations, 2012.
ELIGIBLE INVESTORS
A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are
prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under
the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only
under the Government route, in sectors/activities other than defence, space and atomic energy and
sectors/activities prohibited for foreign investment.
NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in the
capital of Indian companies on repatriation basis, subject to the condition that the amount of consideration for
such investment shall be paid only by way of inward remittance in free foreign exchange through normal
banking channels.
OCBs have been derecognized as a class of investors in India with effect from September 16, 2003.
Erstwhile OCBs which are incorporated outside India and are not under the adverse notice of RBI can make
fresh investments under FDI Policy as incorporated non-resident entities, with the prior approval of
Government of India if the investment is through Government route; and with the prior approval of RBI if the
investment is through Automatic route.
A company, trust and partnership firm incorporated outside India and owned and controlled by NRIs can
invest in India with the special dispensation as available to NRIs under the FDI Policy.
Foreign Institutional Investor (FII) and Foreign Portfolio Investors (FPI) may in terms of Schedule 2 and 2A of
FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, as the case may be,
respectively, invest in the capital of an Indian company under the Portfolio Investment Scheme which limits
the individual holding of an FII/FPI below 10% of the capital of the company and the aggregate limit for
FII/FPI investment to 24% of the capital of the company. This aggregate limit of 24% can be increased to the
sectoral cap/statutory ceiling, as applicable, by the Indian company concerned through a resolution by its
Board of Directors followed by a special resolution to that effect by its General Body and subject to prior
intimation to RBI. The aggregate FII/FPI investment, individually or in conjunction with other kinds of foreign
investment, will not exceed sectoral/statutory cap.
Only registered FIIs/FPIs and NRIs as per Schedules 2,2A and 3 respectively of Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, can
invest/trade through a registered broker in the capital of Indian Companies on recognised Indian Stock
Exchanges.
A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute up to 100% of the capital of an
Indian company engaged in any activity mentioned in Schedule 6 of Notification No. FEMA 20/2000,
including startups irrespective of the sector in which it is engaged, under the automatic route. A SEBI
registered FVCI can invest in a domestic venture capital fund registered under the SEBI (Venture Capital
Fund) Regulations, 1996 or a Category- I Alternative Investment Fund registered under the SEBI (Alternative
Investment Fund) Regulations, 2012. Such investments shall also be subject to the extant FEMA regulations
and extant FDI policy including sectoral caps, etc. The investment can be made in equities or equity linked
instruments or debt instruments issued by the company (including start-ups and if a startup is organised as a
partnership firm or an LLP, the investment can be made in the capital or through any profit-sharing
arrangement) or units issued by a VCF or by a Category-I AIF either through purchase by private
arrangement either from the issuer of the security or from any other person holding the security or on a
recognised stock exchange.It may also set up a domestic asset management company to manage its
investments. SEBI registered FVCIs are also allowed to invest under the FDI Scheme, as non-resident
entities, in other companies, subject to FDI Policy and FEMA regulations.
A Non-Resident Indian may subscribe to National Pension System governed and administered by Pension
Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through
normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act. The
annuity/ accumulated saving will be repatriable.
ELIGIBLE INVESTEE ENTITIES FDI in an Indian Company
Indian companies can issue capital against FDI.
FDI in Partnership Firm/Proprietary Concern
(i) A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in
the capital of a firm or a proprietary concern in India on non-repatriation basis provided:
(a) Amount is invested by inward remittance or out of NR

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