Foreign Exchange Management Act_2

8/3/2019 Foreign Exchange Management Act_2

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PRESENTERS:

YATINDER SAGAR (020)RATNDEEP (024)

DEEPAK KUMAR (009)

SURABH DATTA (XXX)

BHASKAR (XXX)

FOREIGN EXCHANGE

MANAGEMENT ACT


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ABSTRACT

The government of India has formulatedthe Foreign Exchange Management Act(FEMA), which relates to the foreign

direct investment in the country. ForeignExchange Management Act (FEMA) hashelped the country by encouraging

external payment and trade.


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FOREIGN EXCHANGE MANAGEMENT

ACTFEMA is an Act to consolidate and amend the law

relating to foreign exchange with the objective of

facilitating external trade and payments and forpromoting the orderly development and maintenance

of foreign exchange market in India.


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OBJECTIVES OF FOREIGN EXCHANGE MANAGEMENTACT (FEMA): To revise and unite all the laws that relate to

foreign exchange.

To promote foreign payments and trade in the

country. To encourage the orderly maintenance and

development of the foreign exchange market inIndia


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FORMULATION OF FOREIGN EXCHANGEMANAGEMENT ACT (FEMA): In 1999, the Indian government formulated the

Foreign Exchange Management Act (FEMA).

On the 1st of June, 2000, FEMA came into force

replacing the FERA, which was formulated in 1973.Extensive economic reforms were undertaken inIndia in the early 1990s.

In FEMA is that there is no imprisonmentprescribed for contraventions of the law, not evenas an alternative punishment and for the blatantand deliberate of violations.


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BROAD STRUCTURE OF FEMA

Pertaining to foreign exchange

All current account transactions are free. However, Centralgovernment can impose restrictions .

Capital accounts transactions are permitted to the extentspecified by RBI regulations .

RBI controls management of foreign exchange. RBI authorizes Authorized persons to deal in foreign exchange.

RBI issues directions to such persons u/s.11

These directions are issued through AP(DIR) circulars.Authorized Persons (Directions)


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SIMILARITIES BETWEEN FEMA AND FERA

The Reserve Bank of India and central government wouldcontinue to be the regulatory bodies.

Presumption of extra territorial jurisdiction as envisaged insection (1) of FERA has been retained.

The Directorate of Enforcement continues to be the agency

for enforcement of the provisions of the law such asconducting search and seizure


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DIFFERENCE BETWEEN FERA AND FEMA

Sr.

No DIFFERENCES FERA FEMA

1 PROVISIONS FERA consisted of 81 sections, andwas more complex.

FEMA is much simple, and consist

of only 49 sections.

2 FEATURESPresumption of negative intention

(Mens Rea ) and joining hands inoffence (abatement) existed in FERA

Presumptions of Mens Rea and

abatement have been excluded inFEMA

3 NEW TERMS INFEMA

Terms like Capital Account

Transaction, current Account

Transaction, person, service etc.were not defined in FERA.

Terms like Capital Account

Transaction, current account

Transaction person, service etc.,

have been defined in detail in FEMA

4DEFINITION OF

AUTHORIZED

PERSON

Definition of "Authorized Person" in

FERA was a narrow one

The definition of Authorized person

has been widened to include banks,

money changes, off shore banking

Units etc.


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Sr.


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MEANING OF

"RESIDENT" AS

COMPARED WITHINCOME TAX ACT.

There was a big difference in the

definition of "Resident", under

FERA, and Income Tax Act.

A person who qualifies to be a resident under

the income Tax Act, 1961 will also be

considered a resident under FEMA but notnecessarily same in opposite case.

6 PUNISHMENTAny offence under FERA, was a

criminal offence , punishable with

imprisonment as per code ofcriminal procedure, 1973

Offence is considered to be a civil offence

only punishable with some amount of money

as a penalty. Imprisonment is prescribed onlywhen one fails to pay the penalty.

7 QUANTUM OFPENALTY.The monetary penalty payable

under FERA, was nearly the five

times the amount involved.Under FEMA the quantum of penalty has

been considerably decreased to three times

the amount involved.

8 APPEALAn appeal against the order of

"Adjudicating office", before "

Foreign Exchange Regulation

Appellate Board went before High

Court

The appellate authority under FEMA is the

special Director ( Appeals) Appeal against the

order of Adjudicating Authorities and special

Director (appeals) lies before "Appellate

Tribunal for Foreign Exchange." An appeal

from an order of Appellate Tribunal would lieto the High Court.


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Sr.


9 RIGHT OFASSISTANCE DURINGLEGAL

PROCEEDINGS.

FERA did not contain any express

provision on the right of on

impleaded person to take legal

assistance

FEMA expressly recognizes the

right of appellant to take

assistance of legal practitioner or

chartered accountant (32)

10 POWER OF SEARCHAND SEIZEFERA conferred wide powers on a

police officer not below the rank of

a Deputy Superintendent of Police

to make a search

The scope and power of search

and seizure has been curtailed to

a great extent


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IMPORTANT TERMS (SEC-2) Authorized Person:

Authorized under the Act to deal in foreign exchange

Capital account transaction:

Alters the assets or liability

Currency:

Currency notes, Money order, cheque, drafts etc

Currency Notes:

Coin and bank notes

Currency Account Transaction:

Transactions other than capital account transactions

Indian Currency:Indian rupees


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Export:Goods and services from India to outside

Foreign Currency:

Other than Indian currency

Foreign Exchange:

Means foreign currency

Foreign Security:

Security expressed in foreign currency

Import:

Goods and services from outside to India

Security:

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

R i I di


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Repatriate to India:

Realized foreign exchange to India

Service:

Banking, Financing, insurance etc

Transfer:

Sale, Purchase, Exchange etc

Non-Resident Indian (NRI):Citizen of India residing outside

Overseas Corporate Body (OCB):

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

Person of Indian Origin (PIO):

Citizen of country other then Bangladesh and Pakistan, if

Any time held Indian passport or

Either of his parents or grandparents was citizen of India

The Person is spouse of an Indian citizen


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TO WHOM ACT IS APPLICABLE ? The FEMA, is applicable-

a) To the whole of India.

b) Any Branch, office and agency, which is situated outsideIndia, but is owned or controlled by a person resident in

India.

Broadly speaking FEMA, covers, three different types ofcategories, and deals differently with them. These categories

are:

a) Person

b) Person Resident In India

c) Person Resident Outside India


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PERSON For the purpose of provisions, a person shall includeany of the following:

1. An individual2.

A Hindu Undivided family3. A company4. A Firm5. An association of persons or a body of individuals,

whether incorporated or not,6. Every artificial judicial person, not falling within any

of the preceding sub clauses, and7. Any agency, office or branch owned or controlled by

such person.


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PERSON RESIDENT IN INDIA1. A person who has been residing in India for more than 182

days, in the last financial year. This means if a person hasto be assessed, as to whether he is person resident inIndia, for any offence committed in August 2001, then heshould be residing in India for more than 182 days during

April 2000 to March 20012. Any person or body corporate registered or incorporated in

India, or

3. An office, branch or agency in India owned or controlled by

a person resident outside India, or

4. An office, branch or agency outside India owned orcontrolled by a person resident in India.


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PERSON RESIDENT OUTSIDE INDIASimply putting it, "a person resident outsideIndia" means "a person who is not resident

in India"


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CAPITAL ACCOUNT TRANSACTION (SEC 2(E))

Transaction which alters the assets/liabilities(including contingent),

Outside India of persons resident in India;

In India of person resident outsideIndia(PROI).

INCLUDES

Transfer/issue of security/foreign security

Borrowings/rupees/deposits/lending of forex

Dealings in immovable property

Export/import/holding of currency or currency notes


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PROHIBITION

Rules & regulations made thereunder

No person shall undertake or sell or drawforeign exchange to or from an AP for any CAT.

No PROI shall make investment in India, in anyform, which is engaged or purposes to engage:-

- In the business of chit fund

- As Nidhi company

- In agricultural or plantation activities

- In real estate business, or construction,

- In trading in transferable development rights.


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SCHEDULE-IClasses of CAT s of PRI

SCHEDULE-IIClasses of CAT of PROI

Investment by a PRI in foreign

securities.

Investment in india by a PROI- issue

of security in india and investmenttherein by a PROI.

Foreign currency loans raised in indiaand abroad by a PRI.

Foreign currency accounts in india ofa PROI.

Transfer of immovable property

outside india by a PRI

Acquisition and transfer of immovable

property in india by a PROI.

Guarantees issued by a PRI in favourof a PROI.

Guarantee by a PROI in favour of, oron behalf of, a PRI.

Loans and drafts by a PRI to a PROI. Deposits between a PRI and a

PROI.

Remittance outside india of capitalassets of a PRI.

Remittance outside india of capitalassets in india of a PROI.

Import, export and holdings ofcurrency/currency notes.

Import and export ofcurrency/currency notes into /from

india by a PROI.


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CURRENT ACCOUNT TRANSACTIONS (SEC-2(J))

A transactions other than the capital accounttransaction.

Includes

Payment for foreign trade ,other currentbusiness , services

Payment for interest on loan & as income frominvestment

Remittances abroad for living expenses andexpenses for foreign travel ,education &medical.


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PROHIBITION ON DRAWAL OF FOREX

Drawal of forex by any person for thefollowing purpose is prohibited, namely:

A transaction specified in the schedule-I

A travel to nepal and bhutan.

A transaction with a person resident in nepaland bhutan.


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PRIOR APPROVAL OF GOVT OF INDIA

No person shall draw foreign exchange for atransaction included in schedule-II withoutprior approval of the govt of India.

Provided that this rule shall not apply wherethe payment is made out of funds held inRFC/EEFC account of the remitter.


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PRIOR APPROVAL OF RBI

No person shall draw foreign exchange for atransaction included in schedule-III withoutprior approval of the RBI.

Provided that this rule shall not apply wherethe payment is made out of funds held inRFC/EEFC account of the remitter.


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PROVISIONS


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PROVISIONS IN SECTIONSSection 3

Prohibits dealings in foreign exchange except through an authorizedperson

Make any payment to or for the credit of any person resident outside Indiain any manner

Receive otherwise through an authorized person, any payment by orderor on behalf of any person resident outside India in any manner

Enter into any financial transaction in India for acquisition or creation ortransfer of a right to acquire, any asset outside India by any person


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PROVISIONS IN SECTIONS SECTION 4

Restrains any person resident in India from acquiring, holding,owning, possessing or transferring any foreign exchange, foreignsecurity or any immovable property situated outside India except asspecifically provided in the Act.

SECTION 5 deals with current account transaction

Any person may sell or draw foreign exchange to or from anauthorized person if such sale or drawl is a current accounttransaction

SECTION 6 - deals with capital account transactions.

This section allows a person to draw or sell foreign exchange from orto an authorized person for a capital account transaction.


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PROVISIONS IN SECTIONS 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.

SECTIONS 8 and 9

Casts the responsibility on the persons resident in India who have anyamount of foreign exchange due or accrued in their favor to get samerealized and repatriated to India within the specific period and themanner specified by RBI.

SECTION 10 duties of authorized person.

deals with duties and liabilities of the Authorized persons authorizeddealer, money changer, off shore banking unit or any other person forthe time being authorized to deal in foreign exchange or foreignsecurities.


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PROVISIONS IN SECTIONS SECTION 11 and 12 Powers of reserve bank

The reserve bank is empowered to order inspection of the business ofany authorized person for any of following reasons:

a) Verifying the correctness of any statements, information or particular

b) Obtaining information which such authorized person has failed to

furnish

c)

Securing compliance with the provisions of Act


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Any contravention, under FEMA, may invite following kinds of penalties:

If, the amount against which offence is quantities, then penalty will be"THRICE" the sum involved in contravention.

Where the amount cannot be quantified the penalty may be imposedup to two lakh rupees.

If, the contravention is continuing everyday, then Rs. Five Thousandfor every day after the first day during which the contraventioncontinues.

Further in addition to the penalty, any currency, security or other money or

property involved in the contravention may also be confiscated.


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If a person fails to make full payment of the penalty imposed with ina period of 90 days, he shall be liable to civil imprisonment.

SECTION 15

Empowers the Directorate of Enforcement and Officers of the

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

SECTION 16

Empowers the central Govt. to appoint the as many adjudicatingauthorities as it may think fit for holding enquiries.

SECTION 17Empowers the central Govt. to appoint one or more specialDirectors to hear the appeals against the orders of theAdjudicating Authorities.


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Empowers the central Govt. to establish Appellate Tribunal to hearappeals against the orders of Adjudicating Authorities and specialDirector.

SECTION 19

It makes provisions as regards appeals to Appellate Tribunal. SECTION 20 Composition of Appellate Tribunal.

SECTION 21 Qualifications for appointment of Chairperson memberand Special Director.

SECTION 22 Term of Office.

SECTION 23 Terms and Conditions of service. SECTION 24 Vacancies.


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Resignation and Removal.

SECTION 26

Member to act as Chairperson in certain circumstances.

SECTION 27Staff of Appellate Tribunal and Special Directorate.

SECTION 28

Power of Appellate Tribunal and Special Director.

SECTION 29

Distribution of business among benches.

SECTION 30

Power of Chairperson to Transfer cases.


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Decision to be by majority.

SECTION 32

Right of Appellant to take assistance of legal practitioner or CAand of Govt. to appoint presenting officer.

SECTION 33

Members, etc to public servants.

SECTION 34

Civil court not to have jurisdiction.

SECTION 35

Appeal to High Court.


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PROVISIONS IN SECTIONS SECTION 36 to 38 Directorate of Enforcement

Enforcement of the provisions of the Foreign ExchangeManagement Act prevent leakage of foreign exchange

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

payments. Acquisition of foreign currency illegally by person in India. Non-repatriation of the proceeds of the exported goods. Unauthorized maintenance of accounts in foreign

countries.

Siphoning off of foreign exchange against fictitious andbogus imports land by. Illegal acquisition of foreign exchange through Hawala


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DUTIES OF AN AUTHORIZED PERSON To comply with RBI directions

Not to engage in un authorized transactions

Ensure compliance of FEMA provisions

To produce books, accounts etc


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REVOCATION OF AUTHORISATION BY RBI

The authorisation shall always be in writing. RBI can revoke the authorisation at any time, if satisfied that-

It is in public interest The authorised person has failed to comply with the

requirements subject to which authorisation was granted

Or has contravened any provisions of the Act, rule,regulation, notification, circulars etc. Revocation can be done after giving an opportunity for the

dealer for a representation. S. 10(3) For contravention of any direction a penalty of 10000/- may

be imposed. If the default is continued penalty of 2000/- per

day may be imposed. S. 11 RBI can inspect all record books of the authorised person.


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PROCEDURE FOR REMITTANCE UNDER

FEMA


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Supportingdocuments

CA/ PCScertificate

Applicationto

authorized

dealer

TDSCertificate

Payment to

authorizeddealer

Remittance


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APPLICATIONS HAVE TO BE GIVEN TO AUTHORISED DEALER FOR

REMITTANCE OF FOREIGN CURRENCY IN INDIA

Separate application forms are prescribed. If a person has to open a foreign currency a/c in India

application has to be given to RBI For eg. Remittance upto USD 5000(Small value) can be done

by a simple letter specifying all particulars about the applicant

without any accompanying papers to the the authorised dealer Separate forms are there for other remittances. E.g. FORM A1

for remittance foreign currency for import of goods to India. Any individual can remit up to USD 25000/ calendar year for

holding/ acquiring immovable property abroad, acquiringshares outside India, opening of foreign currency a/c with aBank outside India. No permission of RBI is required. This isapplicable for all current and capital a/cs and a combination ofboth.


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ENFORCEMENT

Enforcement is with enforcement directorate The central government has appointed Directors of Enforcement,

Additional directors, Special Director, Deputy Director and AssistantDirectors for enforcement of FEMA. S. 36

Powers are similar to Income tax authorities

Main powers include inspection and investigation of violations ofFEMA provisions. Cheques and other NIS recovered during enforcement will be

deposited with RBI. If Indian currency is found, it shall be depositedin a separate a/c in the name of Director of enforcement.

The central government will indemnify the enforcement authority for

encashing the NIs.


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PENALTIES UNDER FEMA

Offenses under FEMA are civil offenses. Central government appoints the adjudicating authority. S.16(1)

They conduct enquiry on the complaint received from an authorisedperson.

It should give the verdict within 1 year, if not should state the reason.

While adjudicating the case, it acts as a quasi judicial body and hasto follow the principles of natural justice.

Opportunity should be given to the respondent to represent his case.


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AN OFFICER NOT BELOW THE RANK OF ASSISTANT

DIRECTOR CAN FILE THE COMPLAINT

The adjudicating authority has got the powers of a civil court

The penalty can be upto thrice the sum involved in contravention wherethe amount is quantifiable. If not, penalty can be up to Rs. 2 lakhs. If thetransgression continues all officers in default will be liable to pay 5000/per day. S. 13(1)

The foe may be confiscated. S.13 (2)

A person on whom the verdict is passed has to make payment within 90days. If not he is liable to civil imprisonment. S. 14(1)

For amount less than 1 crore- 6 months

For amount more than 1 crores- up to 3 years s. 14(11)

Compunding is permitted within 180 days


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APPEALS

Assist. Director/deputy director to special directors Further appeal lies with Appellate Tribunal for foreign exchange

The tribunal consists of chair person and members

It sits in Delhi or other places as may be notified

Division bench will hear matters above 5 lakhs

Jurisdiction of civil court is barred when the matter is pending beforethe tribunal

Second appeal lies to high courts and supreme court


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EXAMPLES


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RAJ KUMAR SHIVHARE VS. ASSISTANTDIRECTOR, DIRECTORATE OF ENFORCEMENT Raj Kumar Shivhare was indulged in receiving

unauthorized payments worth Rs. 5 croresunder instructions from persons living outsideIndia in connection with his illegal cricket betting

operation. The charges were proved against him.

He was held guilty according to the provisionsgiven by the section 3 of FEMA. So he get

punishment as under:A penalty of Rs. 2 crores was imposed on him.

And the confiscated money was disposed of.


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RECENT VIOLATIONS NOTICED UNDERFEMA

FEMA violation by IPL Franchises.

Lalit Modi will be interrogated in London byEnforcement Directorate for the foreigninvestments in the IPL Teams.

ED authorities can appoint a Commission to take

statement and collect information

FEMA violation in 19th CWG in Queen BatonRelay

The Directorate has registered an EnforcementCase Information Report under Foreign ExchangeManagement Act in connection with alleged forexviolations of several hundred crores in the Relay

held last year in London


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