A STUDY OF FEMA 1999.
CHAPTER 1: INTRODUCTION. INTRODUCTION. 1.1: FOREIGN EXCHANGE MANAGEMENT ACT.
The The Fore Foreig ign n Exch Exchan ange ge Mana Manage geme ment nt Act (FEM (FEMA) A) is a 1999 1999 In Indi dian an la law w "to consolidate and amend the law relating to foreign exchange with the objectie of facilitating external trade and !aments and for !romoting the orderl deelo!ment and maintenance of foreign exchange mar#et in India"$ It was !assed in the winter sess sessio ion n of %arl %arlia iame ment nt in 1999 1999&& re!l re!lac acin ing g the the For Foreig eign n Exc Exchan hange ge 'eg 'egla latio tion n Act (FE'A)$ Act (FE'A)$ This act see#s to ma#e offenses related to foreign exchange ciil offenses$$ It extends to the whole of India offenses India$& $& re!lacing FE'A& which had become incom!atible with the !roliberalisation !olicies of the *oernment of India$ India $ It enabled a new foreign exchange management exchange management regime consistent with the emerging framewor# of the +orld Trade ,rganisation (+T,)$ ,rganisation (+T,)$ It is another matter that the enactment of FEMA also broght with it the %reention of Mone -andering Act of Act of .//.& which came into effect from 1 0l .//$ 2nli#e other laws where eerthing is !ermitted nless s!ecificall !rohibited& nder this act eerthing was !rohibited nless s!ecificall !ermitted$ 3ence the tenor and tone of the Act was er drastic$ It re4ired im!risonment een for minor offences$ 2nder FE'A a !erson was !resmed gilt nless he !roed himself innocent& whereas nder other laws a !erson is !resmed innocent nless he is !roen gilt$ gilt$ As most of s who are dealing with foreign exchange (crrenc or nego negoti tiab able le inst instrm rmen entt e4i e4ia ale lent nt of crre crrenc nc & of an an con contr tr exce exce!t !t Indi Indian an crrenc) mst hae heard or dealt with FEMA as it is the main statte which deals with transactions of foreign exchange$
1
A STUDY OF FEMA 1999.
The main objecties of FEMA are5 • •
To facilitate external trade and !aments To !romote !romote the orderl orderl deelo deelo!me !ment nt and mainte maintenan nance ce of foreign foreign exchan exchange ge mar#et
FE'A was the first statte6law !assed b the !arliament in ear 1978 for goerning foreign exchange dealings in India$ As FE'A come into existence at the time when India was facing a seere deficienc of foreign exchange& it was er harsh law and and iol iolat atio ion n of this this -aw -aw was was alwa alwas s crim crimin inal al offe offenc nce$ e$ 2nli 2nli#e #e othe otherr laws laws wher wheree eer eert thi hing ng is
!erm !ermit itte ted d
nle nless ss
s!ec s!ecif ific ical all l
!roh !rohib ibit ited ed&&
nde nderr
this this
act eerthing was !rohibited nless s!ecificall !ermitted$ 3ence the tenor and tone of the Act was er drastic$ It re4ired im!risonment i m!risonment een for minor offences$ 2nder FE'A a !erson was !resmed gilt nless he !roed himself innocent& whereas nder other laws a !erson is !resmed innocent nless he is !roen gilt ince FE'A had become incom!atible with the !roliberali:ation !olicies of the *oernment of India ('eform !olicies introdced in India in 1991 which ma#e or econom o!en for otside bsiness world to come and do bsiness here) hence b !erceiing the need of that time FEMA was introdced b re!ealing6re!lacing re!ealing6re!lacing FE'A in India in ear 1999$ 1.2: APPLICABILITY OF FEMA.
FEMA is a!!licable to the whole of India$ The ex!ression ;whole of India< wold indicate that the !roisions of the Act are a!!licable to all transactions ta#ing !lace in India$ Ths& an !erson who is !resent in India at the time of transaction has to com!l with !roisions of FEMA$
2
A STUDY OF FEMA 1999.
FEMA is a!!licable to all branches& offices and agencies otside India owned or controlled b a !erson resident in India$ Ths& FEMA has retained its extra territorial a!!lication& as nder FE'A$ Illstration5 If an Indian =om!an o!ens a branch in -ondon& 2$>$& that branch will become resident of India and& therefore& all restrictions a!!licable to Indian residents for oerseas transactions are e4all a!!licable to sch a branch$ In sch a sitation& the oerseas branch of an Indian =om!an wold re4ire or !rior a!!roal of '?I for nderta#ing an ca!ital accont or a crrent accont transaction which is otherwise not !ermitted either b wa of a general or s!ecial !ermission$
1.3: OBJECTIVES AND EXTENT OF FEMA.
The objectie of the Act is to consolidate and amend the law relating to foreign exchange exchange with the objectie objectie of facilitating facilitating external trade trade and !aments and for !romoting the orderl deelo!ment and maintenance of foreign exchange mar#et in India$ FEMA FEMA exten extends ds to the the whol wholee of Indi India$ a$ It a!!l a!!lie iess to all all bran branch ches& es& offi office cess and and agencies otside India owned or controlled b a !erson who is a resident of India and also to an contraention there nder committed otside India b an !erson to whom this Act a!!lies$ Exce!t Exce!t with the general general or s!ecial s!ecial !ermission !ermission of the 'esere ?an# of India& India & no !erson can5 •
deal in or transfer an foreign exchange or foreign secrit to secrit to an !erson not being an athori:ed !erson@ !erson @ 3
A STUDY OF FEMA 1999.
•
ma#e an !ament to or for the credit of an !erson resident otside India in
•
an manner@ receie otherwise throgh an athori:ed !erson& an !ament b order or on
•
behalf of an !erson resident otside India in an manner@ 'easonable restrictions for crrent accont transactions as ma be !rescribed$
An !erson ma sell or draw foreign exchange to or from an athori:ed !erson for a ca!ital accont transaction$ The 'esere ?an# ma& in consltation with the =entral *oernment& s!ecif5 • •
an class or classes of ca!ital accont transactions which are !ermissible@ the limit ! to which foreign exchange shall be admissible for sch transactions
3oweer& the 'esere ?an# cannot im!ose an restriction on the drawing of foreign exchange for !aments de on accont of amorti:ation of loans or for de!reciation of direct inestments in the ordinar corse of bsiness$ The 'esere ?an# can& b reglations& !rohibit& restrict or reglate the following5
•
transfer or isse of an foreign secrit b a !erson resident in India@ transfer or isse of an secrit b a !erson resident otside India@ transfer or isse of an secrit or foreign secrit b an branch& office or
•
agenc in India of a !erson resident otside India@ an borrowing or lending in foreign exchange in whateer form or b
•
whateer name called@ an borrowing or tending in r!ees in whateer form or b whateer name
•
called between a !erson resident in India and a !erson resident otside India@ de!osits between !ersons resident in India and !ersons resident otside
• •
• •
India@ ex!ort& im!ort or holding of crrenc or crrenc notes@ transfer of immoable !ro!ert otside India& other than a lease not exceeding fie ears& b a !erson resident in India@ 4
A STUDY OF FEMA 1999.
•
ac4isition or transfer of immoable !ro!ert in India& other than a lease not
•
exceeding fie ears& b a !erson resident otside India@ giing of a garantee or sret in res!ect of an debt& obligation or other liabilit incrred (i) b a !erson resident in India and owed to a !erson resident otside (ii)
India or ? a !erson resident otside India$
A !erson& resident in India ma hold& own& transfer or inest in foreign crrenc& foreign secrit or an immoable !ro!ert sitated otside India if sch crrenc& secrit or !ro!ert was ac4ired& held or owned b sch !erson when he was resident otside India or inherited from a !erson who was resident otside India$ A !erson resident otside India ma hold& own& transfer or inest in Indian crrenc& secrit or an immoable !ro!ert sitated in India if sch crrenc& secrit or !ro!ert was ac4ired& held or owned b sch !erson when he was resident in India or inherited from a !erson who was resident in India$ The 'esere ?an# ma& b reglation& !rohibit& restrict& or reglate establishment in India of a branch& office or other !lace of bsiness b a !erson resident otside India& for carring on an actiit relating to sch branch& office or other !lace of bsiness$ Eer ex!orter of goods and serices mst 5 •
frnish to the 'esere ?an# or to sch other athorit a declaration in sch form and in sch manner as ma be s!ecified& containing tre and correct material !articlars& inclding the amont re!resenting the fll ex!ort ale or& if the fll ex!ort ale of the goods is not ascertainable at the time of ex!ort& the ale which the ex!orter& haing regard to the !reailing mar#et conditions& ex!ects to receie on the sale of the goods in a mar#et otside India@
5
A STUDY OF FEMA 1999.
•
Frnish to the 'esere ?an# sch other information as ma be re4ired b the 'esere ?an# for the !r!ose of ensring the reali:ation of the ex!ort !roceeds b sch ex!orter$
The 'esere ?an# ma& for the !r!ose of ensring that the fll ex!ort ale of the goods or sch redced ale of the goods as the 'esere ?an# determines& haing regard to the !reailing mar#etconditions& is receied withot an dela& direct an ex!orter to com!l with sch re4irements as it deems fit$ +here an amont of foreign exchange is de or has accred to an !erson resident in India& sch !erson shall ta#e all reasonable ste!s to reali:e and re!atriate to India sch foreign exchange within sch !eriod and in sch manner as ma be s!ecified b the 'esere ?an#$
CHAPTER 2: IMPLICATIONS OF FEMA ON DIFFERENT CATEGORIES.
6
A STUDY OF FEMA 1999.
2.1: CATEGORIES & STATUS OF DIFFERENT PERSONS.
?roadl s!ea#ing FEMA& coers& three different t!es of categories& and deals differentl with them5 These categories are5 1$ %erson .$ %erson 'esident In India 8$ %erson 'esident ,tside India 1$ %erson5 For the !r!ose of !roisions& a !erson shall inclde an of the following5 •
An indiidal
•
A 3ind 2ndiided famil
•
A com!an
•
A Firm
•
An association of !ersons or a bod of indiidals& whether incor!orated or not&
•
Eer artificial jdicial !erson& not falling within an of the !receding sb clases& and
•
An agenc& office or branch owned or controlled b sch !erson$ 7
A STUDY OF FEMA 1999.
.$ %erson resident in India5 "A !erson resident in India"& shall inclde an of the following •
A !erson who has been residing in India for more than 1. das& in the last financial ear$ This means if a !erson has to be assessed& as to whether he is !erson resident in India& for an offence committed in Agst .//1& then he shold be residing in India for more than 1. das dring A!ril ./// to
•
March .//1 An !erson or bod cor!orate registered or incor!orated in India& or An office& branch or agenc in India owned or controlled b a !erson
•
resident otside India& or An office& branch or agenc otside India owned or controlled b a !erson
•
resident in India$ 3oweer& in following cases a !erson shall not be !erson resident in India"& een if he is residing in India for more than 1. das in the last financial ear5 i$
A !erson who has gone abroad& for5 Ta#ing ! em!loment otside India or For carring on an bsiness otside India& or For an other !r!ose& which itself wold indicate his intention to sta otside India for an ncertain !eriod$
ii$
imilarl& a !erson who has come to India for an !r!ose exce!t5
8
A STUDY OF FEMA 1999.
Ta#ing ! em!loment in India& or =arring on an bsiness in India& or For an other !r!ose& which itself wold indicate his intention to sta in India for an ncertain !eriod$ 8$ %erson resident otside India5 im!l !tting it& "a !erson resident otside India" means "a !erson who is not resident in India"
2.2: PERSON RESIDENT IN INDIA.
%roision of FEMA& are a!!licable with different im!lication on %erson resident in& and otside India$
+ith res!ect to ;%erson 'esident in India"& the are5 1$ A !erson who is resident in India& can ac4ire& hold& own !ossess or transfer an foreign Exchange& foreign secrit or an immoable !ro!ert sitated otside India& onl according to FEMA F,'EI*B E=2'ITC : means an secrit& in the form of shares& stoc#s& bonds& debentres or an other instrment denominated or ex!ressed in foreign crrenc and incldes secrities ex!ressed in foreign crrenc& bt where redem!tion or an form of retrn sch as interest or diidends is !aable in Indian crrenc .$ The 'esere ?an# of India ('$?$I)& ma !rohibit& restrict or reglate an of the following5 9
A STUDY OF FEMA 1999.
i$ ii$
Transfer or isse of an foreign secrit b a !erson resident in India$ An borrowing or lending in r!ees in whateer form or b whateer name called between a !erson resident in India and a !erson resident otside India$
iii$
De!osits between !ersons resident in India and !erson resident otside India5
'$?$I$ ma ma#e all these restrictions& in general or with res!ect to "=a!ital Accont Transactions$" "=A%ITA- A==,2BT T'ABA=TI,B" means a transaction& which alters the assets or liabilities& inclding contingent liabilities& otside India of !ersons resident in India or assets or liabilities in India of !ersons resident otside India$ i$
*iing of a garantee or sret in res!ect of an debt& obligation or other liabilit incrred& b a !erson resident in India and owed to a !erson resident otside India$
$
Transfer of immoable !ro!ert otside India& other than a lease not& exceeding fie ears& b a !erson resident otside India$
$ A !erson resident in India ma hold& own transfer or inest in foreign crrenc& foreign secrit or an immoable !ro!ert sitated otside India if sch crrenc& secrit or !ro!ert was ac4ired& held or owned b sch !erson when he was resident otside India or inherited from a !erson who was resident otside India$
10
A STUDY OF FEMA 1999.
$ If an amont of foreign exchange has become de or has accred to an !erson resident in India& then he shall ta#e ste!s to realise and bring it bac# to India within the time frame and manner s!ecified b 'esere ?an# 2.3: PERSON RESIDENT OUTSIDE INDIA .
Im!lications of FEMA& on "%erson 'esident otside India"& are as follows5 1$ For ma#ing an sort of !ament in an manner& to a "!erson resident otside India"& !roisions of FEMA has to be com!lied& and also general or s!ecial !ermission of 'esere ?an# is re4ired imilarl& for receiing an !ament b order or on behalf of an "!erson resident otside" in an manner& !roisions of FEMA has to be com!lied& and also general or s!ecial !ermission of 'esere ?an# is re4ired$ .$ The 'esere ?an# ma !rohibit& restrict or reglate an of the following i$ ii$
Transfer or isse of an secrit b a !erson resident otside India$ Transfer or isse of an secrit or foreign secrit b an branch& office or agenc in India of a "!erson resident otside India$"
iii$
An borrowing or lending in r!ees in whateer name called between a "!erson resident in India" and a "!erson resident otside India"
i$
De!osit between "!ersons resident in India" and "!ersons resident otside India"
$
Ac4isition or transfer of immoable !ro!ert in India other than a lease& not exceeding fie ears& b a !erson resident otside india$
11
A STUDY OF FEMA 1999.
i$
*iing of a garantee or sret in res!ect of an debt& obligation or other liabilit incrred& b a !erson resident otside India$
The 'esere ?an# of India ma also reglate the aboe noted actiities& with res!ect to "=a!ital Accont Transactions"$ 8$ A "!erson resident in india" ma hold& own& transfer or inest in foreign crrenc& foreign secrit& or an immoable !ro!ert sitated otside India if sch crrenc& secrit or !ro!ert was ac4ired& held or owned b sch !erson when he was resident otside India" or inherited from a "!erson who was resident otside India$" $ A "!erson resident otside India" ma hold& own& transfer or inest in Indian crrenc& secrit or an immoable !ro!ert sitated in India if sch crrenc& secrit or !ro!ert was ac4ired& held or owned b sch !erson when he was "resident in India" or inherited from a !erson who was resident in India$ 2.4: EXEMPTIONS UNDER FEMA.
=ircmstances where holding and re!atriation of foreign exchange is "exem!ted" from FEMA rles5 In following circmstances& the !roisions of FEMA will not a!!l with regard to 3olding and 'e!atriation of Foreign Exchange : •
%ossession of foreign crrenc or foreign coins b an !erson !to sch limit as
•
the 'esere ?an# ma s!ecif$ Foreign crrenc accont held or o!erated b sch !erson or class of !ersons and the limit !to& which the 'esere ?an# s!ecifies$ 12
A STUDY OF FEMA 1999.
•
Foreign Exchange ac4ired or receied before the th da of 0l 197 or an income arising or accring thereon& which is held otside India b an !erson in
•
!rsance of a general or s!ecial !ermission granted b the 'esere ?an#$ Foreign Exchange held b a !erson resident in India !to sch limit as the 'esere ?an# ma s!ecif& if sch foreign exchange was ac4ired b wa of gift or inheritance from a !erson who ac4ired or receied it before th of 0l 197 or if the income has occrred to him& which was held otside India in
•
!rsance of a general or s!ecial !ermission granted b the 'esere ?an#$ Foreign Exchange ac4ired from em!loment& bsiness& trade ocation& serices& honorarim& gifts& inheritance or an other legitimate means !to sch
•
limit as the 'esere ?an# ma s!ecif$ ch other recei!t in foreign Exchange as the 'esere ?an# ma s!ecif$
2.: IMPORTANT PROVISIONS FROM FEMA.
ome of the releant !roisions of Exchange =ontrol Manal nder FEMA& which still exist& are5
•
REFUND OF IN!ARD REMITTANCES: If a re4est is made from the oerseas for cancellation of Inward 'emittances&
Athorised Dealers ma do so withot referring to 'esere ?an#& if refnds are not to com!ensate for a loss$ •
APPLICATION FOR REMITTANCES IN FOREIGN CURRENCY:
i$
A !erson firm or ban# ma a!!l to an Athorised Dealer for remittances in an foreign crrenc to a beneficiar abroad$
13
A STUDY OF FEMA 1999.
ii$
A!!lication shold be made in F,'M A1& if the !r!ose of remittance is im!ort of goods into India$
iii$
For an other !r!ose in FormA.
i$
The Athorised Dealer ma sell the foreign Exchange a!!lied for if he thin# fit !roided it is within his !owers& and the !r!ose of remittance is an a!!roed one$
•
MODE OF PAYMENT OF RUPEES AGAINST SALE OF FOREIGN EXCHANGE: In case of sale of foreign Exchange or remittance foreign
Exchange amonting to 's$ ./&/// or more the !ament receied b the Athorised Dealer& from the a!!licant shold be throgh a crossed che4e drawn on the a!!licant ban# accont or on the ban# accont of the Firm6 =om!an$ %ament can also be acce!ted in the form of a ?an#ers che4e 6 %a ,rder 6 Demand Draft$ 'ecei!t of %ament in cash in case of sch sale of •
foreign Exchange or remittance in foreign Exchange is strictl !rohibited$ TRAVELLERS CHE"UE NEGOTIABLE ONLY IN INDIA: '!ee Traelers che4e cannot be encashed otside India& if the are issed solel for se within India$ In sch a case the cannot be ta#en or sent ot of India$ 'eimbrsements shold be strictl refsed where sch traellersche4es hae been encashed otside India$
•
REIMBURSEMENT OUTSIDE INDIA: '!ee Traelers che4e& which is
issed b athorised dealers& encashable otside India& ma be reimbrsed b Athorised Dealers or b their selling Agent$ •
IMPORT OF FOREIGN CURRENCY NOTES: +hen the stoc# of foreign
crrenc notes with Athorised Dealer is not ade4ate for meeting their normal 14
A STUDY OF FEMA 1999.
bsiness re4irement the cold im!ort foreign crrenc notes from their oerseas branches or corres!ondents$ RECONVERSION OF INDIAN CURRENCY:
i$
Foreign crrenc ma be sold against Indian '!ees held b !ersons who are not resident of India bt are !assing throgh or leaing India after a isit& at the time of their de!artre from India$
ii$
For this !r!ose& a ?an# or Encashment certificate issed b Athorised Dealer& exchange brea or Athorised Mone changer in form ?=I& E=F ,' E='& is re4ired to show that the r!ee had been ac4ired b sale of foreign Exchange to an Athorised Dealer or mone changer in India$
iii$
ch a certificate is alid for sch reconersion i$e$ a !eriod of three months is not oer from the date of sale of the foreign crrenc b the traeller
•
RATES OF EXCHANGE: Athorised dealers and their Exchange brea ma
b from and sell to !blic foreign crrenc notes and coins at rates of exchange determined b mar#et conditions$ Dealings in foreign crrenc notes and coins between athorised dealers and between athorised dealers and mone changers wold also be at rates determined b mar#et conditions
15
A STUDY OF FEMA 1999.
CHAPTER 3: FERA AND FEMA# COMPARISION. 8$1 IMI-A'ITIE 8$. DIFFE'EB=E 8$8 =3AB*E6%',*'EI,B F',M FE'A T, FEMA A TE% A3EAD 3.1: SIMILARITIES.
The similarities between FE'A and FEMA are as follows5 1$ The 'esere ?an# of India and central goernment wold contine to be the reglator bodies$
16
A STUDY OF FEMA 1999.
.$ %resm!tion of extra territorial jrisdiction as enisaged in section (1) of FE'A has been retained$ 8$ The Directorate of Enforcement contines to be the agenc for enforcement of the !roisions of the law sch as condcting search and sei:re
3.2: DIFFERENCES BET!EEN FERA AND FEMA. S$. DIFFERENCES N% 1 %',GII,B
.
8
FERA
FEMA
FE'A consisted of 1 FEMA is mch sim!le& and consist of sections& and was more onl 9 sections$ com!lex FEAT2'E %resm!tion of negatie These !resm!tions of Mens 'ea and intention (Mens 'ea ) abatement hae been exclded in and joining hands in FEMA offence (abatement) existed in FEMA BE+ TE'M IB Terms li#e =a!ital Terms li#e =a!ital Accont FEMA Accont Transaction& Transaction& crrent accont crrent Accont Transaction !erson& serice etc$& hae Transaction& !erson& been defined in detail in FEMA serice etc$ were not defined in FE'A$ DEFIBITI,B ,F Definition of The definition of Athorised !erson A2T3,'IED "Athorised %erson" in has been widened to inclde ban#s& %E',B FE'A was a narrow one mone changes& off shore ban#ing ( .(b) 2nits etc$ (. ( c ) MEABIB* ,F There was a big The !roision of FEMA& are in "'EIDEBT" A difference in the consistent with income Tax Act& in =,M%A'ED +IT3 definition of "'esident"& res!ect to the definition of term " IB=,ME TAH A=T$ nder FE'A& and 'esident"$ Bow the criteria of "In Income Tax Act India for 1. das" to ma#e a !erson resident has been broght nder FEMA$ Therefore a !erson who 17
A STUDY OF FEMA 1999.
%2BI3MEBT
7 J2ABT2M ,F %EBA-TC$
A%%EA-
9 'I*3T ,F AITAB=E D2'IB* -E*A%',=EEDIB*$ 1/ %,+E' ,F EA'=3 ABD EIKE
4alifies to be a nonresident nder the income Tax Act& 191 will also be considered a nonresident for the !r!oses of a!!lication of FEMA& bt a !erson who is considered to be non resident nder FEMA ma not necessaril be a nonresident nder the Income Tax Act& for instance a bsiness man going abroad and staing therefor a !eriod of 1. das or more in a financial ear will become a nonresident nder FEMA$ 3ere& the offence is considered to be a ciil offence onl !nishable with some amont of mone as a !enalt$ Im!risonment is !rescribed onl when one fails to !a the !enalt$
An offence nder FE'A& was a criminal offence & !nishable with im!risonment as !er code of criminal !rocedre& 1978 The monetar !enalt 2nder FEMA the 4antm of !enalt !aable nder FE'A& has been considerabl decreased to was nearl the fie times three times the amont inoled$ the amont inoled$ An a!!eal against the The a!!ellate athorit nder FEMA order of "Adjdicating is the s!ecial Director office"& before " Foreign ( A!!eals)A!!eal against the order of Exchange 'eglation Adjdicating Athorities and s!ecial A!!ellate ?oard went Director (a!!eals) lies before before 3igh =ort "A!!ellate Tribnal for Foreign Exchange$"An a!!eal from an order of A!!ellate Tribnal wold lie to the 3igh =ort$ (sec 17&1&8) FE'A did not contain FEMA ex!ressl recognises the right an ex!ress !roision on of a!!ellant to ta#e assistance of legal the right of on !ractitioner or chartered accontant im!leaded !erson to ta#e (8.) legal assistance FE'A conferred wide The sco!e and !ower of search and !owers on a !olice sei:re has been crtailed to a great officer not below the extent 18
A STUDY OF FEMA 1999.
ran# of a De!t !erintendent of %olice to ma#e a search
3.3: A STEP AHEAD FROM FERA TO FEMA.
Enactment of FEMA has broght in man changes in the dealings of Foreign Exchange& as com!ared to FE'A$ ome of them are restrictie& and some has widened the sco!e$ 3oweer some of the releant !rogress made& from FE'A to FEMA& are as follows5 1$ D$'( %) )%$*+,- */0-,*: Bow& the restrictions on drawal of Foreign Exchange for the !r!ose of crrent Accont Transactions& has been remoed$ 3oweer& the =entral *oernment ma& in !blic interest in consltation with the 'esere ?an# im!ose sch reasonable restrictions for crrent accont transactions as ma be !rescribed$ FEMA has also b and large remoed the restrictions on transactions in foreign Exchange on accont of trade in goods& serices exce!t for retaining certain enabling !roisions for the =entral *oernment to im!ose reasonable restriction in !blic interest$ .$ O++%- %) /$++-( $%/**+-,:
19
A STUDY OF FEMA 1999.
2nder FE'A& an contraention was a criminal offence and the !roceedings were goerned b the code of =riminal %rocedre$ Moreoer the Enforcement Directorate had !owers to arrest an !erson& search an !remises& sei:e docments& initiate !roceeding$
Bow all these hae been done awa with& and contraention of FEMA is no more a =riminal offence& and onl monetar !enalt& i$e$ ciil !roceedings are a!!licable$ =iil im!risonment is !roided& onl in case of defalt to !a fine$ 8$ R*+*-5+( 556: The definition of "'esidential tats" nder FEMA has gone throgh considerable change$ It has now been made com!atible with the definition !roided nder "Income Tax" Act$
The residential stats is now based on the !hsical sta of the !erson in the contr$ The !eriod of 1. das as !roided& indicates that it is not necessar that there shold be a continos !eriod of sta$ The !eriod of sta wold be calclated b adding ! all the das of sta of the indiidal in the contr$
An Indian resident becomes a nonresident when he goes abroad and ta#es ! a job or engages in bsiness$
A major change in the definition of residential stats of !artnershi!s and firms in worth noticing$ Earlier& nder FE'A& a branch was considered a resident of a !lace where it was sitated$ Bow& nder FEMA& an office& branch or agenc otside India owned or controlled b a !erson resident in India will be considered a resident in India for the !r!oses of this Act$ 20
A STUDY OF FEMA 1999.
For exam!le& a !erson residing in India has a branch in Martis@ sch branch will be considered a resident in India$ $ I%78(* $%*$5 %65+* I-+: Earlier& nder FE'A& there was no restriction !laced on foreign citi:ens who were residents of India& for ac4iring immoable !ro!ert otside India$
Bow FEMA !rohibits a resident to ac4ire& own !rocess& hold or transfer an immoable !ro!ert sitated otside India$ This restriction a!!lies irres!ectie of whether the resident is an Indian citi:en or foreign citi:en$ +ith this !roision being effectie a foreign citi:en who is a resident in India has to ta#e a!!roal of 'esere ?an# of India for selling or bing an immoable !ro!ert sitated otside India$
$ I%78(* $%*$5 +- I-+: Earlier& nder FE'A& a foreign citi:en cold ac4ire or transfer immoable !ro!ert in India onl after see#ing !ermission from the 'esere ?an#$
Bow& nder FEMA& the control of 'esere ?an# is determined b the residential stats of a !erson$ ,nl a nonresident as defined within the meaning of FEMA wold re4ire !ermission of the 'esere ?an# to ac4ire or transfer an immoable
21
A STUDY OF FEMA 1999.
!ro!ert in India$ The distinction based on citi:enshi! has been abolished and that based on residentshi! has been introdced$ $ E%$5 %) *$7+/*: FE'A had no !roision for ex!ort of serices$ Bow& FEMA has inclded !ament receied b an Ex!orter of erices in its ambit$ Eer Ex!orter& who receies !ament from otside India& for his serices rendered is obliged to frnish details of !ament to the 'esere ?an#$ For exam!le@ a Doctor& or Engineer or -awer or Accontant or an other !rofessional ma gie o!inions or consltation to !eo!le otside India& ia internet or mail& and his fees ma be credited to his credit accont$ Then he is obliged to frnish details of sch !ament to 'esere ?an#$ 7$ I-/(6+%- %) -*' 5*$: ome new
terms li#e
"=a!ital Accont
Transactions& =rrent Accont
Transactions"@ hae been inclded in FEMA$ 'esere ?an# has been confirmed with !owers and with consltation with central goernment to s!ecif maximm !ermissible limit !to which exchange is admissible for sch transactions$
CHAPTER 4: TYPE OF OFFENCES.
Althogh nder FEMA& offences !ertain to transactions in foreign Exchange onl$ 3oweer releant offences are as follows5
4.1: DETAILS IN FOREIGN EXCHANGE.
22
A STUDY OF FEMA 1999.
•
•
,nl a !erson Athori:ed b 'esere ?an# can deal in foreign Exchange Bo one can ma#e a !ament to a !erson resident otside India& withot !ermission of 'esere ?an#$
•
Bo one receies an !ament from a !erson resident otside India& withot !ermission of 'esere ?an#$
•
A !erson resident in India cannot deal in foreign exchange& foreign secrit or an immoable !ro!ert sitated otside India& withot !ermission of 'esere ?an#$ (sec )
•
imilarl a !erson resident otside India& cannot ac4ire immoable !ro!ert in India withot !ermission$
EXPORTER OF GOODS AND SERVICES.
Eer ex!orter of goods and serices is nder an obligation& to gie details to 'esere ?an# regarding ale of ex!ort& mode of !ament& amont of !ament receied etc$
REPATRIATION OF FOREIGN EXCHANGE.
23
A STUDY OF FEMA 1999.
+here an amont of foreign exchange has become de or accred to an !erson who is a resident in India& he shall realise and re!atriate (?ring ?ac#) sch amont& within the time s!ecified b 'esere ?an#$
AUTHORISED PERSON.
An "Athorised %erson" nder FEMA& is a !erson who is athorised b 'esere ?an# to deal in Foreign Exchange$ For being registered as an "Athorised %erson"& necessar a!!lication alongwith releant docments has to be frnished to 'esere ?an#$ An "Athorised %erson" is also& not gien a free hand to deal in foreign Exchange$ 3e has to frnish details and information& to 'esere ?an# from time to time as ma be re4ired b it$
4.2: PROSECUTION OF OFFENCES COMMITTED.
24
A STUDY OF FEMA 1999.
?efore detailing the !rocedre for !rosection& it is im!ortant to mar# ot the Adjdicating Agencies$ The are5
ADJUDICATING AUTHORITY.
The in4ir of an contraention of FEMA is condcted b an Adjdicating Athorit a!!ointed b the =entral *oernment$
APPEAL TO SPECIAL DIRECTOR APPEALS;.
The s!ecial Director (A!!eals) is athorised to hear the a!!eals arising ot of in order of the Adjdicating Athorit$
APPEAL TO THE APPELLATE TRIBUNAL.
The A!!ellate Tribnal is entitled to hear a!!eals made in accordance& from an order made b Adjdicating Athorit or s!ecial Director (A!!eals)$
DIRECTOR OF ENFORCEMENT.
The Director of Enforcement and other officers has !ower to condct inestigation& search and sei:e an articles$
4.3: PROCEDURE$
25
A STUDY OF FEMA 1999.
IN"UIRY BY ADJUDICATING AUTHORITY 14;.
The in4ir of an contraention of FEMA is condcted b an Adjdicating Athorit$ 1$ +hen& an in4ir is to be condcted against a !erson for an contraention@ the Adjdicating Athorit shall isse a notice to sch !erson$ .$ The notice will also indicate the date on which the offender is re4ired to a!!ear before athorit& and will also mention the natre of offence committed b him$ 8$ ch !erson (offender) will hae a right to gie reasons or ex!lanation& and then a date will be fixed for his a!!earance$ 3e can a!!ear either !ersonall or throgh an Adocate or chartered accontant$ $ ,n the date of a!!earance& the Adjdicating Athorit shall !resent its case& and ex!lain the reason and t!e L im!lications of offence committed b offender$ $ Then in trn& sch !erson will also be gien an o!!ortnit to !t ! his case& and to !rodce docments and eidence$ $ Finall& if Adjdicating Athorit is coninced& that the offender has committed an offence& then it will im!ose sch fine and !enalt& as it thin#s fit$
26
A STUDY OF FEMA 1999.
APPEAL TO SPECIAL DIRECTOR APPEALS; 1<;.
A!!eal from an order of "Adjdicating Athorit" lies before" s!ecial Director (a!!eal)" 1$ The a!!eal shall be made in "Form Bo$ 1"& alongwith three co!ies of the order a!!ealed against and the re4isite fees$ .$ The a!!eal shold be filed within das& from the date of recei!t of recei!t of im!gned order$ 8$ ,n the date of hearing the a!!eal the a!!licant ma a!!oint a legal !ractitioner or a chartered accontant to a!!ear& !lead and act on their behalf before the s!ecial Director (A!!eal) $ The order of the s!ecial Director (A!!eals) made at the conclsion of the !roceedings shall be in writing and shall state briefl the gronds for the decision$
APPEAL TO THE APPELLATE TRIBUNAL 19;.
"A!!ellate Tribnal" is entitled to hear a!!eal arising ot of an order from "Adjdicating Athorit" and "s!ecial Director (a!!eal)$" 1$ The a!!eal shall be made in Form Bo$ .& alongwith three co!ies of the im!gned order and re4isite fees$
27
A STUDY OF FEMA 1999.
.$ The a!!eal shall be made within das& from the date on which co! of the im!gned order is receied$ 8$ A co! of the order and a!!eal shall be sent to the o!!osite !art& i$e$ "Director of Enforcement&" and a date shall be fixed for hearing of the a!!eal$ $ The a!!ellant shall hae the right to !resent his case6a!!eal throgh a legal !ractitioner or chartered Accontant$ $ ,n the fixed date of hearing& the "A!!ellate Tribnal" shall !ass its order in writing and the reasons therefore$
APPEAL TO HIGH COURT 3;.
1$ An a!!eal from the decision of "A!!ellate Tribnal" lies before 3igh =ort$ .$ The a!!eal shall be filed within "/ das" from the date of commnication of the decision or order of the A!!ellate Tribnal to him on an 4estion of law arising from the im!gned order$
4.4: AMOUNT OF PENALTY.
An contraention& nder FEMA& ma inite following #inds of !enalties5 1$ If& the amont against which offence is 4antities& then !enalt will be "T3'I=E" the sm inoled in contraention$
28
A STUDY OF FEMA 1999.
.$ +here the amont cannot be 4antified the !enalt ma be im!osed !to two la#h r!ees$ 8$ If& the contraention is contining eer da& then 's$ Fie Thosand for eer da after the first da dring which the contraention contines$ Frther in addition to the !enalt& an crrenc& secrit or other mone or !ro!ert inoled in the contraention ma also be confiscated$
29
A STUDY OF FEMA 1999.
CHAPTER : CONCLUSION . Foreign Exchange Management Act& 1999 (FEMA) has com!leted a decade of its existence$ It re!laced Foreign Exchange 'eglation Act& 1978 (FE'A) with effect from 1st 0ne& .///$ The re!lacement was a great sigh of relief for the !eo!le as FE'A was ndl stringent in its criminal !roisions$ FEMA is a ciil law and !roactie in its otloo# com!ared to FE'A$ The thrst of FEMA is to ;manage< the scarce foreign exchange resorces of the contr rather than to ;control< them as was !realent nder FE'A$
FEMA has formall recognised the distinction between =rrent Accont and =a!ital Accont Transactions$ Two golden rles or !rinci!les in FEMA are mentioned below5
• •
All =rrent accont transactions are !ermitted nless otherwise !rohibited@ and All =a!ital accont transactions are !rohibited nless otherwise !ermitted$
2nder the FE'A regime& the thrst was on reglation and control of the scarce foreign exchange& whereas nder the FEMA& em!hasis is on management of foreign exchange resorces$ Ths& there is a clear shift in focs from control to management$ Therefore& nder FE'A& it was safe to !resme that an transaction
30
