1. Foreign Exchange Management Act, 1999 Subject: International Financial Management Prepared by: Meeta Sondagar (Roll no. 29) & Mittali Shah (Roll no. 27)

2. Outlines 1. Scope of the Act 2. Provisions relating to an Authorized person 3. Regulation and Management of Foreign Exchange 4. Contraventions and Penalties 5. Adjudication and Enforcement 6. Directorate of Enforcement 7. Miscellaneous provisions

3. Part – 1: Scope of the Act INTRODUCTION:  FEMA, 1999 replaces the FERA, 1973  FERA was introduced in 1974 to consolidate and amend the existing law relating to foreign Exchange.  FERA was amended in 1993 to bring about certain changes, as a result of introduction of economic reforms and liberalization of the Indian economy.

4. FERA V. FEMA  The preamble to FERA and FEMA would bring out the basic difference between two.  The preamble to FERA reads: An Act to consolidate and amend the law regulating certain payment, dealings in foreign exchange and securities, transactions affecting foreign exchange and import and export of currency for the conservation of the foreign exchange resources of the country and the proper utilization thereof in the interest of the economic development of the country.  The preamble to FEMA reads: An Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.

5. APPLICABILITY OF THE ACT.  It extends to the whole of India.  It also applies to all branches, offices and agencies outside India owned or controlled by a person resident in India.  The Act has come into force with effect from June 1, 2000.

6. SECTION 2 DEFINES CERTAIN TERMS USED IN THE ACT.  Authorized person [s.10(1)]: (an authorized dealer, money changer, offshore banking unit or any other person for the time being authorized under to deal in foreign exchange)  Capital account transactions: (transactions which alters the assets or liabilities. Including contingent liabilities, outside India or assets or liabilities in India of person resident outside India)  Currency: ( all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers cheques, latter of credit, bills of exchange and promissory notes, credit cards or such other instrument as may be notified by the Reserve Bank.

7.  Currency account trans actions: Transactions other than Capital Account Transactions which includes the following, - 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 loans 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.

8.  Export: i. The taking out of India to a place outside India any goods, ii. Provision of services from India to any persons outside India.  Foreign Exchange: i. Deposits, credits and balances payable in any foreign currency; ii. Drafts, travelers’ cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in any foreign currency. iii. Drafts, travelers’ cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency.

9.  Person: i. An individual ii. A Hindu undivided family, iii. A Company iv. A firm v. As association of persons or a body of individuals, whether incorporated or not, vi. Every artificial juridical person, not falling within any of the preceding sub-clauses, and vii. Any agency, office or branch owned or controlled by such persons.

10.  Overseas Corporate Body (OCB): means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least 60 percent by non-resident Indians.  Person of Indian Origin (PIO): It 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 of 1955; or c) The person is a spouse of an Indian citizen or a person referred to in clauses (a) and (b) above.

11.  Securities: means shares, stock, bonds and debentures, government securities as defined in the public debt act. 1944, saving certificates to which the government saving certificate act, 1959 applies, deposit receipts in respect of deposits of securities and units of the unit trust of India established under S.3 (1) of the unit trust of India Act,1963 or of any mutual fund.

12. Part – 2: Provisions relating to an Authorized Person Sections 10 and 12: AUTHORIZED PERSON: Section 10 provides that the Reserve Bank may, on an application made to it in this behalf, authorize any person to be known as authorize person to deal in foreign exchange or in foreign securities as an authorized dealer, money changer or off-shore banking unit or in any other manner as it deems fit. An authorization so granted may be revoked by the Reserve Bank at any time if it is satisfied that (a) it is in public interest to do so; or (b) the authorized person has failed to comply with the condition subject to which the authorization was granted or has contravened any of the provisions of the Act or any rule, regulation, notification, direction of order made there under.

13. DUTIES OF AN AUTHORISED PERSON:  To comply with RBI directions [s.10(4)].  Not to engage in unauthorized transactions [s.10(4)].  To ensure compliance of FEMA provisions [s.10(5)].  Duty to produce books, accounts etc. [s.12(2)].

14. POWERS OF THE AUTHORIZED PERSON  To deal in or transfer any foreign exchange or foreign security to any person [s.3 (a)].  Receive any payment by order or on behalf of any person resident outside India in any name. [s.3(c)].  However, an authorized person is not allowed to credit the account of any person without any corresponding remittance from any place outside India.  To sell or purchase foreign exchange for current account transaction [s.5].  To sell or purchase foreign exchange for permissible capital account transactions. [s.6].

15. POWERS OF RESERVE BANK TO INSPECT AUTHORIZED PERSON (S.12)  Verifying the correctness of any statement, information or particulars furnished to the Reserve Bank;  Obtaining any information or particulars which such authorized person has failed to furnish on being called upon to do so;  Securing compliance with the provisions of this act or of any rules, regulations, directions or orders made there under.

16. Part – 3: Regulation and Management of Foreign Exchange (Ss. 3 to 9) DEALINGS IN FOREIGN EXCHANGE ETC. (S.3): It prohibits any person other than an authorized person from, (a) dealing in or transferring any foreign exchange or foreign security to any person or (b) making any payment to or for the credit of any person resident outside India in any manner; or (c) receive otherwise than through an authorized person any payment by order or on behalf of any person resident outside India in any manner. (d) Entering into any financial transactions 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.

17.  HOLDING OF FOREIGN EXCHANGE ETC, (S. 4): no person resident in India shall acquire, hold, own, posses or transfer any foreign exchange, foreign security or any immovable property situated outside India.  CURRENT ACCOUNT TRANSACTIONS (S. 5): This section provides that any person may sell or a drawl is a current account transaction.  REGULATION OF CAPITAL ACCOUNT TRANSACTIONS (S.6): Reserve Bank may make regulations to prohibit or restrict or regulate the following: a) Transfer or issue of any foreign security by a person resident in India; b) Transfer or issue of security by a person resident outside India;

18. c)Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India; d) Any borrowing or lending in foreign exchange in whatever form or by whatever name called; e) 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; f)Deposits between person resident in India and person resident outside India;

19. g) Export, import or holding of currency or currency notes; h) Transfer of immovable property outside India, other than a lease not exceeding five years, by a resident outside India; i) Acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India; j)Giving of guarantee or surety in respect of any debt, obligation or other liability incurred (i) by a person resident in India and owed to a person resident outside India; or (ii) by a person resident outside India.

20.  EXPORT OF GOODS AND SERVICES (s.7):  Every exporter is required to furnish to the Reserve Bank for the purpose of ensuring the realization of the export proceeds.  The exporter of services are required to submit information to the Reserve Bank may he prescribed in relation to payment for such services.  REALIZATION AND REPATRIATION OF FOREIGN EXCHANGE (s.8):  It obliges the person resident in India to take all reasonable steps to realize the foreign exchange due or accrued within specified period and in such manner as may be specified by the Reserve Bank.

21.  EXEMPTION FROM REALISATION AND REPATRIATION IN CERTAIN CASES (s.9): a) Possession of foreign currency or foreign coins by any person up to such limit as the Reserve Bank may specify; b) Foreign currency account held or operated by such person or class of persons and the limit up to which the Reserve Bank may specify; c) Foreign exchange held by a person resident in India up to such limit as the Reserve Bank may specify; d) Foreign exchange acquired from employment, business, trade, vocation, services, honorarium, gifts, inheritance or any other legitimate means up to such limit as the Reserve Bank may specify; and e) Such other receipts in foreign exchange as the Reserve Bank may specify.

22. PART - 4: CONTRAVENTION AND PENALTIES  Section 13 to 15  PENALTIES (s.13)  Penalty which may extend up to thrice the sum involved in such contravention where such amount is quantifiable or up to two lakhs rupees where the amount is not quantifiable. If the contravention continues, the penalty of Rs.500 per day after the first day during the period in which the contravention continues shall be imposed.  Adjudicating Authority before making the detention order may leave the defaulter in the custody of the arresting officer for a specified period not exceeding 15days.

23.  ENFORCEMENT OF THE ORDERS OF ADJUDICATING AUTHORITY (s.14):  If a person fails to make full payment of the penalty imposed within a period of 90 days from the date on which the notice of payment of such penalty is served on him, he shall be liable to civil imprisonment.  The arrest warrant may be issued by the Adjudicating Authority if the defaulter fails to make an appearance in pursuance of the notice issued by him.  POWER TO COMPOUND CONTRAVENTIONS (s.15):  This section empowers the Directorate of Enforcement and officers of the Reserve Bank may be authorized by the Central Government in this behalf to compound the offences.  Any contravention under s.13 may be compounded on an application made by the person committing such contravention within 180 days from the date of receipt of application.

24. PART-5: ADJUDICATION AND APPEAL (Section 16 to 35)  APPOINMENT OF ADJUDICATING AUTHORITY (s.16):  The Central Government appoint by notification in the official gazette as many Adjudicating Authorities as it may think fit for holding enquiries, for the purpose of s.13.  The Adjudicating Authority cannot hold any enquiry, unless a complaint is made in writing by an officer authorized by a general or special order of the central government.

25.  APPEAL TO SPECIAL DIRECTOR (s.17):  The Central Government to appoint one or more special Directors to hear the appeals against the orders of the Adjudicating Authorities.  An appeal to the Special Director may be made against the orders of the Assistant Directors of Enforcement if they are acting as Adjudicating Authority.  The appeal shall be filed within 45 days from the date on which the copy of the order made by the Adjudicating Authority is received by the aggrieved party.  ESTABLISHMENT OF APPELLATE TRIBUNAL (s.18):  This section empowers the Central Government to establish and hear appeals against the orders of Adjudicating Authority and Special Director.

26.  APPEAL TO APPELLATE TRIBUNAL (s.19):  The Central Government may prefer an appeal to the Appellate Tribunal.  Any person appealing against the order of the Adjudicating Authority is require to deposit the levied penalty.  On receipt of the appeal, the Appellate Tribunal may pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.  COMPOSITION OF APPELLATE TRIBUNAL (s.20):  The Central Government to appoint a chairman and as many members as it may deem fit.  The Chairperson can also transfer member of one Bench to another Bench.

27.  QUALIFICATIONS OF CHAIRPERSON & SPECIAL DIRECTOR(s.21): For chairperson or a member, (a) The chairperson is or has been a judge of High Court, and (b) The member is or has been a District Judge. For Special Director (Appeals), (a) has been a member of Legal Service or has held a post to Grade one of that service; (b) has been a member of the Indian Revenue Service and has held a post equivalent to a Joint Secretary to the Government of India.

28.  TERM OF OFFICE (s.22):  the chairperson and other member shall hold office for 5 years from the date on which he enters upon his office. a) in the case of chairperson, the age of 65 years. b) in the case of any other member, the age of 62 years.  TERMS AND CONDITIONS OF SERVICE (s.23):  Salary and allowances payable and other terms and conditions of service of all members shall be prescribed.  VACANCIES (s.24):  The Central Government shall appoint another person in accordance with the provision of this Act to fill the vacancy(permanent or temporary).

29.  REGULATION AND REMOVAL (s.25):  The Chairperson may continue to hold office until the expiry of 3 months from the date of receipt of such notice or until a person duly appointed as his successor enters upon his office or until the expiry of term of office, whichever is the earliest.  The Chairperson shall not be removed from his office except by an order by the central government on the misbehavior or incapacity after an inquiry.  MEMBER TO ACT AS CHAIRPERSON IN CERTAIN CIRCUMSTANCES (s.26):  When the Chairperson is unable to discharge his functions owing to absence, illness or any other cause, the senior most member shall discharge the functions of the chairperson until the chairperson resume his duties.

30.  STAFF OF APPELLATE TRIBUNAL AND SPECIAL DIRECTOR (APPESLS) (s.27):  The Central Government shall provide the appellate tribunal and the Special Director (Appeals) with such officer and employees as it may be deem fit.  The salaries and allowances and other conditions of service of the officers and employees shall be prescribed.

31.  POWERS OF APPELLATE AND SPECIAL DIRECTOR (APPEALS) (s.28):  Summoning and enforcing the attendance of any person and examining him on oath;  Requiring the discovery and production of documents;  Receiving evidence on affidavits;  Requisitioning any public record or document or copy of such record or document from any office;  Issuing commissions for the examination of witnesses of documents;  Reviewing its decisions;  Dismissing a representation of default or deciding it ex parte;  Setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and  Any other matter which may be prescribed by central government.

32.  DISTRIBUTION OF BUSINESS AMONG BENCHES (s.29):  Where Benches are constituted, the Chairperson may make provisions and also provide for the matter which may be dealt with by each bench.  POWERS OF CHAIRPERSON TO TRANSFER CASE (s.30):  On the application of any of the parties after notice the chairperson may transfer any case pending before one bench, for disposal to any other bench.  DECISION TO BE BY MAJORITY (s.31):  the chairperson shall hear the point or points which shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it.

33.  RIGHTS OF APPELLANT TO APPOINT PRESENTING OFFICERS. (s.32):  A person may take the assistance of a legal practitioner or a chartered accountant of his choice to present his case before the Appellate Tribunal or Special Director (Appeal), as the case may be.  MEMBERS, ETC TO PUBLIC SERVANTS (s.33):  The chairperson, members and other officers and employee shall be deemed to be public servants within the meaning of s.21 of the Indian Penal Code.

34.  CIVIL COURT NOT TO HAVE JURISDICTION (s.34):  No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter.  APPEAL TO HIGH COURT (s.35):  Any person aggrieved by any decision or order to the Appellate Tribunal may file an appeal to the high court.  appeal must be filed within 60 days from the date of communication of the decision

35.  PART-6: DIRECTORATE OF ENFORCEMENT (s.36 TO 38)  Section 36 provides that the central government shall establish a Directorate of Enforcement with a director and such other officers or class or officers as it thinks fit.  Under section 37, the central government may be notification authorize any officer or class of officers in the central government, state government, Reserve Bank of India, not below the rank of under-secretary to government of India to investigate any such contravention.  Section 38 provides for empowering other officers with the same powers as are mentioned in s.37.

36. PART-7: MISCELLANEOUS PROVISIONS  Section 42 make a provision in the case of contravention by companies where a person committing a contravention of any of the provisions of this act or of any rule, direction or order made there under is a company, every person. (i) “company” means any body corporate and includes a firm or other association of individuals; and (ii) “director”, in relation to a firm, means a partner in the firm.  Section 44 provides that no suit, prosecution on other legal proceeding shall lie against the Central Government or Reserve Bank or any officer of that Government or of the Reserve Bank or any other person exercising any power or discharging any functions or performing any duties under the Act, for anything in good faith done under this Act.