Foreign exchange managemant act 1999

Foreign exchange managemant act 1999,
FEMA 1999
Objectives, Definitions, procedures, current account transactions, capital account transactions, penalties under FEMA 1999.

1. Dr ramandeep Assistant professor Department of commerce Government college for women Sirsa ( haryana ) Foreign Exchange Management Act, 1999

2. Background of FEMA It replaced FERA – Foreign Exchange Regulation Act, 1973 FERA had become incompatible with the pro-liberalisation policies of the Govt. of India. This was done in order to relax the controls on foreign exchange in India, as a result of economic liberalization. FEMA served to make transactions for external trade (exports and imports) easier – some transactions involving current account for external trade no longer required RBI’s permission.

3. FERA vs FEMA The objective of FERA was to conserve forex and prevent its misuse. The objective of FEMA is to facilitate external trade and payments and maintenance of foreign exchange in India. Violation of FERA was considered a criminal offence . Whereas violation of FEMA is considered a civil offence . Under FERA citizenship was a criteria while determining a person as resident of India whereas under FEMA stay of more than 182 days is a criteria to determine residential status of a person.

4. Objectives of the Act To f acilitating external trade and Payments To promote the orderly development and maintenance of foreign exchange market in India.  

5. Few Highlights of FEMA, 1999 FEMA is more transparent in its application. Application of FEMA may be seen broadly from two angles, viz., Capital A/c transactions Current A/c transactions There are 7 types of current transaction which are totally prohibited and no transaction can be undertaken. (Lotteries, football pools, banned magazines and a few others )

6. Definitions “Authorized Person" means an authorized dealer, money changer, off-shore banking unit or any other person for the time being authorized under sub-section (1) of section 10 to deal in foreign exchange or foreign securities;

7. “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;

8. “ currency” includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers cheques, letters of credit, bills of exchange and promissory notes, Debit card, credit card or such other similar instruments, as may be notified by the Reserve Bank;

9. "currency notes" means and includes cash in the form of coins and bank notes;

10. “ current account transaction’’ means a transaction other than a capital account transaction and includes –       ( i ) payments due in connection with foreign trade , other current business, services, and short-term banking and credit facilities in the ordinary course of business,    (ii) payments due as interest on loans and as net income from investments ,       (iii) remittances for living expenses of parents, spouse and children residing abroad, and       (iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children;

11. "foreign exchange" means foreign currency and includes,-   ( i ) deposits, credits and balances payable in any foreign currency,   (ii) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency, (iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency;

12. "person" includes –       ( i ) an individual,       (ii) a Hindu undivided family,       (iii) a company,       (iv) a firm,       (v) an 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

13. "person resident in India" a person residing in India for more than 182 days during the course of the preceding financial year. The expression does not include (a) A person who has gone out of India or who stays outside India, in either case- ( i ) for or on taking up employment outside India or, (ii) for carrying on outside India a business or vocation outside in For any other purpose, indicating his intention to stay outside India for a uncertain period.

14. Indian students studying abroad Notification by RBI in its circular No. 45 (8.12.2003) Buy up to $ 1,00,000 or study fees whichever is higher All facilities as NRI Receive remittances up to $1,00,000 from close relatives up to 1 million USD out of sale proceeds/balances in their account maintained with an AD.

15. (B) A person who has come to or stays in India, in either case, otherwise than – ( i ) for or on taking up employment in India or, (ii) for carrying on a business or vocation in India. (iii)For any other purpose, indicating his intention to stay in India for a uncertain period.

16. (ii) Any person or body of corporate registered or incorporated in India. (iii) An office, branch or agency in India owned by or controlled by a person resident outside India. (iv) An office, branch or agency outside India owned by or controlled by a person resident in India.

17. " person resident outside India " means a person who is not resident in India ;

18. “Repatriate to India” means bringing into India the realized foreign exchange and –     ( i ) the selling of such foreign exchange to an authorized person in India in exchange for rupees, or       (ii) the holding of realized amount in an account with an authorized person in India to the extent notified by the Reserve Bank.

19. Regulation and Management of Foreign Exchange Dealing in foreign exchange - As per the Act, no person shall- deal in or transfer any foreign exchange or foreign security to any person other than an authorized person;     make any payment to or for the credit of any person resident outside India in any manner;    

20. (c) receive , except through an authorized person, any payment by order or on behalf of any person resident outside India in any manner. (d) enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person .

21. Holding of foreign exchange, etc. Except as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.

22. Liberalizations 1. Possession and Retention of Foreign Currency Authorized person can retain and possess foreign currency and coins within the scope of his authority without any limit . Any person can possess foreign coins without any limit A person resident in India can retain foreign currency notes, bank notes, and travelers' cheques not exceeding US $ 2000 or its equivalent in aggregate.

23. Such currency should be acquired by him- While on a visit to any place outside India by way of payment for services only. From any person not resident in India and who is on a visit to India, as honorarium or gift or services rendered. by way of honorarium or gift while on a visit to any place outside India. represents unspent amount of foreign exchange acquired by him from an authorized person.

24. Receipt from, and payment to, a person resident outside India A person resident in India can receive any payment in any of following mode:- Payment made in rupees by order or behalf of a person resident outside India during his stay in India out of rupee funds provided by him by sale of foreign exchange to an authorized dealer or a money changer in India. Payment made by means of a cheque drawn on a bank situated outside India or a bank draft or travelers' cheque issued outside India. If it is in FE, it should be sold to authorized dealer.

25. (iii) Payment made in foreign currency notes directly from out of India. It should be sold to authorized dealer within 7 days from receipt of payment. (iv) Payment by means of postal order issued by a post office outside India or by a postal money order issued by such post office. (7 days)

26. Prohibition on drawal of Foreign Exchange for certain current account transaction Travel to Nepal and Bhutan. Remittance out of lottery winnings. Remittance out of income from racing, riding etc. Payment of commission on exports made towards e quity investment in joint ventures/ wholly owned subsidiaries aboard of Indian companies.

27. Payment of Dividend by any company to which the requirement of dividend balancing is applicable. Payment related to ‘call back services’ of telephones. Remittance of interest income on funds held in Non-resident rupee account scheme.

28. Capital Account Transactions “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.

29. Regulation of Capital Account Transaction T he Reserve Bank may, by regulations, prohibit, restrict or regulate the following- (a) transfer or issue of any foreign security by a person resident in India; (b) transfer or issue of any security by a person resident outside India; (c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India;

30. (d) 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 persons resident in India and persons resident outside India; (g) export, import or holding of currency or currency notes ;

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

32. C apital A ccount Transactions that Cannot be Prohibited A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.

33. A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

34. Realization and R epatriation of Foreign E xchange . Save as otherwise provided in this Act, where any amount of foreign exchange is due or has accrued to any person resident in India, such person shall take all reasonable steps to realize and repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve Bank. ( However there are some exemptions…….)

35. Exemption from realization and repatriation in certain cases. possession of foreign currency or foreign coins by any person up to such limit as the Reserve Bank may specify; foreign currency account held or operated by such person or class of persons and the limit up to which the Reserve Bank may specify;

36. (c) foreign exchange acquired or received before the 8th day of July, 1947 or any income arising or accruing thereon which is held outside India by any person in pursuance of a general or special permission granted by the RBI ;

37. (d) foreign exchange held by a PRI up to such limit as the RBI may specify, if such foreign exchange was acquired by way of gift or inheritance from a person referred to in clause (c), including any income arising there from.

38. (e) foreign exchange acquired from employment, business, trade, vocation, services, honorarium, gifts, inheritance or any other legitimate means up to such limit as the RBI may specify; and (f) such other receipts in foreign exchange as the Reserve Bank may specify.

39. Contravention and Penalties Penalties [Section 13(1)] If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable , or up to 2 lakh rupees where the amount is not quantifiable .

40. where such contravention is a continuing one, further penalty which may extend to 5 thousand rupees for every day after the first day during which the contravention continues.

41. Any Adjudicating Authority adjudging any contravention, if he thinks fit in addition to any penalty may direct that any currency, security or property in respect of which the contravention has taken place shall be confiscated to the Central Government and further direct to defaulting person that such property shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf. Confiscation of Money and Property [Section 13(2)]

42. I f any person fails to make full payment of the penalty imposed on him under section 13 within a period of 90 days from the date on which the notice for payment of such penalty is served on him, he shall be liable to civil imprisonment under this section. (However , the defaulting person shall not be arrested or detained in civil prison unless Adjudicating Authority issue or serve a notice upon him to appear.) Enforcement of the Orders of Adjudicating Authorities [Section 14]

43. The defaulter must be given an opportunity of being heard. Every person detained in the civil prison in execution of the certificate may be so detained - (a) where the certificate is for a demand of an amount exceeding rupees one crore , up to three years , and (b) in any other case, up to six months:

44. Important provisions of- Enforcement of the orders of Adjudicating Authority 1. Obstruction in recovery of Penalty: If the defaulter has obstructed the recovery of penalty, or dishonestly transferred, concealed, or removed any pert of his property. If defaulter has means to pay the amount of penalty but refuses or neglects to pay the same.

45. (2) Intend to Abscond A warrant for the arrest of the defaulter may be issued by the Adjudicating Authority if satisfied, that the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Adjudicating Authority. ( A warrant of arrest issued by the Adjudicating Authority may also be executed by any other Adjudicating Authority within whose jurisdiction the defaulter may for the time being be found.)

46. (3) Non- Compliance of Served Notice: the Adjudicating Authority may issue a warrant for the arrest of the defaulter if such person does not comply with notice issued and served to present himself before the authority.

47. (4) Presenting Arrested person before the authority Every person arrested in pursuance of a warrant of arrest under this section shall be brought before the Adjudicating Authority issuing the warrant as soon as practicable and in any event within 24 hours of his arrest (exclusive of the time required for the journey). Important note:- But, if the defaulter pays the amount entered in the warrant and the costs of arrest to the officer arresting him, he should be released at once.

48. (5) Opportunity of Being Heard When a defaulter appears before the Adjudicating Authority pursuant to a notice to show cause or is brought before the Adjudicating Authority under this section, the Adjudicating Authority shall give the defaulter an opportunity showing cause why he should not be committed to the civil prison

49. (6) Detention in the Custody Pending the conclusion of the inquiry, the Adjudicating Authority may, in his discretion, order the defaulter to be detained in the custody of such officer as the Adjudicating Authority may think fit or release him on his furnishing the security amount to the satisfaction of the Adjudicating Authority for his appearance as and when required .

50. Upon the conclusion of the inquiry, the defaulter will be released by giving an opportunity to satisfy the arrears of penalty with a period of 15 days . If arrears are not satisfied, the Adjudicating Authority may make an order for the detention of the defaulter in the civil prison and cause him to be arrested if he is not already under arrest. Sec 14(9) . point 6 Continue…..

51. (7) Release of Defaulter When the Adjudicating Authority does not make an order of detention under Sec 14(9), he shall, if the defaulter is under arrest, direct his release. (8)Execution of Certificate: Every person detained in the civil prison in execution of the certificate may be so detained- (a) where the certificate is for a demand of an amount exceeding rupees one crore , up to 3years , and (b) in any other case, up to 6 months:

52. (9) Release does not amount to Discharge A defaulter released from detention under this section shall not, merely by reason of his release, be discharged from his liability for the arrears , but he shall not be liable to be arrested under the certificate in execution of which he was detained in the civil prison.

53. Compounding of Offences All contravention punishable under section 13 can be compounded within 180 days from the date of receipt of application by the Director of Enforcement or other authorities. NO compounding allowed: (a) Where amount is not quantifiable. (b) appeal has been filed. (c) contravention has been repeated within 3 years (d) contravention by an authorized dealer

54. Procedure and Process for Compounding of Offences An application for compounding may be submitted to the compounding authority with prescribed fees with relevant facts and supporting documents. The authority may call for any info and record relevant to the compounding proceedings. Such additional info shall be submitted within 30 days . If the contravener fails to submit such info, the application for compounding will be liable to be rejected .

55. The proceeding would be concluded within 180 days from the date of the receipt of the application. The sum for which contravention has been compounded shall be paid within 15 days from the date of order of compounding. The payment shall be made by demand draft (DD) in favor of compounding authority.

56. Appointment of Adjudicating Authority Appointment of Adjudicating Authority The Central Government may, by an order published in the Official Gazette, appoint as many officers of the Central Government as it may thinks fit , as the Adjudicating Authorities for holding an inquiry in the manner prescribed, against the person who has committed contravention and a complaint has been made. Note:- A reasonable opportunity of being heard will be provided before imposing any penalty.

57. (2) Filling of Complaint and Holding of Enquiry No Adjudicating Authority shall hold an enquiry under sub-section (1) except upon a complaint in writing made by any officer authorized by a general or special order by the Central Government.

58. (3) Right to Take Legal Assistance The said person (Defaulter) may appear either in person or take the assistance of a legal practitioner or a chartered accountant (CA) of his choice for presenting his case before the Adjudicating Authority.

59. (4) Power of Adjudicating Authority Every Adjudicating Authority shall have the same powers of a civil court which are conferred on the Appellate Tribunal under sub-section (2) of section 28. All proceedings before it shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 of the Indian Penal Code (45 of 1860);

60. (5) Maximum Time-limit to Dispose off a complaint Every Adjudicating Authority shall deal with the complaints as expeditiously as possible and endeavor shall be made to dispose of the complaint finally within 1 year from the date of receipt of the complaint. ( Note:- If the complaint cannot be disposed off with in 1 year, the AA shall record the reasons in writings.)

61. (6) Appeal to Special Director The Central Government shall, by notification, appoint one or more Special Directors (Appeals) to hear appeals against the orders of the Adjudicating Authorities along with their jurisdictions. Note:- The Special Directors (Appeals) shall have the same powers of a civil court and all proceedings will be deemed to be juridicial proceedings .

62. (7)Time Limit to File an Appeal Every 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 person and it shall be in such form, verified in such manner and be accompanied by such fee as may be prescribed. S ection 17(3) Note:- The special director may entertain an appeal after the expiry of 45 days if he desires so on reasonable grounds.

63. (8) Adjudication of Appeal On receipt of an appeal, the Special Director (Appeals) may after giving the parties to the appeal an opportunity of being heard, pass such order thereon as he thinks fit confirming , modifying or setting aside the order appealed against. Section 17(4) Note:- The Special Director (Appeals) shall send a copy of order made by him to all the parties.

64. (9) Appeal to Appellate Tribunal Any person aggrieved by an order made by an Adjudicating Authority, or the Special Director (Appeals), may file an appeal to the Appellate Tribunal with a period of 45 days and it shall be in such form, verified in such manner and be accompanied by such fee as may be prescribed. Note:- The appellate tribunal may entertain an appeal after the expiry of 45 days if hr desires so on reasonable grounds. Provided that any person appealing against the order levying any penalty, shall while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Central Government

65. (10)Adjudication of Appeal to Appellate Tribunal On receipt of an appeal under sub-section (1), the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against. Section 19(3) Note:- The Appellate Tribunal shall send a copy of every order made by it to the parties.

66. (11) Time Limit of adjudication The appeal filed before the Appellate Tribunal shall be dealt with by it as expeditiously as possible and endeavor shall be made by it to dispose of the appeal finally within 180 days from the date of receipt of the appeal. Note:- The person aggrieved with the decision of the AT may have an appeal to the High Court with in 60 days from the date of decision of the Tribunal.

67. Thank you