Comparison of FERA & FEMA

FERA
FERA- AN ACT

To amend the law regulating certain payments, dealings in foreign exchange,

effecting foreign exchange and import and export of currency, for the conservation of
the foreign exchange resource of the country and the proper utilization thereof in the
interests of the economic development of the country.
 FERA
 Regulated in India by the Foreign Exchange Regulation Act (FERA),1973.

 Consisted of 91 sections.

 FERA Emphasized strict exchange control.

 Control everything that was specified, relating to foreign exchange

 Law violators were treated as criminal offenders.

 Aimed at minimizing dealings in foreign exchange and foreign securities.

 Why FERA?
 FERA was introduced at a time when foreign exchange (Forex) reserves of the
country were low, Forex being a scarce commodity.

 FERA therefore proceeded on the presumption that all foreign exchange earned by
Indian residents rightfully belonged to the Government of India and had to be
collected and surrendered to the Reserve bank of India (RBI).

 FERA primarily prohibited all transactions, except one’s permitted by RBI.

 Objectives
 To regulate certain payments.

 To regulate dealings in foreign exchange and securities.

 To regulate transactions, indirectly affecting foreign exchange.

 To regulate the import and export of currency.

 To conserve precious foreign exchange.

 The proper utilization of foreign exchange so as to promote the economic

development of the country.
 FOREIGN EXCHANGE
MANAGEMENT,1999[FEMA
• FEMA is “an act to consolidate and among 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”.

• Foreign Exchange Management Act or in short (FEMA) is an

act that provides guidelines for the free flow of foreign
exchange in India.
 The Objectives are as follows
• To regulate impact and export of currency

• To regulate acquisition holding etc .of immovable property in India by NRI’s.

• To regulate holding of property (immovable) outside India.

• To regulate certain payments.

• To regulate Foreign companies.

• To regulates dealing in FE and securities.

• To regulate the transactions indirectly affecting FE.

• To regulate employment of foreign nationals.

• To converse the FE resources of the country and to utilize the same is the
interest of the economic development of the country.
 STRUCTURE OF THE FEMA (ACT)

• FEMA has in all 49 sections of which 9

(section 1 to 9) are substantive and the rest are
procedural/administrative.

• Thus RBI is entrusted with the administration

and implementation of FEMA
The FEMA act extends to the whole of India.
The main provision of the Act are as follows:

Section 2: Clarity on several definitions and terms used in the context of

foreign exchange.

Section 3:Prohibits dealing in Foreign Exchange

Section 4 Holding of foreign Exchange

Section 5 Current account Transaction

Section 6 : Capital account Transaction

Section 7: Export of Goods and Services

Section 8 : Realisation of Repatriation and Foreign Exchange

 Case study: Kites
Allegations:
1.Used foreign exchange meant for production
work to meet personal expenses
2.Carried junk film reels from India for the shoot
but used fresh reels bought in the US
3.Paid Spectrum Entertainment just $ 4.3
million against pending bills of $ 5.9 million
 Background of case
• Production budget of Rs. 60 crore
• Sold for Rs. 110 crore in worldwide rights to
the Reliance Group
• Film shot in Maldives, Mexico and the US
• Spectrum Entertainment hired by Roshan to
manage all outdoor shoots of Kites in the US
• Reels were bought in US and cost Roshan Rs.
50 lakhs
 evaluation
1. The production house is gaining tax benefits
showing personnel expenditure as creative
expenses
2. Evaded duty on Reels, bought from US, when
returned to India
3. Spectrum has all the challans of withdrawals
by Roshan
 conclusions
1. The personal expense, if proved, must only invite
minimal penalty of 3 times the duty evaded
2. Spending of Rs. 50 lakhs in US is violation of
FEMA and can invite penalty of upto 3 times the
original amount applicable
3. The Spectrum matter will not be taken up by the
ED without a proper evaluation of the situation
between the complainant & the Indian
production house
 Rule 3 read with Schedule I:
Prohibited Transactions
• Pymt for travel to Nepal and/or Bhutan
• Remittance out of income from :- lottery winnings,
or racing/riding etc., or any other hobby;
• Remittance for purchase of :- lottery tickets, or
banned/ prescribed magazines, football pools,
sweepstakes etc.
• Pymt of comm. on exports made towards equity
investment in JV abroad of Indian Companies
 Rule 4 read with Schedule II:
Transactions with CG Approval
• Pymt of imports by a Govt. Deptt. or a PSU on CIF
basis
• Cultural Tours
• Remittance of prize money/ sponsorship of
sports activity abroad > US$ 1,00,000 (no
restriction if pymt made by International
/National/ State level Sports Bodies)
• Pymt for health insurance from a company
abroad
Rule 5 read with Schedule III:
(if beyond limits)
Similarities between FERA & FEMA
• The Reserve Bank of India and central
government would continue to be the regulatory
bodies.
• Presumption of extra territorial jurisdiction as
envisaged in section (1) of FERA has been
retained.
• The Directorate of Enforcement continues to be
the agency for enforcement of the provisions of
the law such as conducting search and seizure
 Comparison FERA & FEMA
Differences FERA FEMA

Emphasis On regulation of foreign On management of foreign

exchange exchange

Situation Stringent controls were Stringent controls are not

required on the use of foreign required now
exchange

Permission Need to take permission of No need for seeking the

RBI in connection with permission of RBI except in
remittances case of Section 3

Restrictions Restrictions on drawals of Section 5 removes all

foreign exchange for the restrictions on drawals of
purpose current account foreign exchange
transactions
 Comparison FERA & FEMA
DIFFERENCES FERA FEMA

PROVISIONS FERA consisted of 91 sections, and was more FEMA is much simple, and consist of only 49 sections.
complex

FEATURES Presumption of negative intention (Mens Rea ) These presumptions of Mens Rea and abatement have been
and joining hands in offence (abatement) existed excluded in FEMA
in FERA
NEW TERMS IN Terms like Capital Account Transaction, current Terms like Capital Account Transaction, current account
FEMA Account Transaction, person, service etc. were Transaction person, service etc., have been defined in detail in
not defined in FERA. FEMA.

DEFINITION OF Definition of "Authorized Person" in FERA was a The definition of Authorized person has been widened to include
AUTHORIZED narrow one ( 2(b) banks, money changes, off shore banking Units etc. (2 ( c )
PERSON
MEANING OF There was a big difference in the definition of The provision of FEMA, are in consistent with income Tax Act, in
"RESIDENT" AS "Resident", under FERA, and Income Tax Act respect to the definition of term " Resident". Now the criteria of
COMPARED WITH "In India for 182 days" to make a person resident has been
INCOME TAX ACT. brought under FEMA. Therefore a person who qualifies to be a
  non-resident under the income Tax Act, 1961 will also be
considered a non-resident for the purposes of application of
FEMA, but vice-a-versa may not hold true.
 Comparison FERA & FEMA
PUNISHMENT Any offence under FERA, was a criminal offence , Here, the offence is considered to be a civil
punishable with imprisonment as per code of criminal offence only punishable with some amount of
procedure, 1973 money as a penalty. Imprisonment is prescribed
only when one fails to pay the penalty.

QUANTUM OF PENALTY. The monetary penalty payable under FERA, was nearly Under FEMA the quantum of penalty has been
the five times the amount involved. considerably decreased to three times the
amount involved.

APPEAL An appeal against the order of "Adjudicating office", The appellate authority under FEMA is the special
before " Foreign Exchange Regulation Appellate Board Director ( Appeals) Appeal against the order of
went before High Court Adjudicating Authorities and special Director
(appeals) lies before "Appellate Tribunal for
Foreign Exchange." An appeal from an order of
Appellate Tribunal would lie to the High Court.
(sec 17,18,35)

RIGHT OF ASSISTANCE FERA did not contain any express provision on the right FEMA expressly recognizes the right of appellant
DURING LEGAL of on impleaded person to take legal assistance to take assistance of legal practitioner or
PROCEEDINGS. chartered accountant (32)

POWER OF SEARCH AND FERA conferred wide powers on a police officer not The scope and power of search and seizure has
SEIZE below the rank of a Deputy Superintendent of Police to been curtailed to a great extent
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