FOREIGN EXCHANGE

MANAGEMENT ACT 2000

Foreign exchange regulation
act(FERA) 1973 was reviewed in
1993,because economic
liberalization in relation to foreign
investment and trade made it
necessary for Indian government
to review the provision of FERA.
The aim of review was to have a
batter and closed interaction with
the world economy.
the central government also decided
that further review of FERA would be
under taken in the light of future
developments. Subsequently, it was
felt that it would be better to enact a
new legislation in place of FERA.
Reserve bank of India was ask to
undertake a fresh exercise and
suggest a new legislation.
Since 1993,many important
development has taken place such as
growth in foreign trade, increase in
foreign exchange reserve
rationalizations of tariffs, current
account convertibility. Liberalization in
investment policy etc. taking into
consideration the above facts, a bill
was introduced
The Lok Sabha on august
4th,1998.the bill was referred to
parliamentary standing committee.
After incorporating creation
modifications and suggestions of the
standing committee, the central
government introduced the foreign
exchange management bill 1999.the
bill was finally passed by Lok Sabha
on December 2nd 1999.
CHARACTERSTICS
Following are the main characteristics
of FEMA act 1999:
1:TITLE – the act may be called the
foreign exchange management act
1999.
2:DATE – the FEMA came into force
on June 1st 2000. However the cases
under FERA can be initiated with in 2
years from repeal of FERA i.e. up to
may 31st 2002.
3:APPLICATION – FEMA applies to
whole of India. It also applies to all
branches, offices and agencies
outside India owned or controlled by a
person resident in India.
4: - REASON FOR APPLICATION-
the FEMA replaced due to following
reason.

A ) FERA was not suitable for

liberalization policy. Though certain
amendments were made in 1993 but
they were not sufficient.

B ) after 1993, many important

The provisions of FERA were not
favorable for these changes.
C ) the objective of the FERA was to
conserve foreign exchange resources
which badly affected the comfortable
foreign exchange reserves. So the
FEMA came into the existence.
5 – REGULARISATION AND
MANAGEMENT OF FOREIGN
EXCHANGE- The following provision have
been made in FEMA for the regularization
and management of foreign exchange.
1) restriction on foreign exchange
transaction,
2) restriction on preservation of foreign
exchange.
3) current account transaction,
5) capital account transaction.
6) export of goods and services.
7) recovery and refund of foreign
exchange.
8) exemption of recovery and refund
of foreign exchange in certain cases.
6)VIOLATION OF RULES AND
PUNISHMENT- a person who violets
any rules, provisions, directions or
instructions of the act, shall be liable
for punishment and fine three times of
the sum violated. In case the amount
is not ascertained the punishment
levied shall amount to rupees 2
lawsuit can be raised up to rupees
5000 per day if violation continues.
 7)CONFICATION AND DETENTION
-if a person violates FEMA,his currency
or money, share n securities or any
other property concerning violation
shall be confiscated. Foreign money
or property shall be brought in India or
detained in the foreign country
according to instructions.
8)JUDGEMENT AND APPEAL-the
central government appoints sufficient
number of judge by notification in the
gazette in the prescribed manner. The
judges will examine the violation in
case of FEMA .
OBJECTIVE OF THE FEMA
To facilitate the external trade and
payment
To promote of an orderly
maintenance of the foreign exchange
market In India.
Regulation of foreign capital in India.
To remove imbalance of payment.
To make strong and developed
foreign exchange market.
Regulation of employment business
and investment of non-residents .
To regulate foreign payments.
the new law is more
transparent in its application. it has
laid down the areas where special
permission of the reserve
bank/government of India is required.
SAILENT FEATURES OF THE
ACT
Full freedom to a person resident in
India to hold or transfer any foreign
securities or immovable property
situated outside India.
A person resident outside India is
also permitted to hold shares,
securities and property acquired by
him while he was resident in India.
the EEFC account holders and RFC
account holders are permitted to
freely use the funds held in
EEFC\RFC accounts for payment of
all permissible current account
transactions .
The limit for permitting overdraft
against NRE accounts balance has
been raised from 20,000 to 50,000.
PROVISION OF THE FEMA 2000

1)restriction on dealing on foreign

exchange (section 3).
2)restrictions on holding foreign
exchange (sec 4).
3)current account transaction (sec 5).
4)capital account transaction (sec 6)
5)export of goods and services (sec
7).
6)realization and repatriation of
foreign exchange (sec 8).
7)exemptions from realization and
repatriation in creation cases.
CONTRAVENTIONS AND
PENALTIES UNDER FEMA 2000
(SEC 13-15)
Penalties-sec 13
If a person contravenes any
provisions of this actor contraventions
any role, regulations ,notifications
,directions or order issued by RBI in
exercise of the powers under this act
he shall be liable to:-
A:-a penalty up to three times of the
some involved in such contraventions
if the amount is quantifiable, or
B:-a penalty up to rupees 2 lacks
where the amount is not quantifiable
and if the contraventions is continued
further penalty up to rupees of 20%
creation during the accounting year.