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Foreign Exchange Management Act, 1999 With the liberalization and globalization, it was felt that the Foreign

Exchange Regulation Act 1973 (FERA should be re!laced b" a #ore business friendl" enact#ent$ With this %iew in #ind, the Foreign Exchange &anage#ent Act, 1999 ('( of 1999 (FE&A was !assed$ Objective: )he ob*ect of Foreign Exchange Regulation Act, 1973 (FERA was to conser%e the foreign resources, whereas the ob*ects of the Foreign Exchange &anage#ent Act, 1999 (FE&A were to consolidate and a#end the law relating to Foreign Exchange with the ob*ecti%e of facilitating external trade and !a"#ents for !ro#oting the orderl" de%elo!#ent and #aintenance of foreign exchange #ar+et b" ,ndia$ Scope of the Act: (Means where a this Act app ies an! "ow it app ies# 1$ )his Act #a" be called the Foreign Exchange &anage#ent Act, 1999$ ($ ,t extends to the whole of ,ndia$ 3$ ,t shall also a!!l" to all branches, offices and agencies outside ,ndia owned or controlled b" a !erson resident in ,ndia and also to an" contra%ention thereunder co##itted outside ,ndia b" an" !erson to who# this Act a!!lies$ '$ )he Foreign Exchange &anage#ent Act, 1999 (FE&A as also the Rules, -otifications and .rders issued b" the /o%ern#ent of ,ndia and Reser%e 0an+ of ,ndia (R0, under the Act, for# the statutor" basis of Foreign Exchange &anage#ent in ,ndia$ 1$ )he Act has recei%ed the assent of 2resident of ,ndia on (931(31999 and has co#e into force with effect fro# 413453 (444$ Sa ient Feat$res of the Act: )he Foreign Exchange &anage#ent Act, 1999 (FE&A is #ore trans!arent in its a!!lication$ ,t has laid down the areas where s!ecific !er#ission of the Reser%e 0an+ 6 /o%ern#ent of ,ndia is re7uired$ ,n rest of the cases no such !er#ission would be needed and a !erson can re#it funds and ac7uire assets, incur liabilit" in accordance with the s!ecific !ro%isions laid down in the Act or -otifications issued b" the Reser%e 0an+ 6 /o%ern#ent of ,ndia under the Act, without see+ing a!!ro%al of the Reser%e 0an+ 6 /o%ern#ent of ,ndia$ %he sa ient feat$res of FEMA are given be ow: 1$ App ication of FEMA #a" be seen broadl" fro# two angles %iz$, ca!ital account transaction and current account transactions$ (a &apita Acco$nt %ransactions: 8a!ital Account )ransactions release to #o%e#ent of ca!ital, e$g$, transactions in !ro!ert" and in%est#ents and lending and borrowing #one"$ (b &$rrent Acco$nt %ransactions: All other transactions, which do not fall in ca!ital account categor", are current account transactions$ )he" are freel" !er#itted sub*ect to few restrictions$ 9i+e certain transaction needs !er#ission fro# R0, and 8entral /o%enra#ent$ ('n the above two points a c ear $n!erstan!ing is re($ire! between the two t)ps of transactions# *+ Some other Feat$res of the FEMA are: (a )he Foreign Exchange &anage#ent Act and Rules gi%e full freedo# to a !erson resident in ,ndia, who was earlier resident outside ,ndia to hold or own or transfer an" foreign securit" or i##o%able !ro!ert" situated outside ,ndia and ac7uired when he6she was resident there$ 3333 ,ights of persons who is a resi!ent 'n!ian with regar!s to FEMA (b :i#ilar freedo# is also gi%en to a resident who inherits such securit" or i##o%able !ro!ert" fro# a !erson resident outside ,ndia$ (c A !erson resident outside ,ndia is !er#itted to hold shares, securities and !ro!erties ac7uired b" hi# while he6she was resident in ,ndia$ %he above three points !isc$sses the rights or !egree of free!om given to resi!ent 'n!ian an! non resi!ant )o gi%e effect to the !ro%isions of the Act the /o%ern#ent of ,ndia ha%e, a#ong others, #ade Foreign Exchange &anage#ent (8urrent Account )ransactions Rules, (444 under section 1 read with :ection '5 of the Act$ )he Reser%e 0an+ of ,ndia has also #ade the following Rules6Regulations6 issued -otifications under %arious !ro%isions of the Act, which are; (i Rules relating to 8urrent Account )ransactions$ (ii Regulations relating to 8a!ital Account )ransactions$ (iii Regulations relating to Ex!ort of /oods :er%ices$ (i% .ther Regulations 6 -otifications issued b" Reser%e 0an+ of ,ndia$

1+ -efinitions: nee! to have an $n!erstan!ing of the !efinitions+ &hapter . ' of the Act, !ea s with the !efinitions Section * of the Act has !efine! certain wor!s, which have been $se! in the Act+ %he important !efinitions are as fo ows: (1 (( (3 (i (ii /A$thori0e! person/ . 1Section *(c#2 : #eans an authorized dealer, #one" changer, offshore ban+ing unit or an" other !erson for the ti#e being authorized under sub3section (1 of :ection 14 to deal in foreign exchange of foreign securities$ 0asicall" a !erson6organization who has the authorit" to deal in foreign exchange /&$rrenc)/ . 1Section *(h#2: )he currenc" includes all currenc" notes, !ostal orders, #one" orders, che7ues, drafts, tra%elers che7ues, letters of credit, bills of exchange and !ro#issor" notes, credit cards or such other si#ilar instru#ents, as #a" be notified b" the Reser%e 0an+$ /Foreign Exchange/ . 1Section *(n#2 : Foreign Exchange #eans foreign currenc" and include;

de!osits, credits and balances !a"able in an" foreign currenc"$ drafts, tra%eller che7ues, letters of credit or bills of exchange, ex!ressed or drawn in ,ndian currenc" but !a"able in an" foreign currenc"$ (iii drafts, tra%ellers che7ue, letters of credit or bills of exchange drawn b" ban+s, institutions or !ersons outside ,ndia, but !a"able in ,ndian currenc"$ (' (1 (i (ii (iii (i% (% (5 /Foreign &$rrenc)/ . 1Section *(M#2: Foreign 8urrenc" #eans an" currenc" other than ,ndian currenc"$ /3erson/ . 1Section *($#2: 2erson includes; an indi%idual< a hindu undi%ided fa#il"< a co#!an"< a fir#< an association of !erson or a bod" of indi%iduals, whether an" of the !roceeding sub3clauses$ /3erson ,esi!ent in 'n!ia/ . 1Section *(4#2: A !erson resident of ,ndia #eans< A !erson residing in ,ndia for #ore than one hundred and eight" two da"s during the course of the !receding, financial "ear$ ,t is i#!ortant to note that the reason for tra%elling abroad is i#!ortant$ ,f a !erson is sta"ing abroad for an uncertain !eriod he beco#es an -R, if he co#es bac+ before 1=( da"s$ /Sec$rit)/ . 1Section *(0a#2: :ecurit" #eans shares, stoc+s, bonds and debentures$ /o%ern#ent securities as defined in the !ublic debt Act, 19'' (1= of 19'' , :a%ing 8ertificates to which the /o%ern#ent sa%ings 8ertificate Act, 1=19 ('5 of 1919 a!!lies, de!osit recei!ts in res!ect of de!osits and securities and units of the >nit )rust of ,ndia established under :ub3section (1 of :ection 3 of the >nit )rust of ,ndia Act, 1953 (1( of 1953 or of an" #utual fund and including certificates of title to securities, but does not include bills of exchange or notes other than /o%ern#ent 2ro#issor" -otes or an" other instru#entals which #a" be notified b" the Reser%e 0an+ as the securit" for the !ur!oses of this Act$ /&apita Acco$nt %ransaction/ . 1Section *(e#2 : 8a!ital Account )ransaction #eans a transaction which alters the assets or liabilities, including contingent liabilities, outside ,ndia or !ersons resident in ,ndia or assets or liabilities in ,ndia of !ersons resident outside ,ndia, and includes transactions referred to in sub3section (3 of the :ection 5$ /&$rrent Acco$nt %ransaction/ . 1Section *(h#2: 8urrent Account )ransaction #eans, transaction other than a ca!ital account transaction and without !re*udice to the generalit" of the foregoing such transactions includes; 2a"#ent due in connection with foreign trade, other current business, ser%ices and short3ter# ban+ing and credit facilities in the ordinar" course of 0usiness$ 2a"#ents due as interest on loans and as net inco#e fro# in%est#ents$ Re#ittances for li%ing ex!enses of !arents, s!ouse and children residing abroad, and Ex!enses in connection with foreign tra%el, education and #edical care of !arents, s!ouse and children$



(9 (i (ii (iii (i%

*+ ,eg$ ation an! Management of Foreign Exchange: 3rovisions of FEMA -ea ing in Foreign Exchange, Etc+, . 1Section 52: .... who can !ea in Foreign Exchange :a%e as otherwise !ro%ided in this Act, rules or regulations #ade thereunder, or with the general or s!ecial !er#ission of Reser%e 0an+, no !erson shall; (a deal in or transfer an" foreign exchange or foreign securit" to an" !erson not being an authorized !erson< (b #a+e an" !a"#ent to or for the credit of an" !erson resident outside ,ndia in an" #anner< (c recei%e otherwise through an authorized !erson, an" !a"#ent b" order or on behalf of an" !erson resident outside ,ndia in an" #anner< ,n nutshell onl" an authorized !erson shall deal in foreign exchange$ "o !ing Of Foreign Exchange, Etc+, . (Section 6#: ...... "an! ing simi ar to han! ing of baggage in airports+ 7 means when a foreign exnache is transacte! who can han! e or invo ve in the transaction :a%e as otherwise !ro%ided in this Act, no !erson resident in ,ndia shall ac7uire, hold, own, !ossess or transfer an" foreign exchange, foreign securit" or an" i##o%able !ro!ert" situated outside ,ndia$ &$rrent Acco$nt %ransactions . (Section 8#: An" !erson #a" sell or draw foreign exchange to or fro# an authorized !erson if such sale or drawn is a current account transaction; 2ro%ided that the 8entral /o%ern#ent #a", in !ublic interest and in consultation with the Reser%e 0an+, i#!ose such reasonable restrictions for current account transactions as #a" be !rescribed$ ?owe%er certain transactions are not restricted ......(no restrictions examp es# 1$ !a"#ent for i#!orts under o!en general license ($ !a"#ent of di%idend on a!!ro%ed foreign in%est#ent 3$ !a"#ent of interest on a!!ro%ed borrowed funds '$ salar" to foreign directors 1$ !a"#ent to airline boo+ings, shi!!ing co#!anies and for transfer of cargo &apita Acco$nt %ransactions.(Section 9#: (1 :ub*ect to the !ro%isions of sub3section (( , an" !erson #a" sell or draw foreign exchange to or fro# an authorized !erson for a ca!ital account transaction$ (( )he Reser%e 0an+ #a", in consultation with the 8entral /o%ern#ent, s!ecif" ; (a an" class or classes of ca!ital account transactions which are !er#issible< (b the li#it u! to which foreign exchange shall be ad#issible for such transactions; (3 Restrictions of ca!ital account transactions ......(,estrictions examp es# (a transfer or issue of an" foreign securit" b" a !erson resident outside ,ndia< (b transfer or issue of an" securit" b" a !erson resident outside ,ndia< (c an" borrowing or lending in foreign exchange or in ,ndian ru!ees in whate%er for# or b" whate%er na#e called< (d de!osits between !ersons resident in ,ndia and !ersons resident outside ,ndia< (e ex!ort, i#!ort or holding of currenc" or currenc" notes< (f transfer of i##o%able !ro!ert" outside ,ndia, other than a lease not exceeding fi%e "ears, b" a !erson resident in ,ndia< (g ac7uisition or transfer of i##o%able !ro!ert" in ,ndia, other than a lease not exceeding fi%e "ears, b" a !erson resident outside ,ndia< (h gi%ing of a guarantee or suret" in res!ect of an" debt, obligation or other liabilit" incurred; (i b" a !erson resident in ,ndia and owed to a !erson resident outside ,ndia< and (ii b" a !erson resident outside ,ndia$ Export of :oo!s an! Services . (Section ;#: ........r$ es whi e exporting (1 E%er" ex!orter of goods shall; (a furnish to the Reser%e 0an+ or to such other authorit" a declaration in such for# and in such #anner as #a" be s!ecified, containing true and correct #aterial !articulars, including the a#ount re!resenting the full ex!ort$ (b furnish to the Reser%e 0an+ such other infor#ation as #a" be re7uired b" the Reser%e 0an+ for the !ur!ose of ensuring the realization of the ex!ort !roceeds b" such ex!orter$ (( E%er" ex!orter of ser%ices shall furnish to the Reser%e 0an+ or to such other authorities a declaration in such for# and in such #anner as #a" be s!ecified, containing the true and correct #aterial !articulars in relation to !a"#ent for such ser%ices$

,ea i0ation An! ,epatriation Of Foreign Exchange . (Section <#: :a%e as otherwise !ro%ided in this Act, where an" a#ount of foreign exchange is due or has accrued to an" !erson resident in ,ndia, such !erson shall ta+e all reasonable ste!s to realize and re!atriate to ,ndia such foreign exchange within such !eriod and in such #anner as #a" be s!ecified b" the Reser%e 0an+$ Exemption from ,ea i0ation an! ,epatriation in &ertain &ases.(Section 9#: (a !ossession of foreign currenc" or foreign coins b" an" !erson u! to such li#it as the Reser%e 0an+ #a" s!ecif"< (b foreign currenc" account held or o!erated b" such !erson or class of !ersons and the li#it u! to which the Reser%e 0an+ #a" s!ecif"< (c foreign exchange ac7uired fro# e#!lo"#ent, business, trade, %ocation, ser%ices, honorariu#, gifts, inheritance or an" other legiti#ate #eans u! to such li#it as the Reser%e 0an+ #a" s!ecif"< and (d such other recei!ts in foreign exchange as the Reser%e 0an+ #a" s!ecif"$ 5+ A$thori0e! 3ersons %o -ea 'n Foreign Exchange: &hapter . ''' of the Act, re ates to the A$thori0ation of a person b) the ,eserve =an> to !ea in Foreign Exchange: A$thori0e! 3erson . (Section 1?#: (1 )he Reser%e 0an+ #a" authorize an" !erson to be +nown as authorized !erson to deal in foreign exchange or in foreign securities, as an authorized dealer, #one" changer or off3shore ban+ing unit or in an" other #anner as it dee#s fit$ ,eserve =an>/s 3owers %o 'ss$e -irections %o A$thori0e! 3erson . (Section 11#: )he Reser%e 0an+ #a", for the !ur!ose of securing co#!liance with the !ro%isions of this Act and of an" rules, regulations, notifications or directions #ade thereunder, gi%e to the authorized !ersons an" direction in regard to #a+ing of !a"#ent or the doing or desist fro# doing an" act relating to foreign exchange or foreign securit"$ 3ower Of ,eserve =an> %o 'nspect A$thori0e! 3erson 7 (Section 1*#: )he Reser%e 0an+ #a", at an" ti#e, cause an ins!ection to be #ade b" an" officer of the Reser%e 0an+ s!eciall" authorized in writing b" the Reser%e 0an+ in this behalf, of the business of an" authorized !erson as #a" a!!ear to be necessar"$ 6+ &ontravention an! 3ena ties: 3ena ties.(Section 15#: (1 ,f an" !erson contra%enes an" !ro%ision of this Act, or contra%enes an" rules, regulation, notification, direction or order issued in exercise of the !owers under this Act, or contra%enes an" condition sub*ect to which an authorization is issued b" the Reser%e 0an+, he shall u!on ad*udication, be liable to a !enalt" u! to thrice the su# in%ol%ed in such contra%ention where such a#ount is 7uantifiable, or u! to two la+h ru!ees where the a#ount is not 7uantifiable, and where such contra%ention is a continuing one, further !enalt" which #a" extend to fi%e thousand ru!ees for e%er" da" after the first da" during which the contra%ention continues$ (( An" Ad*udicating Authorit" ad*udging an" contra%ention under sub3section (1 , #a", if he thin+s fit in addition to an" !enalt" which he #a" i#!ose for such contra%ention direct that an" currenc", securit" or an" other #one" or !ro!ert" in res!ect of which the contra%ention has ta+en !lace shall be confiscated to the 8entral /o%ern#ent and further direct that the foreign exchange holdings, if an", of the !ersons co##itting the contra%entions or an" !art thereof, shall be brought bac+ into ,ndia or shall be retained outside ,ndia in accordance with the directions #ade in this behalf$

Appea to Appe ate %rib$na . (Section 19#: :a%e as !ro%ided in sub3section (( , the 8entral /o%ern#ent or an" !erson aggrie%ed b" an order #ade b" an Ad*udicating Authorit", other than those referred to in sub3section (1 of :ection 17, or the :!ecial @irector (A!!eals , #a" !refer all a!!eal to the A!!ellate )ribunal<