FOREIGN EXCHANGE REGULATION ACT

FERA is consolidate the law regulating certain payments, dealings in foreign exchange & securities,
transactions affecting foreign exchange, import & export of currency, for the conservation of the
foreign exchange resources of the country & the utilisation of economic development of the country.
Application of the Act
1. This Act may be called Foreign Exchange Regulation Act, 1973. It extends to the whole of India.
2. It applies also to all citizens of India outside India and to branches and agencies outside India of
companies or bodies corporate, registered or incorporated in India.
3. It shall come into force on such date as the Central Government may, by notification in the Official
Gazette, appoint in this behalf.
Some Important Provisions of the Act
1. "Authorized Dealer" means a person the time being under Sec.6 to deal in foreign exchange;
2. "Certificate of Title to a Security" means any document used in the ordinary course of business as
proof of the possession or control of the security, either by delivery, the possessor of the document;
3. "Coupon" means a coupon representing dividends or interest on a security;
4. "Currency" includes all coins, currency notes, banks notes, postal notes, postal orders, money
orders, cheques, drafts, letters of credit, bills of exchange and promissory notes;
5. "Foreign Currency" means any currency other than Indian currency;
6. "Foreign Exchange" means foreign currency and includes –
a) all deposits, credits & balances payable in any foreign currency, & drafts, cheques, & bills of
exchange, expressed or drawn in Indian currency but payable in any foreign currency;
b) any instrument payable, at the option of the drawee or holder thereof or any other party thereto,
either in Indian or in foreign currency or partly in one and partly in the other;
7. "Indian Currency" means currency is expressed or drawn in Indian rupees but does not include
special bank notes & special one-rupee notes issued under Reserve Bank of India Act, 1934;

Foreign Exchange Management Act (FEMA)

The Foreign Exchange Management Act (FEMA), 1999, has been enacted as part of the ongoing
liberalisation process. It was passed in 1999 & came into effect from June 1, 2000 to entire country.
Foreign exchange control was first introduced in September, 1939 under the Defense of India Rules.
The Foreign Exchange Regulation Act was introduced in 1947, which was replaced with the Foreign
Exchange Regulation Act in 1973 and in 2000 by FEMA. Foreign exchange management Act is very
helpful law for development of foreign exchange market in India.
Objectives of FEMA
1. Main objective of apply FEMA is to reduce the restriction on foreign exchange.
2. This law's main objective is to increase the flow of foreign exchange in India.
Scope of FEMA
1. Free transactions on current account subject to reasonable restrictions that may be imposed.
2. RBI controls over capital account transactions.
3. Control over realization of export proceeds.
4. Dealing in foreign exchange through authorized dealer/money changer/off shore banking unit.
Provision /Rules / Regulation of FEMA
1. Provision regarding Dealing in Foreign Exchange: - According to Sec.3 of FEMA," only
authorized person under the govt. terms can deal in foreign exchange in India."
2. Provision regarding Holding of Foreign Exchange:- According to Sec. 4 of FEMA," All persons
which are provided authority only can hold or purchase foreign exchange in India or outside India."
3. Provision regarding Current Account Transactions: - Sec.5 of FEMA," no restriction on sale or
deal foreign exchange, if it is a current account transaction." FEMA has eased the regulation over
transactions in foreign exchange and security. Current account have been made restrictions-free:
a) Any person can sell or draw foreign exchange to or from authorized persons if such sale or
withdrawal is a current account transaction.
b) Payment due in connection with foreign trade, other current businesses, and services and short
term banking, and credit facilities in the ordinary course of business.
c) Payment due as interest on loans as net income from investment.
d) Remittances for living expenses of parents, spouse and children residing abroad.
e) Expense in connection with foreign travel, education & medical of patents, spouse & children.
Foreign Currency/Security/Property by Resident: A person resident in India may hold, own
transfer or invest in foreign currency, foreign security or immovable property situated outside India, if
currency, security or property was acquired, held or owned by such person when he was residing
outside India or inherited from a person who was residing outside India [Section 6 (4)].
Indian Currency/Security/Property by Non-resident: A person residing 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 residing in
India or inherited from a person who was residing in India. [Section 6 (4)].
4. Provision regarding Capital Account Transactions :- Under Sec.6," RBI will fix the limit of
foreign exchange transactions relating to capital account with Indian govt. "
a) A transaction that alters the assets or liabilities, outside India of a person residing in India.
b) A transaction that alters the assets or liabilities in India of persons residing outside India.
c) Transfer or issue of any foreign security by a person residing in India.
d) Transfer or issue of any security by a person residing outside India.
e) Any borrowing or lending in foreign exchanges in whatever form or by whatever name known.
f) Deposits between persons residing in India and person residing outside India.
g) Export, import or holding of currency or currency notes.
h) Transfer of property outside India, lease not exceeding 5 years, by a person residing in India.
5. Provision regarding Export of Goods & Services: - It is the duty of exporter to declare the true
detail of goods which, he have to sell the market outside India & must send complete report to RBI.
• RBI can make particular requirement for any exporter.
• RBI can make rules & regulations for realization of amount earned from foreign country.
6. Provision regarding Authorized Persons: - RBI can authorize anybody who can deal in money
exchange or off shore transaction and foreign exchange.
• He has to follow the rules and guidelines of RBI.
• If authorized person will be done contravention the rules of RBI, he will be liable to pay up to Rs.
10000 penalty & Rs. 2000 for every day during such contravention continue.
Enforcement and Penalties
Directorate of Enforcement: The Directorate of Enforcement has been formed to ensure that the
provisions of the Act. In the Directorate of Enforcement, an Additional Director, a special Director and
Assistant Directors of Enforcement are appointed by the Central Govt. under section 36.
Powers of Adjudicating and Appellate Authorities:
1. Summoning witnesses and enforcing attendance of any person and examining them on oath.
2. Requiring discovery and production of any document.
3. Receiving evidence on affidavits.
4. Requisition of any public record or document or copy of such record/document from any office
5. Reviewing its decisions.
Penalties
1. If any person contravenes any provision of the Act, he shall be liable for a penalty up to thrice the
sum involved in such contravention where such amount is quantifiable, or up to two Lakh rupees
where the amount is not quantifiable, and where such contravention is a continuing one.
2. Further penalty may extend to five thousand rupees for every day after the first day during which the
contravention continues.