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BRBL MODULE –B
Chapter: 10 FOREIGN EXCHANGE
MANAGEMENT ACT, 1999
What we will study?
*All about definition, Foreign Exchange Management Act,
1999?
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INTRODUCTION:
The main objective of the Foreign Exchange Regulation Act,
1973 (FERA), was to consolidate and amend the law; regulate
certain payments; dealings in foreign exchange and securities;
transactions indirectly affecting foreign exchange; the import
and export of currency for conservation of foreign exchange
resources of the country; and finally, the proper utilization of
this foreign exchange so as to promote the economic
development of the country.
The FERA was repealed mainly because it was felt that it was
too rigorous and had outlived its utility.
The object of enacting the Foreign Exchange Management Act,
1999 (FEMA) it was to consolidate and amend 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 consequent to the globalization and liberalization of the
Indian economy which was embarked in 1991.
The provisions of the FEMA extend to all over India and also
applies to all branches, offices and agencies outside India
owned or controlled by a person resident in India and also to
any contravention committed outside India by any such
person to whom this Act applies.

MEANING OF CERTAIN IMPORTANT TERMS USED IN FEMA:

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“Authorized person” means any authorized money changer or

dealer, off shore banking unit or any other person authorized
under the FEMA to deal in foreign exchange or securities.

“Capital account transaction” means a transaction by which

there may be a change (either an increase or decrease) in the
assets or liabilities outside India of persons resident in India or
assets or liabilities in India of persons resident outside India.

“Current account transaction” means a transaction other than

a capital account transaction. For example.
* Payments due with respect to the foreign trade done, other
business, services, and short-term banking and credit facilities
in the ordinary course of business;
* Payments due as interest on loans and as income from
investments;
* Remittances for living expenses of parents, spouse and
children residing abroad; and
* Expenses in connection with foreign travel, education and
medical care of parents, spouse and children.
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“Currency” is defined under the FEMA not only to include all
currency notes but also postal notes, postal orders, money
orders, cheques, drafts, travellers' cheques, letters of credit,
bills of exchange and promissory notes, credit cards or such
other similar instruments as may be notified by the RBI.
“Foreign currency” is defined to mean any currency other than
Indian currency.
The term “foreign exchange” is much wider than the term
foreign currency. In addition to the foreign currency, it
includes the following:
amounts payable in any foreign currency;
drafts, travellers’ cheques, letters of credit or bills of
exchange, expressed or drawn in Indian currency but payable
in any foreign currency;
drafts, travellers’ cheques, letters of credit or bills of exchange
drawn by banks, institutions or persons outside India, but
payable in Indian currency.
Under the FEMA, “security” is defined to include shares,
stocks, bonds and debentures, Government securities, savings
certificates, deposit receipts and units of any mutual fund etc.
However, it does not include bills of exchange or promissory
notes other than Government promissory notes or any other
instruments which may be notified by the RBI.
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Under the FEMA, the term “foreign security” means any
security as stated above and includes securities expressed in
foreign currency, but where redemption or any form of return
such as interest or dividends is payable in Indian currency.

Under the FEMA, a “person” is defined to include the

following entities:
*An individual;
*a Hindu Undivided Family;
*a company;
*a firm;
*An association of persons or a body of individuals, whether
incorporated or not;
*Every artificial juridical person; and
*Any agency, office or branch owned or controlled by such
person.
“Person resident in India” means the following:
*a person residing in India for more than one hundred and 82
days in the preceding financial year but does not include:
(A) a person who has gone out of India or who stays outside
India:
(a) for taking up employment outside India, or
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(b) for carrying on a business or vocation outside India, or

(c) for any other purpose, in such circumstances as would

indicate his intention to stay outside India for an uncertain
period;
(B) a person who has come to India or stay in India, otherwise
than:
(a) for taking up employment in India, or
(b) for carrying on a business or vocation in India; or
(c) for any other purpose, in such circumstances as would
indicate his intention to stay in India for an uncertain period;
* Any person or body corporate registered or incorporated in
India;
* An office, branch or agency in India owned or controlled by
a person resident outside India;
* An office, branch or agency outside India owned or
controlled by a person
* Resident in India. Accordingly, a “person resident outside
India” means a person who is not resident in India as above.
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‘Repatriate to India’ means bringing into India the realized
foreign exchange and
* The selling of such foreign exchange to an authorized person
in India in exchange for rupees, or
* The holding of realized amount in an account with an
authorized person in India to the extent notified by the
Reserve Bank, and includes use of the realized amount for
discharge of a debt or liability denominated in foreign
exchange and the expression repatriation shall be construed
accordingly.
REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE:
Dealing in Foreign Exchange etc.
As per Chapter 2 Section 3 of the statute "save as otherwise
provided in this Act, rules or regulations made there under, or
with the general or special permission of the Reserve Bank, no
person shall-
* Deal in or transfer any foreign exchange or foreign security
to any person not being an authorized person;
* Make any payment to or for the credit of any person
resident outside India in any manner;
* Receive otherwise through an authorized person, any
payment by order or on behalf of any person resident outside
India in any manner.
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Explanation: -
For the purpose of this clause, where any person in, or
resident in, India receives any payment by order or on behalf
of any person resident outside India through any other
person.
(Including an authorized person) without a corresponding
inward remittance from any place outside India, then, such
person shall be deemed to have received such payment
otherwise than through an authorized person;
* 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.

Explanation: -
For the purpose of this clause, "financial transaction" means
making any payment to, or for the credit of any person, or
receiving any payment for, by order or on behalf of any
person, or drawing, issuing or negotiating any bill of exchange
or promissory note, or transferring any security or
acknowledging any debt."
Thus, there is no bar on a person resident outside India to
hold, own, transfer or invest in foreign currency, foreign
security or any immoveable property situated outside India.
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Every exporter of goods and services has to furnish the
necessary data by way of a declaration to the RBI.
Such export proceeds cannot be held in foreign countries and
has to be repatriated to India.
Non- repatriation is a violation of the provisions of the FEMA.

POWERS OF RBI WITH RESPECT TO AUTHORISED PERSONS:

RBI has the following powers under FEMA:
To appoint authorized persons:

*The said authorized persons are authorized to deal in foreign

exchange.
*The person so appointed shall deal in foreign exchange only
as per the Rules, Regulations framed under the Act or as per
directions or orders issued by RBI from time to time for this
purpose. (Section 10/11)

To inspect the authorized persons:

To ensure that the said person so appointed complies with all
the rules and regulations so formulated by the RBI from time
time. (Section 12)
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CONTRAVENTION, PENALTIES, ADJUDICATION AND APPEALS:
Under the FEMA any violation of the provisions of the said Act
will attract penal provisions including the right of arrest and
detention.
In terms of Section 13 which deals with the penalties -
"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, or
contravenes any condition subject to which an authorization
is issued by the Reserve Bank.
He shall, upon adjudication, 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, and 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.
(1A) If any person is found to have acquired any foreign
exchange, foreign security or immovable property, situated
outside India, of the aggregate value exceeding the threshold
prescribed under the proviso to sub-section (1) of section 37A,
he shall be liable to a penalty up to three times the sum
involved in such contravention and confiscation of the value
equivalent, situated in India, the foreign exchange, foreign
security or immovable property.
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(1B) If the Adjudicating Authority, in a proceeding under sub-
section (1A) deems fits, he may, after recording the reasons in
writing, recommend for the initiation of prosecution and if the
Director of Enforcement is satisfied, he may, after recording
the reasons in writing, may direct prosecution by filing a
Criminal Complaint against the guilty person by an officer not
below the rank of Assistant Director.
(1C) If any person is found to have acquired any foreign
exchange, foreign security or immovable property, situated
outside India, of the aggregate value exceeding the threshold
prescribed under the proviso to sub-section (1) of section 37A,
he shall be, in addition to the penalty imposed under sub-
section (1A), punishable with imprisonment for a term which
may extend to five years and with fine.
(1D) No court shall take cognizance of an offence under sub-
section (1C) of section 13 except as on complaint in writing by
an officer not below the rank of Assistant Director referred to
in sub-section (1B).
* Any Adjudicating Authority adjudging any contravention
under sub-section (1), may, if he thinks fit in addition to any
penalty which he may impose for such contravention direct
that
* Any currency, security or any other money or property in
respect of which the contravention has taken place shall be
confiscated to the Central Government and further direct that
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the foreign exchange holdings, if any, of the persons
committing the contraventions or any part thereof, shall be
brought back into India or shall be retained outside India in
accordance with the directions made in this behalf.

Explanation: -
For the purposes of this sub-section, "property" in respect of
which contravention has taken place, shall include-
(a) Deposits in a bank, where the said property is converted
into such deposits;
(b) Indian currency, where the said property is converted into
that currency; and
(c) Any other property which has resulted out of the
conversion of that property."
*Like any other statutes there exists the right of appeal.
*The first of such appeals shall be with the special director
(Appeals).
*Thereafter if someone is aggrieved by the said appellate
order, they can prefer an appeal against the order before the
appellate tribunals established for this purpose.
*In terms of Section 18 of the Act "The Appellate Tribunal
constituted under sub-section (1) of section 12 of the
Smugglers and Foreign Exchange Manipulators (Forfeiture of
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Property) Act, 1976 (13 of 1976), shall, on and from the
commencement of Part XIV of Chapter VI of the Finance Act,
2017 (7 of 2017), be the Appellate Tribunal for the purposes of
this Act and the said Appellate Tribunal shall exercise the
jurisdiction, powers and authority conferred on it by or under
this Act" However where questions of law are involved and
need to be interpreted, an appeal lies to the High Court.
*Only questions of law are referred to the High Courts and
thereafter to the Supreme Court.

DIRECTORATE OF ENFORCEMENT:
The Central Government establishes a directorate of
enforcement with a director and other officers, called officers
of enforcement. (Section 36) Power of Search, Seizure, etc.
The director of enforcement and other officers of
enforcement, not below the rank of an assistant director can
investigate contraventions of the provisions of the Act as well
as Rules and Regulations framed there under including
notifications and directions or orders issued by RBI.
The Central Government can also authorize any class of
officers in the Central Government, State Government or the
RBI not below the rank of an Under Secretary to investigate
contraventions. (Section 37) Empowering Other Officers
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The Central Government can (subject to conditions and
limitations), authorise any customs officer/central excise
officer/any police officer/any other officer of the Central
Government or a State Government to exercise the powers
and discharge the duties of the director of enforcement or any
other officer of enforcement. (Section 38)

SPECIAL PROVISIONS RELATING TO ASSETS HELD OUTSIDE

INDIA:
In terms of Section 37A, inserted vide amendment to the
statute effective from 09-09-2015, which deals with cases
where assets are held abroad by an Indian citizen in
contravention of Section 4 which states "Holding of foreign
exchange, etc.-Save 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."
As per Section 37A
* Upon receipt of any information or otherwise, if the
Authorized Officer prescribed by the Central Government has
reason to believe that any foreign exchange, foreign security,
or any immovable property, situated outside India, is
suspected to have been held in contravention of section 4, he
may after recording the reasons in writing, by an order.
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seize value equivalent, situated within India, of such foreign
exchange, foreign security or immovable property:

* Provided that no such seizure shall be made in case where

the aggregate value of such foreign exchange, foreign security
or any immovable property, situated outside India, is less than
the value as may be prescribed.
* The order of seizure along with relevant material shall be
placed before the Competent Authority, appointed by the
Central Government, who shall be an officer not below the
rank of Joint Secretary to the Government of India by the
Authorized Officer within a period of 30 days from the date of
such seizure.
* The Competent Authority shall dispose of the petition within
a period of 180 days from the date of seizure by either
confirming or by setting aside such order, after giving an
opportunity of being heard to the representatives of the
Directorate of Enforcement and the aggrieved person.

Explanation: -
While computing the period of one hundred eighty days, the
period of stay granted by court shall be excluded and a further
period of at least thirty days shall be granted from the date of
communication of vacation of such stay order.
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* The order of the Competent Authority confirming seizure of
equivalent asset shall continue till the disposal of adjudication
proceedings and thereafter, the Adjudicating Authority shall
pass appropriate directions in the adjudication order with
regard to further action as regards the seizure made under
sub-section (1):
* Provided that if, at any stage of the proceedings under this
Act, the aggrieved person discloses the fact of such foreign
exchange, foreign security or immovable property and brings
back the same into India, then the Competent Authority or
the Adjudicating Authority, as the case may be, on receipt of
an application in this regard from the aggrieved person, and
after affording an opportunity of being heard to the aggrieved
person and representatives of the Directorate of Enforcement,
shall pass an appropriate order as it deems fit, including
setting aside of the seizure made under sub-section (1).
* Any person aggrieved by any order passed by the
Competent Authority may prefer an appeal to the Appellate
Tribunal.
* Nothing contained in section 15 (which talks about Power to
compound contravention) shall apply to this section."