Presented By:

S.Vignesh
First Year MBA
National Institute Of Technology
Karnataka
Surathkal
 Statutory Basis for Exchange Control

 The Foreign Exchange Regulation Act, 1973

(FERA 1973), as amended by the Foreign
Exchange Management (Amendment) Act,
1999, forms the statutory basis for Exchange
Control in India.
 The Foreign Exchange Management Act (1999) or
in short FEMA has been introduced as a
replacement for earlier Foreign Exchange
Regulation Act (FERA). FEMA came into force on
the 1st day of June, 2000.
 FEMA
 consolidate and amend the law relating to foreign
exchange
 facilitating external trade and payments
 promoting the orderly development and maintenance
of foreign exchange market in India
 49 sections in the Act
 Authorized Person:
 Authorized under the Act to deal in foreign exchange
 Capital account transaction:
 Alters the assets or liability
 Currency:
 Currency notes, Money order, cheque, drafts etc…

 Currency Notes:
 Coin and bank notes
 Currency Account Transaction:
 Transactions other than capital account transactions
 Indian Currency:
 Indian rupees
 Export:
 Goods and services from India to outside
 Foreign Currency:
 Other than Indian currency
 Foreign Exchange:
 Means foreign currency
 Foreign Security:
 Security expressed in foreign currency
 Import:
 Goods and services from outside to India
 Security:
 Shares, Stock etc as defined in the Public Debt Act of
1994
 Repatriate to India:
 Realized foreign exchange to India
 Service:
 Banking, Financing, insurance etc…
 Transfer:
 Sale, Purchase, Exchange etc…
 Non-Resident Indian (NRI):
 Citizen of India residing outside
 Overseas Corporate Body (OCB):
 A company, firm etc.. Owned at least 60% by NRIs
 Person of Indian Origin (PIO):
 Citizen of country other then Bangladesh and Pakistan, if
 Any time held Indian passport or
 Either of his parents or grandparents was citizen of India
 The Person is spouse of an Indian citizen
 The FEMA, is applicable-
 To the whole of India.
 Any Branch, office and agency, which is situated outside
India, but is owned or controlled by a person resident in
India.
 Broadly speaking FEMA, covers, three different
types of categories, and deals differently with
them. These categories are:
a) Person
b) Person Resident In India
c) Person Resident Outside India
 For the purpose of provisions, a person shall
include any of the following:

1. An individual
2. A Hindu Undivided family
3. A company
4. A Firm
5. An association of persons or a body of individuals,
whether incorporated or not,
6. Every artificial judicial person, not falling within any of
the preceding sub clauses, and
7. Any agency, office or branch owned or controlled by
such person.
1. A person who has been residing in India for more than
182 days, in the last financial year. This means if a
person has to be assessed, as to whether he is person
resident in India, for any offence committed in August
2001, then he should be residing in India for more than
182 days during April 2000 to March 2001
2. Any person or body corporate registered or
incorporated in India, or
3. An office, branch or agency in India owned or
controlled by a person resident outside India, or
4. An office, branch or agency outside India owned or
controlled by a person resident in India.
 Simply putting it, "a person resident outside India"
means "a person who is not resident in India"
Prohibits dealings in foreign exchange except
through 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
Enter into any financial transaction in India for
acquisition or creation or transfer of a right to
acquire, any asset outside India by any person
 SECTION 4 –
 Restrains any person resident in India from acquiring,
holding, owning, possessing or transferring any foreign
exchange, foreign security or any immovable property
situated outside India except as specifically provided in the
Act.
 SECTION 5 – deals with current account transaction
 Any person may sell or draw foreign exchange to or from an
authorized person if such sale or drawl is a current account
transaction
 SECTION 6 - deals with capital account transactions.
 This section allows a person to draw or sell foreign exchange
from or to an authorized person for a capital account
transaction.
 Transactions having international financial
implications matters are regulated by Exchange
Control:
a) Purchase and sale of and other dealings in foreign
exchange and maintenance of balances at foreign centers
b) Procedure for realization of proceeds of exports
c) Payments to non-residents or to their accounts in India
d) Transfer of securities between residents and non-
residents and acquisition and holding of foreign
securities
e) Foreign travel with exchange
f) Export and import of currency, cheques, drafts, travelers
cheques and other financial instruments, securities, etc.
g) Activities in India of branches of foreign firms and
companies and foreign nationals
h) Foreign direct investment and portfolio investment in
India including investment by non-resident Indian
nationals/persons of Indian origin and corporate bodies
predominantly owned by such persons
i) Appointment of non-residents and foreign nationals and
foreign companies as agents in India
j) Setting up of joint ventures/subsidiaries outside India by
Indian companies
k) Acquisition, holding and disposal of immovable property
in India by foreign nationals and foreign companies
l) Acquisition, holding and disposal of immovable property
outside India by Indian nationals resident in India.
 SECTION 7 - deals with export of goods and
services.
 Every exporter is required to furnish to the RBI or any
other authority, a declaration etc. etc. regarding full
export value.
 SECTION 8 and 9-
 casts the responsibility on the persons resident in India
who have any amount of foreign exchange due or accrued
in their favor to get same realized and repatriated to India
within the specific period and the manner specified by
RBI.
 SECTIONS 10 and 12 -
 deals with duties and liabilities of the Authorized persons
authorized dealer, money changer, off shore banking unit
or any other person for the time being authorized to deal
in foreign exchange or foreign securities.
 To comply with RBI directions

 Not to engage in un authorized transactions

 Ensure compliance of FEMA provisions

 To produce books, accounts etc…

 To deal in or transfer any foreign exchange

 Receive payments by order

 To open NRO, NRE, FCNR, NRNR, NRSR accounts

 To sell or purchase foreign exchange for current

account transactions

 To sell or purchase foreign exchange for permissible

capital account transactions

 Verifying the correctness of any statements,

information or particular

 Obtaining information which such authorized

person has failed to furnish

 Securing compliance with the provisions of Act

 SECTION 13 –
 Any contravention, under FEMA, may invite following
kinds of penalties:
 If, the amount against which offence is quantities, then
penalty will be "THRICE" the sum involved in
contravention.
 Where the amount cannot be quantified the penalty
may be imposed up to two lakh rupees.
 If, the contravention is continuing everyday, then Rs.
Five Thousand for every day after the first day during
which the contravention continues.
 Further in addition to the penalty, any currency,
security or other money or property involved in
the contravention may also be confiscated.
 SECTION 14 –
 If a person fails to make full payment of the penalty
imposed with in a period of 90 days, he shall be liable to
civil imprisonment.
 SECTION 15 –
 Empowers the Directorate of Enforcement and Officers
of the Reserve Bank of India as may be authorized by
the central Govt. in this behalf to compound the
offences.
 SECTION 16 –
 Empowers the central Govt. to appoint the as many
adjudicating authorities as it may think fit for holding
enquiries.
 SECTION 17 –
 Empowers the central Govt. to appoint one or more
special Directors to hear the appeals against the orders
of the Adjudicating Authorities.
 SECTION 18 –
 Empowers the central Govt. to establish Appellate
Tribunal to hear appeals against the orders of
Adjudicating Authorities and special Director.
 SECTION 19 –
 It makes provisions as regards appeals to Appellate
Tribunal.
 SECTION 20 –
 Composition of Appellate Tribunal.
 SECTION 21 –
 Qualifications for appointment of Chairperson member
and Special Director.
 SECTION 22 –
 Term of Office.
 SECTION 23 –
 Terms and Conditions of service.
 SECTION 24 –
 Vacancies.
 SECTION 25 –
 Resignation and Removal.
 SECTION 26 –
 Member to act as Chairperson in certain circumstances.
 SECTION 27 –
 Staff of Appellate Tribunal and Special Directorate.
 SECTION 28 –
 Power of Appellate Tribunal and Special Director.
 SECTION 29 –
 Distribution of business among benches.
 SECTION 30 –
 Power of Chairperson to Transfer cases.
 SECTION 31 –
 Decision to be by majority.
 SECTION 32 –
 Right of Appellant to take assistance of legal practitioner
or CA and of Govt. to appoint presenting officer.
 SECTION 33 –
 Members, etc to public servants.
 SECTION 34 –
 Civil court not to have jurisdiction.
 SECTION 35 –
 Appeal to High Court.
 SECTION 36 to 38 – Directorate of Enforcement
 enforcement of the provisions of the Foreign Exchange
Management Act
 prevent leakage of foreign exchange
 Remittances of Indians abroad otherwise than through
normal banking channels, i.e. through compensatory
payments.
 Acquisition of foreign currency illegally by person in
India.
 Non-repatriation of the proceeds of the exported
goods.
 Unauthorized maintenance of accounts in foreign
countries.
 Siphoning off of foreign exchange against fictitious and
bogus imports land by.
 Illegal acquisition of foreign exchange through Hawala
 Electronic Corporation India Limited
 To tie up with international companies for local
manufacture of computers
 To increase the local content to a point of "self
sustenance".
 Tie up between ECIL and IBM
 Import of computers was carefully regulated, depending
on ECIL’s production capacity, and the entry of the local
private sector was controlled.
 The Implementation of FERA (in 1977) led to exit
of IBM from India.
 Because FERA restricts any foreign company from
holding 40% shares but IBM had 70%.
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