MODULE V– Laws related

to Banking Sector
Foreign Exchange Management Act, 1999 (FEMA)
Under the Foreign Exchange Regulation Act
(FERA) of 1973
• FERA was introduced at a time when foreign exchange (Forex) reserves of the country were low
• Presumed : all foreign exchange earned by Indian residents rightfully belonged to the Government of
India
• Every forex transaction was prohibited unless specifically permitted.
• It required imprisonment even for minor offences involving forex transactions
• imposed strict regulations on forex payments
• FOREX MARKET IS ALSO THE LARGEST AND MOST LIQUID MARKET IN THE WORLD. It constantly
undergoes changes and innovations, which can either be beneficial to a country or expose them to
greater risks.
• In liberalized economy, FEMA liberalised foreign exchange controls and restrictions on foreign
investment. FEMA the central government the power to impose restrictions.
• It enabled a new foreign exchange management regime consistent with the emerging framework of the
World Trade Organisation (WTO). FEMA served to make transactions for external trade easier. The deals
in Foreign Exchange were to be ‘managed’ instead of ‘regulated’.
Objective of Foreign Exchange Management
Act, 1999 (FEMA)
• Foreign Exchange Management Act, 1999 (FEMA) aims to
consolidate and amend the law relating to foreign exchange with the
objective of
• (i)facilitating external trade and payments and
• (ii)for promoting the orderly development and maintenance of
foreign exchange market in India.
• FEMA is a regulatory mechanism that enables the Reserve Bank of
India to pass regulations and the Central Government to pass rules
relating to foreign exchange in tune with the Foreign Trade policy of
India.
Structure of FEMA
• FEMA contains 7 chapters divided into 49 sections (Supreme Legislation). 12
sections cover operational part and the rest 37 sections deal with contraventions,
penalties, adjudication, appeals, enforcement directions, etc.
• 5 sets of Rules made by Ministry under section 46 of FEMA. (Delegated legislations)
• 23 sets of Regulations made by RBI under section 47 of FEMA. (Subordinate
Legislations)
• Master Circular issued by Reserve Bank of India every year
• Foreign Direct Investment (FDI) policy issued by Department of Industrial Policy
and Promotion (DIPP) time to time.
• Notifications and Circulars issued by Reserve Bank of India.
• Enforcement Directorate.
FEMA Chapters
• Chapter I: Preliminary (Section 1 &2)
• Chapter II: Regulation and Managements of Foreign Exchange
(Section 3 -9)
• Chapter III: Authorised Person (Section 10-12)
• Chapter IV: Contraventions and Penalties (Section 13-15)
• Chapter V: Adjudication and Appeal (Section 16-35)
• Chapter VI: Directorate of Enforcement (Section 36-38)
• Chapter VII: Miscellaneous (Section 39-49)
FEMA provides
• (i) Free transactions on current account subject to reasonable
restrictions that may be imposed
• (ii) RBI control over capital account transactions
• (iii) Control over realisation of export proceeds
• (iv)Dealing in foreign exchange through 'Authorised Persons' like Authorised
Dealer/Money Changer/Off-shore banking unit
• (v) Adjudication of Offences
• (vi)Appeal provisions including Special Director (Appeals) and Appellate
Tribunal
• (vii) Directorate of Enforcement
REGULATION AND MANAGEMENT OF
FOREIGN EXCHANGE
• FEMA prohibits any person other than an authorised person
from dealing in or transferring any foreign exchange or foreign security to any
person or
making any payment to or for the credit of any person resident outside India in
any manner or
receiving otherwise through an authorised person any payment by order or on
behalf of any person resident outside India in any manner
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
EXCEPT as provided in FEMA, or with the general or special permission of the
Reserve Bank of India.
“Authorised person” means
• “Authorised person” means an authorised dealer, money changer, off-
shore banking unit or any other person for the time being authorised
under sub-section (1) of section 10 of FEMA to deal in foreign exchange or
foreign securities.
• The Reserve Bank, on an application, may authorise any person to be
known as an authorised person, to deal in foreign exchange as an
authorised dealer, money changer or off-shore banking unit or in any
other manner as it deems fit.
• Reserve Bank of India has powers to issue directions to authorised person
• Reserve Bank of India has powers to inspect authorised person
Classification of Authorised Persons
Authorised Major Activities
Dealer
Category - I All current and capital account transactions according to RBI directions issued from time-
to-time.
Category - II Specified non-trade related current account transactions , Purchase of foreign exchange
and sale for private and business visits abroad.
Category - III Transactions incidental to the foreign exchange activities

Full Fledged Purchase of foreign exchange and sale for private and business visits abroad.
Money Changers
(FFMCs)
“Person resident in India” means
• (i) a person residing in India for more than 182 days during the course
of the preceding financial year
• (ii) any person or body corporate registered or incorporated in India,
• (iii) an office, branch or agency in India owned or controlled by a
person resident outside India,
• (iv) an office, branch or agency outside India owned or controlled
by a person resident in India;
“Person resident in India” does not include
• (A) a person who has gone out of India or who stays outside India, in either case—
• (a) for or on taking up employment outside India, or
• (b) for carrying on outside India 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 or stays in India, in either case, otherwise than:
• (a) for or on taking up employment in India, or
• (b) for carrying on in India 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
“Person Resident Outside India” means a person who is not resident in India
FEMA allows “Current Account Transaction”
• Section 5 of the Act allows any person to sell or draw foreign exchange to or from an
authorised person if such sale or drawl is a current account transaction.
• “Current Account Transaction” means
• (i)payments due in connection with foreign trade, other current business, services, and
short-term banking and credit facilities in the ordinary course of business.
• (ii)payments due as interest on loans and as net income from investments.
• (iii)remittances for living expenses of parents, spouse and children residing abroad, and
• (iv)expenses in connection with foreign travel, education and medical care of parents,
spouse and children;
• The Central Government may, in the public interest and in consultation with the Reserve
Bank impose reasonable restrictions for current account transactions.
3 Types of Current Account Transactions
• Foreign Exchange Management (Current Account Transactions) Rules,
2000
• Schedule I : Prohibited transactions
• Schedule II : Transactions requiring CG approval
• Schedule III: Transactions requiring RBI approval
Prohibition on drawal of foreign exchange for
certain transactions
• Rule 3 prohibits the drawal of foreign exchange for the purposes of
transactions specified in the Schedule I
• The term Drawal includes opening of Letter of Credit or use of
International Credit Card or International Debit Card or or any other
thing by whatever name called which has the effect of creating
foreign exchange liability.
Schedule I to the Rules
• (a) Remittance out of lottery winnings
• (b) Remittance of income from racing/riding etc. or any other hobby;
• (c) Remittance for purchase of lottery tickets, banned/prescribed magazine,
football pools, sweep stakes etc.
• (d) Payment of commission on exports made towards equity investment in joint
ventures/wholly owned subsidiaries abroad of Indian Companies.
• (e) Payment of Commission on exports under Rupee State Credit Route, except
commission upto 10% of invoice value of exports of tea and tobacco.
• (f) Payment related to ‘call back service’ of telephone.
• (g) Remittance of interest income on funds held in Non-resident Special Rupee
Scheme Account.
Prior approval of Government of India for certain transactions : Schedule II

• Does not apply to the cases where the payment is made out of funds held in
Resident Foreign Currency (RFC) / EEFC Account of the remitter.
Transaction Approval from
Cultural Tours Ministry of HRD ( Dept of Education and Culture)
Advertisement in foreign print media for purposes Ministry of Finance (Dept of Economic affairs)
other than tourism, foreign investments and
international bidding exceeding USD 10000 by
State Govt or its PSUs
Payment of import through ocean transport by a Ministry of State Transport (Chartering Wing)
Govr dept/PSU on CIF basis
Remittance of hiring charge of transponders (a) TV Ministry of Information and Broad-casting, Ministry
channels (b) Internet Service Providers of Communication and Information Technology
Remittance of Prize money/ Sponsorship of sports Ministry of HRD(Department of Youth and Affairs
activity abroad by a person other than and Sports)
International/National/State level Sports Bodies
where the amount exceeds USD 1lakhs
Prior approval of Reserve Bank for certain
transaction: Schedule III
• Shall not apply where the payment is made out of funds held in
Resident Foreign Currency (RFC) Account of the remitter
Transactions included in Schedule III:
Facilities for individuals
• Individuals can avail of foreign exchange facility for the following purposes within the limit of USD
2,50,000 only. Any additional remittance in excess of the said limit for the following purposes shall require
prior approval of the Reserve Bank of India.
• (i) Private visits to any country (except Nepal and Bhutan)
• (ii) Gift or donation.
• (iii) Going abroad for employment
• (iv) Emigration
• (v) Maintenance of close relatives abroad
• (vi) Travel for business, or attending a conference or specialised training or for meeting expenses for meeting
medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for
medical treatment/ check-up.
• (vii) Expenses in connection with medical treatment abroad
• (viii) Studies abroad
• (ix) Any other current account transaction
Exceptions
• Emigration: Remittance of any amount of foreign exchange outside India in excess of this
limit may be allowed only towards meeting incidental expenses in the country of
immigration and not for earning points or credits to become eligible for immigration by way
of overseas investments in government bonds; land; commercial enterprise; etc.
• Business trip :If expenses of employee are borne by the employer, such expenses shall be
treated as residual current account transactions outside LRS and may be permitted by the AD
without any limit.
• Medical treatment abroad: For amount exceeding USD 2,50,000 Authorised Dealers may
release foreign exchange under general permission based on the estimate from the doctor in
India or hospital/ doctor abroad. an amount up to USD 250,000 per financial year is allowed
to a person for accompanying as attendant to a patient going abroad for medical
treatment/check-up
• Facilities available to students for pursuing their studies abroad: AD1 and 2 may allow
remittances (without seeking prior approval of the Reserve Bank of India) exceeding USD
2,50,000 based on the estimate received from the institution abroad.
Transactions included in Schedule III:
Facilities for persons other than individual
• (i) Donations exceeding one per cent. of their foreign exchange earnings during the previous three
financial years or USD 5,000,000, whichever is less, for-
• (a) creation of Chairs in reputed educational institutes,
• (b) contribution to funds (not being an investment fund) promoted by educational institutes; and
• (c) contribution to a technical institution or body or association in the field of activity of the donor
Company.
• (ii) Commission, per transaction, to agents abroad for sale of residential flats or commercial plots
in India exceeding USD 25,000 or five percent of the inward remittance whichever is more.
• (iii) Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of
infrastructure projects and USD 1,000,000 per project, for other consultancy services procured
from outside India.
• (iv) Remittances exceeding five per cent of investment brought into India or USD 100,000
whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses.
Liberalised Remittance Scheme (LRS)
• Liberalised Remittance Scheme allows remittances by a resident individual up to USD 250,000 per
financial year for any permitted current or capital account transaction or a combination of both. Form
A2 is furnished for purchase of foreign exchange under LRS.
• The Scheme is not available to corporates, partnership firms, HUF, Trusts,etc
• The resident Indian has to designate a branch of an AD through which all the remittances will be made.
• It is mandatory to have Income Tax PAN
• Release of foreign exchange exceeding USD 2,50,000, requires prior permission from the Reserve Bank
of India.
• Resident individual is permitted to lend/ rupee gift to a Non-resident Indian (NRI)/ Person of Indian
Origin (PIO) close relative within the overall LRS limit .
• Residents are not required to repatriate the funds or income generated out of investments such as MF,
Capital account transactions Schedule I made under LRS
• The LRS limit has been revised in stages consistent with prevailing macro and micro-economic
conditions.
“Capital Account Transactions” means
• A transaction which alters the assets or liabilities including
contingent liabilities outside India
• of persons resident in India or of persons resident outside India
• Capital Accounts Transaction in India can be carried out only to the
extent permitted
• The Reserve Bank of India in consultation with the Central
Government may permit or place restrictions on capital account
transactions.
FEM (Permissible Capital Account Transactions)
Regulations, 2000
• Capital account transaction is basically split into the following
categories:
• (I)transaction, which are permissible in respect of persons resident in
India (Specified in Schedule I) and outside India (Specified in Schedule
II).
• (II)transaction on which restrictions cannot be imposed; and
• (III)transactions, which are prohibited.
SCHEDULE I :Permissible Capital Account Transactions
within the limit made by persons resident in India
• (a) Investment by a person resident in India in foreign securities.
• (b) Foreign currency loans raised in India and abroad by a person resident in India.
• (c) Transfer of immovable property outside India by a person resident in India.
• (d) Guarantees issued by a person resident in India in favour of a person resident outside India.
• (e) Export, import and holding of currency/currency notes.
• (f) Loans and overdrafts (borrowings) by a person resident in India from a person resident outside India.
• (g) Maintenance of foreign currency accounts in India and outside India by a person resident in India.
• (h) Taking out of insurance policy by a person resident in India from an insurance company outside India.
• (i) Loans and overdrafts by a person resident in India to a person resident outside India.
• (j) Remittance outside India of capital assets of a person resident in India.
• (k) Sale and purchase of foreign exchange derivatives in India and abroad and commodity derivatives
abroad by a person resident in India
Permissions and Restrictions of Capital
Account transactions
• Permission
• A resident individual may, draw from an authorized person foreign
exchange not exceeding USD 250,000 per financial year or such amount
as decided by Reserve Bank from time to time for a capital account
transaction specified in Schedule I.
• Restrictions:
• No part of the foreign exchange drawn can be used for remittance
directly or indirectly to countries notified as non-co-operative countries
and territories by Financial Action Task Force (FATF) from time to time
and communicated by the Reserve Bank of India to all concerned.
A person resident in India may hold, own, transfer
or invest in foreign currency or foreign security, if
• (a) such currency, security or property was acquired, held or owned
by such person when he was resident outside India
• E.g. Foreign Currency accounts opened and maintained by such
person when he was resident outside India
• or Income earned through employment or business or vocation or
investment made
• (b) gift or inheritance from a person who was resident outside India.
SCHEDULE II :Classes of Permissible Capital Account
Transactions of Persons Resident Outside India
• (i) Investment in India by a person resident outside India:
• (a) issue of security by a body corporate or an entity in India and investment therein by a person
resident outside India; and
• (b) investment by way of contribution by a person resident outside India to the capital of a firm or a
proprietorship concern or an association of persons in India.
• (ii) Acquisition and transfer of immovable property in India by a person resident outside India.
• (iii) Guarantee by a person resident outside India in favour of, or on behalf of a person resident in
India.
• (iv) Import and export of currency/currency notes into/from India by a person resident outside
India.
• (v) Deposits between a person resident in India and a person resident outside India.
• (vi) Foreign Currency accounts in India of a person resident outside India.
• (vii) Remittance outside India of capital assets in India of a person resident outside India.
Capital account drawal transactions without
RBI restrictions
• (a) account of amortization of loans or
• (b) for depreciation of direct investments in the ordinary course of
business
• (c) repayments of loan instalments
Reserve Bank may, by regulations prohibit, restrict or regulate the
following,-
• (a) Transfer or issue of any foreign security by a person resident in India;
• (b) Transfer or issue of any security by a person resident outside India;
• (c) Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident
outside India;
• (d) Any borrowing or lending in foreign exchange in whatever form or by whatever name called;
• (e) Any borrowing or lending in rupees in whatever form or by whatever name called between a person resident
in India and a person resident outside India;
• (f) Deposits between persons resident in India and persons resident outside India;
• (g) Export, import or holding of currency or currency notes;
• (h) Transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident
in India;
• (i) Acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person
resident outside India;
• (j) Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred,-
• (i) By a person resident in India and owed to a person resident outside India; or
• (ii) By a person resident outside India.
Prohibited Capital Account Transactions
• (a) no person (resident individual) shall undertake or sell or draw foreign exchange to or
from an authorised person for any capital account transaction exceeding USD 250,000
per financial year. Release of foreign exchange exceeding USD 2,50,000, requires prior
permission from the Reserve Bank of India.
• (b) The person resident outside India is prohibited from making investments in India in
any form, in any company, or partnership firm or proprietary concern or any entity
whether incorporated or not which is engaged or proposes to engage:
• (i) In the business of chit fund; or
• (ii) As Nidhi company, or
• (iii) In agricultural or plantation activities, or
• (iv)In real estate business or
• (v) In trading in Transferable Development Rights (TDRs).
FDI is prohibited in
• Lottery Business including Government/private lottery, online lotteries, etc.
• Gambling and Betting including casinos etc.
• Chit funds
• Nidhi company
• Trading in Transferable Development Rights (TDRs)
• Real Estate Business or Construction of Farm Houses
• ‘Real estate businesses shall not include development of townships, construction of
residential /commercial premises, roads or bridges and Real Estate Investment Trusts (REITs)
registered and regulated under the SEBI (REITs) Regulations 2014.
• Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
• Activities/sectors not open to private sector investment e.g.(I) Atomic Energy and (II) Railway
operations(other than permitted activities).
FDI PERMITTED SECTORS
• Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled
• conditions;
• • Development and Production of seeds and planting material;
• • Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture, under controlled conditions; and •
Services related to agro and allied sectors
• • Tea sector including tea plantations
• • Mining and Exploration of metal and non-metal ores
• • Coal & Lignite
• • Petroleum & Natural Gas
• • Manufacture of items reserved for production in Micro and Small Enterprises (MSEs)
• • Defence Industry subject to Industrial license under the Industries (Development & Regulation) Act,1951
• • Broadcasting Carriage Services
• • Broadcasting Content Services
• • Print Media
• Airports
• • Air Transport Services
• • Courier services
• • Construction Development: Townships, Housing, Built-up Infrastructure
• • Industrial Parks
• • Satellites- establishment and operation
• • Private Security Agencies
• • Telecom Services
• • Cash & Carry Wholesale Trading/Wholesale Trading
• • E-commerce activities
• • Single Brand product retail trading
• • Multi Brand Retail Trading
• Railway Infrastructure
• • Asset Reconstruction Companies
• Banking- Private Sector
• • Banking- Public Sector
• • Commodity Exchanges
• • Credit Information Companies (CIC)
• • Infrastructure Company in the Securities Market
• • Insurance
• • Non-Banking Finance Companies (NBFC)
• • Pharmaceuticals
• • Power Exchanges.
REALISATION& REPATRIATION OF
FOREIGN CURRENCY
• FEMA a person resident in India to whom any foreign exchange is due or
has accrued, to take all reasonable steps to realise and repatriate to
India such foreign exchange.
• The person concerned shall repatriate the same to India and sell it to an
authorised person or retain it to the specified extent in an account with
an authorised dealer or use it for discharging a foreign exchange debt or
liability to the specified extent.
• Any person resident in India may take outside(other than to Nepal and
Bhutan) India currency notes of GOI and RBI not exceeding Rs.25000 per
person or such amount notified by RBI from time to time.
Period for Surrender of Realised Foreign
Exchange
• Any foreign exchange due or accrued as remuneration for services rendered, whether in or outside India
:, or
• in settlement of any lawful obligation or an income on assets held outside India or as inheritance,
settlement or gift
• should be sold by the person concerned to an authorised person within a period of seven days of its
receipt, and in all other cases within 90 days from the date of its receipt.
• Any person who has acquired or purchased foreign exchange for any purpose and does not use it for such
purpose, shall surrender such foreign exchange or the unused portion thereof to an authorised person
within a period of sixty days from the date of its acquisition or purchase by him.
• Foreign exchange acquired or purchased by any person from an authorised person is for the purpose of
foreign travel : unspent balance of such foreign exchange shall be surrendered to an authorised person
within ninety days from the date of return of the traveller to India, when the unspent foreign exchange is
in the form of currency notes and coins;
• and within one hundred eighty days from the date of return of the traveller to India, when the unspent
foreign exchange is in the form of travellers cheques.
Exemption from Realisation or Repatriation
• A person or class of persons may hold and operate foreign currency
account within the prescribed limits as may be specified by the
Reserve Bank.
POSSESSION AND RETENTION OF
FOREIGN CURRENCY OR FOREIGN
COINS
• Reserve Bank has specified following limits for possession or retention
of foreign currency or foreign coins, namely:
• (i) possession without limit of foreign currency and coins by an
authorised person within the scope of his authority;
• (ii) possession without limit of foreign coins by any person;
• (iii) retention by a person resident in India of foreign currency notes,
bank notes and foreign currency travellers cheques not exceeding US
$ 2000 or its equivalent in aggregate
Accounts maintained by NRI/Person resident
in India
• NRE : Demand and Term
• NRO: Demand and Term
• FCNR : Term
• EEFC : Current account
• RFC : Demand and Term
EXPORT OF GOODS AND SERVICES
• Every exporter is required to furnish to Reserve Bank/prescribed authority : a declaration
of amount representing the full export value expects to receive on sale of the goods in a
market outside India.
• Declaration has to be made in specific forms:
• E.g. SOFTEX : for export of software otherwise than in physical form
• To :Designated Official of Ministry of Information Technology
• 3 Copies : Original forwarded to RBI, Duplicate returned to Exporter, Triplicate retained
by Designated Official
• The importer-exporter code number allotted by the Director General of Foreign Trade
has to be indicated on all copies of the declaration forms.
• The documents pertaining to export shall, within 21 days from the date of export be
submitted to the Authorised Dealer mentioned in the relevant declaration form.
Export of Goods or Services Without
Declaration
• Export of goods or services may be made without furnishing the declaration in the following
cases, namely:
• (i) trade samples of goods and publicity material supplied free of cost;
• (ii) personal effects of travellers, whether accompanied or unaccompanied;
• (iii) ships stores, trans-shipment cargo and goods supplied under the orders of Central
Government or of such officers as may be appointed by the Central Government in this behalf
or of the military, naval or air force authorities in India for military, naval or air force
requirements;
• (iv) by way of gift of goods accompanied by a declaration by the exporter that they are not
more than five lakh rupees in value;
• (v) aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad subject
to their reimport into India after overhauling/repairs, within a period of six months from the
date of their export;
• (vi) goods imported free of cost on re-export basis;
• (vii) the goods which are permitted by the Development Commissioner of the
Export Processing Zones, EHTP, STP or Free Trade Zones to be re-exported.
• (viii) replacement goods exported free of charge in accordance with the
provisions of Foreign Trade Policy for the time being.
• (ix) goods sent outside India for testing subject to re-import into India.
• (x) defective goods sent outside India for repair and re-import provided the
goods are accompanied by a certificate from authorised dealer in India that the
export is for repair and re-import and that the export does not involve any
transaction in foreign exchange.
• (xi) export permitted by RBI.
Manner of Payment of Export Value of Goods
• Unless otherwise authorised by the Reserve Bank, the amount
representing the full export value of the goods exported shall be paid
through an authorised dealer in the manner specified in the Foreign
Exchange Management (Manner of Receipt and Payment)
Regulations, 2000.
Time Limit for Realisation of Export Value of
Goods/Software
• The amount representing the full export value of goods or software exported is
required to be realised and repatriated to India within twelve months from the
date of export.
• However where the goods or software are exported by the units in Special
Economic Zones, the stipulation of period of realization and repatriation to India of
full export value of goods or software within nine months from the date of export.
• In the case of export of goods to a warehouse established outside India with the
permission of the Reserve Bank : within fifteen months from the date of shipment
of goods.
• No person shall enter into any contract, without the approval of RBI, to export
goods on the terms which provide for a period longer than twelve months for
payment of the value of the goods to be exported.
Advance payment against exports
• Where an exporter receives advance payment (with or without
interest), from a buyer outside India, the exporter has been put under
an obligation to ensure that
• (i) The shipment of goods is made within one year from the date of
receipt of advance payment;
• (ii) The rate of interest, if any, payable on the advance payment does
not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis
points, and
• (iii) The documents covering the shipment are routed through the
Authorised Dealer through whom the advance payment is received.
ACQUISITION AND TRANSFER OF
IMMOVABLE PROPERTY OUTSIDE
INDIA
• A person resident in India is prohibited from acquiring or transferring any immovable
property situated outside India without general or special permission of the Reserve
Bank.
• A person resident in India may acquire immovable property outside India by way of
• (a) gift or inheritance from a person who was resident outside India.
• (b) by way of purchase out of foreign exchange held in Resident Foreign Currency (RFC)
account
• Reserve Bank is empowered to permit a company incorporated in India having overseas
offices, to acquire immovable property outside India for its business and for residential
purpose of its staff subject to such terms and conditions as it considers necessary.
• A person resident in India who has acquired immovable property outside India as above
may transfer it by way of gift to his relative who is a person resident in India.
ESTABLISHMENT IN INDIA OF BRANCH
OFFICE
• A body corporate incorporated outside India (including a firm or other association of
individuals), desirous of opening a Liaison Office (LO) / Branch Office (BO) in India have to
obtain permission from the Reserve Bank under provisions of FEMA 1999.
• The applications from such entities considered by Reserve Bank under two routes:
• — Reserve Bank Route — Where principal business of the foreign entity falls under
sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the
automatic route.
• — Government Route — Where principal business of the foreign entity falls under the
sectors where 100 per cent FDI is not permissible under the automatic route.
Applications from entities falling under this category and those from Non - Government
Organisations / Non - Profit Organisations / Government Bodies / Departments are
considered by the Reserve Bank in consultation with the Ministry of Finance,
Government of India.
Permissible Activities for branch offices
• — Export/Import of goods.
• — Rendering professional or consultancy services.
• — Carrying out research work, in areas in which the parent company is engaged.
• — Promoting technical or financial collaborations between Indian companies and
parent or overseas group company.
• — Representing the parent company in India and acting as buying / selling agent in
India.
• — Rendering services in information technology and development of software in India.
• — Rendering technical support to the products supplied by parent/group companies.
• — Foreign airline / shipping company.
Branch Office in Special Economic Zones
(SEZs)
• Reserve Bank has given general permission to foreign companies for
establishing branch/unit in Special Economic Zones (SEZs) to
undertake manufacturing and service activities.
• The general permission is subject to the following conditions:
• — such units are functioning in those sectors where 100 per cent FDI
is permitted;
• — such units comply with part XI of the Companies Act, 2013;
• — such units function on a stand-alone basis.
PENALTIES
• If a person violates/contravenes any rule, regulation, notification, press note,
press release, circular, direction or order issued in exercise of the powers
under FEMA :
• be liable to a penalty up to thrice the sum involved in such contraventions
where such amount is quantifiable, or
• up to two lakh Rupees where the amount is not quantifiable, and
• where such contraventions is a continuing one, further penalty which may
extend to five thousand Rupees for every day after the first day during which
the contraventions continues.
• if any person fails to make full payment of the penalty imposed on him within
a period of ninety days from the date on which the notice for payment of such
penalty is served on him, he shall be liable to civil imprisonment.
Machinery responsible for various aspect of
FEMA
• 1. Enforcement Directorate: To investigate provisions of the Act, the Central
Government, have established the Directorate of Enforcement with Directors and
other officers as officers of the Enforcement.
• 2. Adjudicating Authorities: The Adjudicating Authorities will issue a notice to the
person who has contravened the provisions of the Foreign Exchange Management
Act, Rules, Regulations, Notifications or any directions issued by the RBI.
• 3. Special Director (Appeals): Any person aggrieved by an order made by the
Adjudicating Authority, being an Assistant Director of Enforcement or a Deputy
Director of Enforcement can prefer an appeal to the Special Director (Appeals.)
• 4. Appellate Tribunal: Any person aggrieved by an order made by the adjudicating
Authority, or the Special Director (Appeals) can prefer an appeal to the Appellate
Tribunal.
ADJUDICATION AND APPEALS
• No order for the arrest and detention in civil prison of a defaulter shall be made
unless the Adjudicating Authority has issued and served a notice upon the
defaulter calling upon him to appear before him
• A reasonable opportunity has to be given to the person alleged to have
committed contraventions against whom a complaint has been made for being
heard before imposing any penalty.
• The Central Government may appoint Appellate Authority (one or more Special
Directors (Appeals to hear appeals against the orders of the adjudicating
authority.
• Any person aggrieved by any decision or order of the Appellate Tribunal or the
Special Director (Appeals) may file an appeal to the High Court within sixty days
•Thank You