Overview of FEMA: FOREIGN EXCHANGE MANAGEMENT, 1999 [42 of 1999]

The Parliament has enacted the Foreign Exchange Management Act,1999 to replace the Foreign Exchange Regulation Act, 1973(FERA). This Act came into force on the 1st day of June,2000.

6.1 (a)FEMA

Prof S R Khanna

Main Objects
The object of the Act is to consolidate and amend the law relating to foreign exchange with objective of facilitating external trade and payments and for promoting the orderly developnent and maintenance of foreign exchange market in India. also apply to all branches, offices and agencies outside India owned or controlled by a person resident in India. It will also be applicable to any contravention committed outside India by any person to whom this Act is applicable. investigate provisions of the Act, the Central Govt. have established the Directorate of Enforcement with Director and other officers as officers of the Enforcement Repeals Foreign Exchange Regulation Act, 1973 : Which provided for jail for any foreign exchange related offences.in past

6.1 (a)FEMA

Prof S R Khanna

Sec.3 - Prohibits dealings in foreign exchange except through an authorised person-RBI Permission required to:.
(a)Deal in or transfer any foreign exchange or foreign securities to any person being an authorised person (corresponding to sections 8 and 19 of FERA). (b)Make any payment to or for the credit of any person resident outside India in any manner (corresponding to section 9(l)(a) of FERA). (c)Receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner (corresponding to section 9(1)(b) of FERA) and (d)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 (corresponding to sections9(l)(f) & (g) ofFERA).
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It controls all foreign transaction:

Sec. 2 provides definitions of words and phrases used in the Act. Sec 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. The terms "foreign exchange" and "foreign security" are defined in sections 2(n) and 2(o) respectively of the Act. The Central Govt. has made Foreign Exchange Management (Current Account Transactions) Rules, 2000. SECTION 6 - deals with capital account transactions. This section allows a person to draw or sell foreign exchange from or to an authorised person for a capital account transaction. RBI in consultation with Central Govt. has issued various regulations on capital account transactions in terms of subsect ion (2)and (3 )f section 6. 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.
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6.1 (a)FEMA

Repatriation,A.Dealers,Penalties,Executive Arm
Sec.7 casts responsibility on exporters of goods and services to declare true values of amounts due ; Sec. 8- casts the responsibility on the persons resident in India who have any amount of foreign exchange due or accured in their favour to get same realised and repatriated to India within the specific period and the manner specified by RBI. Sec 9 exempts repatriation in cases of specified foreign exchange holdings,accounts, gifts,,inhertiance,foreign income earned Sec.10 and 12 - deals with duties and liabilities of the Authorized persons. Authorised person has been defined in Sec.2(c) of the Act which means an authorised dealer, money changer, off shore banking unit or any other person for the time being authorized to deal in foreign exchange or foreign securities. Sec 11 : RBI power to give mandatory directions to Authorised persons. Sec.13 and 15 - of the Act with penalties and enforcement of the orders of Adjudicating Authority as well power to compound contravent ions under the Act.
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Penalties u/s 13( no Jail):

up to thrice the sum of quantifiable contravention,or up to two lakh rupees where the amount is not quantifiable + Rs 5000 per day for continuing offence. confisicate any currency, security or any other money or property in contravention
Property includes: (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.
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 u/s14(1) fails to make full payment of the penalty in liable to jail. u/s 14(2) No order for JAIL before show cause notice to defaulter and the Adjudicating Authority, for reasons in writing, is satisfied (a) defaulter( after show cause notice) has dishonestly transferred, concealed, or removed any part of his property, or (b) defaulter has the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same. u/s 14 (3) a warrant for arrest may be issued if satisfied, by affidavit or otherwise, that defaulter is likely to abscond. u/s 14(4) Where no appearance after serving notice may issue a warrant for the arrest of the defaulter.
u/s 14(6) arrested person is to be produced before the Adjudicating Officer; If amount is paid he will be released. u/s 14(7) defaulter is given the opportunity to show cause why he should not be sent to jail. u/s 14 (8) During hearing he can either be detained or released under bond to attend hearings.
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Jail u/s 14 only if penalty not paid

Can go to Jail up to three years:

u/s 14(11) Offender detained in the civil prison : (a) where the certificate is for a demand of an amount exceeding rupees one crore, up to three years, and (b) in any other case, up to six months: Provided that he shall be released from such detention on the amount mentioned in the warrant for his detention being paid to the officer-in-charge of the civil prison. u/s (12) A defaulter released from detention under this section shall not merely by reason of his release, be discharged from his liability for the arrears, but he shall not be liable to be arrested under the certificate in execution of which he was detained in the civil prison.
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Compounding of offences u/s 15:

u/s 15(1) Any contravention u/s 13 may be compounded within one hundred and eighty days u/s 15 (2) Where a contravention has been compounded no further proceeding shall be initiated or continued u/s 16 power to appoint adjudicating officers and the procedure to be followed by them u/s 17 Appeals against orders and procedure for hearing appeals.
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Appeal to Appellate Tribunal

u/s 19(1) to deposit penalty while filing appeal before Tribunal. If undue hardship Tribunal may dispense with deposit. Procedure for hearing appeals laid down u/s 20 ,21: Powers to appoint members of Tribunal and qualifications thereof u/s 22 to 33 matters related to the functioning of the Tribunal and its benches and procedures therefor.
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2nd Appeals and Enforcement

Jurisdiction of Civil Courts barred u/s 34 Appeals to High Courts u/s 35 only on questions of law Sec.36,37 - establish Directorate of Enforcement

& give powers to investigate violation of any provisions of Act, rule, regulation, notifications, directions or order issued in exercise of the powers under this Act. Enforcement officers (Asstt. Director &above) empowered to investigate offences like:
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 1) Remittances of Indians abroad otherwise than through normal banking channels, i.e. through compensatory payments. : 2) Acquisition of foreign currency illegally by person in India. 3) Non-repatriation of the proceeds of the exported goods. 4) Unauthorised maintenance of accounts in foreign countries. 5) Under-invoicing of exports and over-invoicing of imports and any other type of invoice manipulation. 6) Siphoning off of foreign exchange against fictitious and bogus imports 7) Illegal acquisition of foreign exchange through Hawala. 8) Secreting of commission abroad.
(See details on Enforcement Directorate:
http://www.finmin.nic.in/the_ministry/dept_revenue/fema_directorate/index.html)

u/s 38 power to authorise customs. Excise and police officers to assume powers under this Act.

6.1 (a)FEMA

Prof S R Khanna

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 (i) is produced or furnished or has been seized from the custody or control of any person, in either case, under this Act or under any other law; or (ii) has been received from any place outside India (duly authenticated by such authority or person and in such manner as may be prescribed) in the course of investigation and such document is tendered in any proceeding under this Act in evidence against him the court or the Adjudicating Authority, shall (a) presume, unless the contrary is proved, that the signature and every other part of such document which purports to be in the handwriting of any person or which the court may reasonably assume to have been signed by, is in that person's handwriting, and in the case or a document executed or attested, that it was executed or attested by the person by whom it purports to have been so executed or attested; (b) admit the document in evidence even if it is not duly stamped, if such document is otherwise admissible in evidence; (c) (a)FEMA clause (i), 6.1 in a case falling under Prof S R Khanna also presume, unless the 13 contrary is proved, the truth of the contents of such document

Evidence u/s 39: where any Document

Powers for Special Circumstances:

Suspend operation of this Act in public interest u/s 40. (1) If Government satisfied of circumstances necessary that any permission granted or restriction imposed by this Act should cease to be granted or imposed, or if it considers necessary by notification, suspend or relax to such extent either indefinitely or for such period as may be notified, the operation of all or any of the provisions of this Act. u/s40(2) suspension or relaxation may, at any time while this Act remains in force, be removed by the Central Government by notification. u/s40(3) (3) Every notification issued be laid, as soon as may be after it is issued, before each House of Parliament, u/s 41(1)Central Government may give to the Reserve Bank such general or special directions for compliance.
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Penalities for Companies u/s 42 and deceased Offenders u/s 43

u/s42 (1) Where the offender is a company, every person who was in charge of, and was responsible as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly;( exempt if person proves that the contravention took place without his knowledge or that he exercised due diligence to prevent such contravention). u/s 42(2) where offence is by company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. Death or insolvency in certain cases. u/s 43. Any right, obligation, liability, proceeding or appeal arising in relation to the provisions of section 13 shall not abate by reason of death or insolvency of the person liable under that section and upon such death or insolvency such rights and obligations shall devolve on the legal representative of such person or the official receiver or the official assignee, as the case may be; Provided that a legal representative of the deceased shall be liable only to the extent of S R Khanna the inheritance or estate of the deceased 6.1 (a)FEMA Prof 15

Power to make rules u/s 46 & regulations u/s 47:

u/s 46. Government has power to notify rules to carry out the provisions of this Act.. They inlude powers to make rules to provide for:,-- (a) imposition of reasonable restrictions on current account transactions u/s 5; (b) the manner of contravention compounding u/s 15 (1) (c) the manner of holding inquiry by the Adjudicating Authority u/s 16(1) (d) the form of appeal and fee for filing such appeal under sections 17 and 19; (e) salary /allowances and terms and conditions of service of the Chairperson and other Members of the Appellate Tribunal and the Spl Director (Appeals) u/s 23; (f) salaries/ allowances and other conditions of service of the officers and employees of the Appellate Tribunal and the office of Special Director (Appeals) u/s 27 (3) (g) he additional matters in respect of which the Appellate Tribunal and the Special Director (Appeals) may exercise the powers of a civil court u/s 28(2) (h) he authority or person and the manner in which any document may be authenticated under clause (ii) of section 39; and (i) Any other matter which is required to be, or may be, prescribed.
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Power u/s 47(1) to RBI to make regulations under the Act and the rules made thereunder; also includes foll:
(a) the permissible classes of capital account transactions, the limits of admissibility of foreign exchange for such transactions, and the prohibition, restriction or regulation of certain capital account transactions under section 6; (b) the manner and the from in which the declaration is to be furnished under clause (a) of sub-section (1) of section 7; (c) the period within which and the manner of repatriation of foreign exchange under section 8; (d) the limit up to which any person may possess foreign currency or foreign coins under clause (a) of section 9; (e) the class of persons and the limit up to which foreign currency account may be held or operated under clause (b) of section 9; (f) the limit up to which foreign exchange acquired may be exempted under clause (d) of section 9; (g) the limit up to which foreign exchange acquired may be retained under clause (e) of section9; (h) any other matter which is required to be, or may be specified.

6.1 (a)FEMA

Prof S R Khanna

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FERA repealed u/s 49(1) with saving clauses

u/s 49 (3) two Sunset clause No court shall take cognizance of an offence under the repealed Act and no adjudicating officer shall take notice of any contravention under section 51 of the repealed Act after the expiry of a period of two years from the date of the commencement of this Act. u/s (4) Subject to sub-section (3) all offences committed under the repealed Act shall continue to be governed by the provisions of the repealed Act as if that Act had not been repealed. u/s 49 (5) Notwithstanding such repeal,(a )anything done or any action taken or purported to have been done or taken including any rule, notification, inspection, order or notice made or issued or any appointment, confirmation or declaration made or any license, permission, authorization or exemption granted or any document or instrument executed or any direction given under the Act hereby repealed shall, in so far as it is not inconsistent with the provisions of this Act, be deemed to have been done or taken under the corresponding provisions of this Act; (b) any appeal preferred to the Appellate Board under sub-section (2) of section52 of the repealed Act but not disposed off before the commencement of this Act shall stand transferred to and shall disposed of by the Appellate Tribunal constituted under this Act; (c) every appeal from any decision or order of the appellate Board under sub-section (3) or sub-section (4) of section 52 of the repealed Act shall, it not filed before the commencement of this Act, be filled before the High Court within a period of sixty days of such commencement: Provided that the High Court may entertain such appeal after the expiry of the said period of sixty days if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal with the said period. For bare Act see: 6.1 (a)FEMA Prof S R Khanna 18 http://www.finmin.nic.in/the_ministry/dept_eco_affairs/america_canada/fema_acts/ind ex.htm