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					FOREIGN EXCHANGE MANAGEMENT ACT, 1999 (FEMA)
A Bill based on the recommendations of the Task Force, was introduced in the Lok Sabha on 4 August, 98. The Bill was referred to the standing committee on Finance which submitted it's report to the House on 23 December'98 with suggestion and modifications. The 12th Lok Sabha was dissolved before any decision could be taken on the bill. The Bill subsequently lapsed. The bill was again introduced in the 13th Lok Sabha on 25th Oct'99. The presidential Assent was received on 6th Jan 2000. Finally the FEMA came into operation w.e.f. 1st June 2000. TO WHOM IS THE ACT APPLICABLE 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.  Any contravention of provisions of FEMA, by all those, who are covered under above two aspects committed outside India.

CATEGORIES & STATUS OF DIFFERENT PERSONS
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 A. PERSON For the purpose of provisions, a person shall include any of the following: (i) An individual (ii) A Hindu Undivided family (iii) A company (iv) A Firm (v) An association of persons or a body of individuals, whether incorporated or not, (vi) Every artificial judicial person, not falling within any of the preceding sub clauses, and (vii) Any agency, office or branch owned or controlled by such person.

B. "PERSON RESIDENT IN INDIA" "A person resident in India", shall include any of the following (I) 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 (II) Any person or body corporate registered or incorporated in India, or (III) An office, branch or agency in India owned or controlled by a person resident outside India, or (IV) An office, branch or agency outside India owned or controlled by a person resident in India.

However, in following cases a person shall not be person resident in India", even if he is residing in India for more than 182 days in the last financial year:

(i) A person who has gone abroad, for :
  

Taking up employment outside India or For carrying on any business outside India, or For any other purpose, which itself would indicate his intention to stay outside India for an uncertain period.

(ii) Similarly, a person who has come to India for any purpose except :
  

Taking up employment in India, or Carrying on any business in India, or For any other purpose, which itself would indicate his intention to stay in India for an uncertain period.

C. PERSON RESIDENT OUTSIDE INDIA Simply putting it, "a person resident outside India" means "a person who is not resident in India"

IMPLICATION ON DIFFERENT CATEGORIES
PERSON RESIDENT IN INDIA Provision of FEMA, are applicable with different implication on Person resident in, and outside India. With respect to " Person Resident in India", they are: (1) A person who is resident in India, can acquire, hold, own possess or transfer any foreign Exchange, foreign security or any immovable property situated outside India, only according to FEMA FOREIGN SECURITY: means any security, in the form of shares, stocks, bonds, debentures or any other instrument denominated or expressed in foreign currency 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 (2) The Reserve Bank of India (R.B.I), may prohibit, restrict or regulate any of the following: i. Transfer or issue of any foreign security by a person resident in India.

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. iii. Deposits between persons resident in India and person resident outside India: R.B.I. may make all these restrictions, in general or with respect to "Capital Account Transactions." "CAPITAL ACCOUNT TRANSACTIONS" means a transaction, which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India. iv. (iv) Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred, by a person resident in India and owed to a person resident outside India. v. (v) Transfer of immovable property outside India, other than a lease not, exceeding five years, by a person resident outside India. (3) A person resident in India may hold, own transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. (4) If any amount of foreign exchange has become due or has accrued to any person resident in India, then he shall take steps to realise and bring it back to India within the time frame and manner specified by Reserve Bank PERSON RESIDENT OUTSIDE INDIA Implications of FEMA, on "Person Resident outside India", are as follows: 1. For making any sort of payment in any manner, to a "person resident outside India", provisions of FEMA has to be complied, and also general or special permission of Reserve Bank is required Similarly, for receiving any payment by order or on behalf of any "person resident outside" in any manner, provisions of FEMA has to be complied, and also general or special permission of Reserve Bank is required. 2. The Reserve Bank may prohibit, restrict or regulate any of the following
     

ii.

Transfer or issue of any security by a person resident outside India. Transfer or issue of any security or foreign security by any branch, office or agency in India of a "person resident outside India." Any borrowing or lending in rupees in whatever name called between a "person resident in India" and a "person resident outside India" Deposit between "persons resident in India" and "persons resident outside India" Acquisition or transfer of immovable property in India other than a lease, not exceeding five years, by a person resident outside india. Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred, by a person resident outside India.

The Reserve Bank of India may also regulate the above noted activities, with respect to "Capital Account Transactions".

3. A "person resident in India" may hold, own, transfer or invest in foreign currency, foreign security, or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was ' resident outside India" or inherited from a "person who was resident outside India." 4. A "person resident 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 "resident in India" or inherited from a person who was resident in India 5. Reserve Bank may by regulation, prohibit, restrict, or regulate establishment in India of a branch, office or other place of business by a "person resident outside India", for carrying on any activity relating to such branch, office or other place of business.

EXEMPTIONS

CIRCUMSTANCES WHERE HOLDING AND REPATRIATION OF FOREIGN EXCHANGE IS "EXEMPTED" FROM FEMA RULES In following circumstances, the provisions of FEMA will not apply with regard to Holding and Repatriation of Foreign Exchange: 1. Possession of foreign currency or foreign coins by any person upto such limit as the Reserve Bank may specify. 2. Foreign currency account held or operated by such person or class of persons and the limit upto, which the Reserve Bank specifies. 3. Foreign Exchange acquired or received before the 8th day of July 1947 or any income arising or accruing thereon, which is held outside India by any person in pursuance of a general or special permission granted by the Reserve Bank. 4. Foreign Exchange held by a person resident in India upto such limit as the Reserve Bank may specify, if such foreign exchange was acquired by way of gift or inheritance from a person who acquired or received it before 8th of July 1947 or if the income has occurred to him, which was held outside India in pursuance of a general or special permission granted by the Reserve Bank. 5. Foreign Exchange acquired from employment, business, trade vocation, services, honorarium, gifts, inheritance or any other legitimate means upto such limit as the Reserve Bank may specify. 6. Such other receipt in foreign Exchange as the Reserve Bank may specify.

IMPORTANT PROVISIONS FROM FEMA
RELEVANT PROVISIONS OF EXCHANGE CONTROL MANUAL FOR THE PURPOSE OF FEMA Some of the relevant provisions of Exchange Control Manual under FEMA, which are still existing are: 1. REFUND OF INWARD REMITTANCES If a request is made from the overseas for cancellation of Inward Remittances, Authorised Dealers may do so without referring to Reserve Bank, if refunds are not to compensate for a loss. 2. APPLICATION FOR REMITTANCES IN FOREIGN CURRENCY
   

A person firm or bank may apply to an Authorised Dealer for remittances in any foreign currency to a beneficiary abroad. Application should be made in FORM -A1, if the purpose of remittance is import of goods into India. For any other purpose in Form -A2 The Authorised Dealer may sell the foreign Exchange applied for if he think fit provided it is within his powers, and the purpose of remittance is an approved one.

3. MODE OF PAYMENT OF RUPEES AGAINST SALE OF FOREIGN EXCHANGE In case of sale of foreign Exchange or remittance foreign Exchange amounting to Rs. 20,000 or more the payment received by the Authorised Dealer, from the applicant should be through a crossed cheque drawn on the applicant bank account or on the bank account of the Firm/ Company. Payment can also be accepted in the form of a Banker's cheque / Pay Order / Demand Draft. Receipt of Payment in cash in case of such sale of foreign Exchange or remittance in foreign Exchange is strictly prohibited. EXCEPTION: However where purpose of sale of foreign exchange is for travel abroad for business etc, cash may be received by Authorised Dealer from Applicant upto Rs. 50,000/Where the rupee equivalent for drawing foreign exchange exceeds Rs. 50,000 either for any single installment or for more than one installment reckoned--- together for a single journey / visit it should be paid by the traveler by means of a gross cheque / demand draft/ pay order as stated above. 4. TRAVELLERS CHEQUE NEGOTIABLE ONLY IN INDIA Rupee Travelers cheque cannot be encashed outside India, if they are issued solely for use within India. In such a case they cannot be taken or sent out of India. Reimbursements should be strictly refused where such travelers cheque have been encashed outside India.

5. REIMBURSEMENT OUTSIDE INDIA Rupee Travellers cheque, which are issued by authorised dealers, encashable outside India, may be reimbursed by Authorised Dealers or by their selling Agent. 6. IMPORT OF FOREIGN CURRENCY NOTES When the stock of foreign currency notes with Authorised Dealer is not adequate for meeting their normal business requirement they could import foreign currency notes from their overseas branches or correspondents. 7. RECONVERSION OF INDIAN CURRENCY






Foreign currency may be sold against Indian Rupees held by persons who are not resident of India but are passing through or leaving India after a visit, at the time of their departure from India. For this purpose, a Bank or Encashment certificate issued by Authorised Dealer, exchange bureau or Authorised Money changer in form BCI, ECF OR ECR, is required to show that the rupee had been acquired by sale of foreign Exchange to an Authorised Dealer or money changer in India. Such a certificate is valid for such reconversion i.e. a period of three months is not over from the date of sale of the foreign currency by the traveller.

8. RATES OF EXCHANGE Authorised dealers and their Exchange bureau may buy from and sell to public foreign currency notes and coins at rates of exchange determined by market conditions. Dealings in foreign currency notes and coins between authorised dealers and between authorised dealers and money changers would also be at rates determined by market conditions.

FERA AND FEMA - COMPARISION
SIMILARITIES The similarities between FERA and FEMA are as follows:
  

The Reserve Bank of India and central government would continue to be the regulatory bodies. Presumption of extra territorial jurisdiction as envisaged in section (1) of FERA has been retained. The Directorate of Enforcement continues to be the agency for enforcement of the provisions of the law such as conducting search and seizure

DIFFERENCES BETWEEN FERA AND FEMA Sr. DIFFERENCES No
1 PROVISIONS FEATURES 2 NEW TERMS IN FEMA

FERA
FERA consisted of 81 sections, and was more complex Presumption of negative intention (Mens Rea ) and joining hands in offence (abatement) existed in FEMA Terms like Capital Account Transaction, current Account Transaction, person, service etc. were not defined in FERA. Definition of "Authorised Person" in FERA was a narrow one ( 2(b)

FEMA
FEMA is much simple, and consist of only 49 sections. These presumptions of Mens Rea and abatement have been excluded in FEMA Terms like Capital Account Transaction, current account Transaction person, service etc., have been defined in detail in FEMA The definition of Authorised person has been widened to include banks, money changes, off shore banking Units etc. (2 ( c) The provision of FEMA, are in consistent with income Tax Act, in respect to the definition of term " Resident". Now the criteria of "In India for 182 days" to make a person resident has been brought under FEMA. Therefore a person who qualifies to be a non-resident under the income Tax Act, 1961 will also be considered a non-resident for the purposes of application of FEMA, but a person who is considered to be nonresident under FEMA may not necessarily be a non-resident under the Income Tax Act, for instance a business man going abroad and staying therefor a period of 182 days or more in a financial year will become a non-resident under FEMA.

3

4

DEFINITION OF AUTHORISED PERSON

MEANING OF There was a big difference in the definition of "RESIDENT" AS "Resident", under FERA, and Income Tax Act COMPARED WITH INCOME TAX ACT.

5

PUNISHMENT 6

Any offence under FERA, was a criminal Here, the offence is considered to be a offence , punishable with imprisonment as per civil offence only punishable with some code of criminal procedure, 1973 amount of money as a penalty. Imprisonment is prescribed only when

one fails to pay the penalty. 7 QUANTUM OF PENALTY. APPEAL The monetary penalty payable under FERA, Under FEMA the quantum of penalty has was nearly the five times the amount involved. been considerably decreased to three times the amount involved. An appeal against the order of "Adjudicating The appellate authority under FEMA is office", before " Foreign Exchange Regulation the special Director ( Appeals)Appeal Appellate Board went before High Court against the order of Adjudicating Authorities and special Director (appeals) lies before "Appellate Tribunal for Foreign Exchange."An appeal from an order of Appellate Tribunal would lie to the High Court. (sec 17,18,35) FERA did not contain any express provision on the right of on impleaded person to take legal assistance FERA conferred wide powers on a police officer not below the rank of a Deputy Superintendent of Police to make a search FEMA expressly recognises the right of appellant to take assistance of legal practitioner or chartered accountant (32) The scope and power of search and seizure has been curtailed to a great extent

8

9

RIGHT OF ASSISTANCE DURING LEGAL PROCEEDINGS. POWER OF SEARCH AND SEIZE

10

A STEP AHEAD FROM FERA TO FEMA Enactment of FEMA has brought in many changes in the dealings of Foreign Exchange, as compared to FERA. Some of them are restrictive, and some has widened the scope. However some of the relevant progress made, from FERA to FEMA, are as follows: DRAWAL OF FOREIGN EXCHANGE Now, the restrictions on drawal of Foreign Exchange for the purpose of current Account Transactions, has been removed. However, the Central Government may, in public interest in consultation with the Reserve Bank impose such reasonable restrictions for current account transactions as may be prescribed. FEMA has also by and large removed the restrictions on transactions in foreign Exchange on account of trade in goods, services except for retaining certain enabling provisions for the Central Government to impose reasonable restriction in public interest. 2. OMISSION OF CRIMINAL PROCEEDINGS Under FERA, any contravention was a criminal offence and the proceedings were governed by the code of Criminal Procedure. Moreover the Enforcement Directorate had powers to arrest any person, search any premises, seize documents, initiate proceeding. Now all these have been done away with, and contravention of FEMA is no more a Criminal offence, and only monetary penalty, i.e. civil proceedings are applicable. Civil imprisonment is provided, only in case of default to pay fine. 3. RESIDENTIAL STATUS

The definition of "Residential Status" under FEMA has gone through considerable change. It has now been made compatible with the definition provided under "Income Tax" Act. The residential status is now based on the physical stay of the person in the country. The period of 182 days as provided, indicates that it is not necessary that there should be a continuos period of stay. The period of stay would be calculated by adding up all the days of stay of the individual in the country. An Indian resident becomes a non-resident when he goes abroad and takes up a job or engages in business. A major change in the definition of residential status of partnerships and firms in worth noticing. Earlier, under FERA, a branch was considered a resident of a place where it was situated. Now, under FEMA, an office, branch or agency outside India owned or controlled by a person resident in India will be considered a resident in India for the purposes of this Act. For example, a person residing in India has a branch in Maurtius; such branch will be considered a resident in India. 4. IMMOVABLE PROPERTY OUTSIDE INDIA Earlier, under FERA, there was no restriction placed on foreign citizens who were residents of India, for acquiring immovable property outside India. Now FEMA prohibits a resident to acquire, own process, hold or transfer any immovable property situated outside India. This restriction applies irrespective of whether the resident is an Indian citizen or foreign citizen. With this provision being effective a foreign citizen who is a resident in India has to take approval of Reserve Bank of India for selling or buying any immovable property situated outside India. 5. IMMOVABLE PROPERTY IN INDIA Earlier, under FERA, a foreign citizen could acquire or transfer immovable property in India only after seeking permission from the Reserve Bank. Now, under FEMA, the control of Reserve Bank is determined by the residential status of a person. Only a non-resident as defined within the meaning of FEMA would require permission of the Reserve Bank to acquire or transfer an immovable property in India. The distinction based on citizenship has been abolished and that based on residentship has been introduced. 6. EXPORT OF SERVICES FERA had no provision for export of services. Now, FEMA has included payment received by an Exporter of Services in its ambit. Every Exporter, who receives payment from outside India, for his services rendered is obliged to furnish details of payment to the 'Reserve Bank.

For example; a Doctor, or Engineer or Lawyer or Accountant or any other professional may give opinions or consultation to people outside India, via internet or mail, and his fees may be credited to his credit account. Then he is obliged to furnish details of such payment to Reserve Bank. 7. INCLUSION OF NEW TERMS Some new terms like "Capital Account Transactions, Current Account Transactions"; have been included in FEMA. Reserve Bank has been confirmed with powers and with consultation with central government to specify maximum permissible limit upto which exchange is admissible for such transactions. WHAT TYPE OF OFFENCES? Although under FEMA, offences pertain to transactions in foreign Exchange only. However relevant offences are as follows: DETAILS IN FOREIGN EXCHANGE:  Only a person Authorised by Reserve Bank can deal in foreign Exchange  No one can make a payment to a person resident outside India, without permission of Reserve Bank.  No one receives any payment from a person resident outside India, without permission of Reserve Bank.  A person resident in India cannot deal in foreign exchange, foreign security or any immovable property situated outside India, without permission of Reserve Bank. (sec 4)  Similarly a person resident outside India, cannot acquire immovable property in India without permission. EXPORTER OF GOODS AND SERVICES Every exporter of goods and services is under an obligation, to give details to Reserve Bank regarding value of export, mode of payment, amount of payment received etc. REPATRIATION OF FOREIGN EXCHANGE Where any amount of foreign exchange has become due or accrued to any person who is a resident in India, he shall realise and repatriate (Bring Back) such amount, within the time specified by Reserve Bank. AUTHORISED PERSON An "Authorised Person" under FEMA, is a person who is authorised by Reserve Bank to deal in Foreign Exchange. For being registered as an "Authorised Person", necessary application alongwith relevant documents has to be furnished to Reserve Bank. An "Authorised Person" is also, not given a free hand to deal in foreign Exchange. He has to furnish details and information, to Reserve Bank from time to time as may be required by it. PROSECUTION OF OFFENCES COMMITTED Before detailing the procedure for prosecution, it is important to mark out the Adjudicating Agencies. They are:

ADJUDICATING AUTHORITY The inquiry of any contravention of FEMA is conducted by an Adjudicating Authority appointed by the Central Government. APPEAL TO SPECIAL DIRECTOR (APPEALS) The special Director (Appeals) is authorised to hear the appeals arising out of in order of the Adjudicating Authority. APPEAL TO THE APPELLATE TRIBUNAL The Appellate Tribunal is entitled to hear appeals made in accordance, from an order made by Adjudicating Authority or special Director (Appeals). DIRECTOR OF ENFORCEMENT The Director of Enforcement and other officers has power to conduct investigation, search and seize any articles.

PROCEDURE INQUIRY BY ADJUDICATING AUTHORITY (14) The inquiry of any contravention of FEMA is conducted by an Adjudicating Authority.
  

  

When, an inquiry is to be conducted against a person for any contravention; the Adjudicating Authority shall issue a notice to such person. The notice will also indicate the date on which the offender is required to appear before authority, and will also mention the nature of offence committed by him. Such person (offender) will have a right to give reasons or explanation, and then a date will be fixed for his appearance. He can appear either personally or through an Advocate or chartered accountant. On the date of appearance, the Adjudicating Authority shall present its case, and explain the reason and type & implications of offence committed by offender. Then in turn, such person will also be given an opportunity to put up his case, and to produce documents and evidence. Finally, if Adjudicating Authority is convinced, that the offender has committed an offence, then it will impose such fine and penalty, as it thinks fit.

APPEAL TO SPECIAL DIRECTOR (APPEALS) (17) Appeal from an order of "Adjudicating Authority" lies before" special Director (appeal)"

   

The appeal shall be made in "Form No. 1", alongwith three copies of the order appealed against and the requisite fees. The appeal should be filed within 45 days, from the date of receipt of receipt of impugned order. On the date of hearing the appeal the applicant may appoint a legal practitioner or a chartered accountant to appear, plead and act on their behalf before the special Director (Appeal) The order of the special Director (Appeals) made at the conclusion of the proceedings shall be in writing and shall state briefly the grounds for the decision.

APPEAL TO THE APPELLATE TRIBUNAL (19) "Appellate Tribunal" is entitled to hear appeal arising out of an order from "Adjudicating Authority" and "special Director (appeal)."
    

The appeal shall be made in Form No. 2, alongwith three copies of the impugned order and requisite fees. The appeal shall be made within 45 days, from the date on which copy of the impugned order is received. A copy of the order and appeal shall be sent to the opposite party, i.e. "Director of Enforcement," and a date shall be fixed for hearing of the appeal. The appellant shall have the right to present his case / appeal through a legal practitioner or chartered Accountant. On the fixed date of hearing, the "Appellate Tribunal" shall pass its order in writing and the reasons therefore.

APPEAL TO HIGH COURT (35)
 

An appeal from the decision of "Appellate Tribunal" lies before High Court. The appeal shall be filed within "60 days" from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising from the impugned order.

AMOUNT OF PENALTY 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 upto 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.

Foreign Exchange Management Act (FEMA)
Introduction and Basic Concepts The Foreign Exchange Management Act (FEMA) is a law to replace the draconian Foreign Exchange Regulation Act, 1973. Any offense under FERA was a criminal offense liable to imprisonment, whereas FEMA seeks to make offenses relating to foreign exchange civil offenses. Unlike other laws where everything is permitted unless specifically prohibited, under FERA nothing was permitted unless specifically permitted. Hence the tenor and tone of the Act was very drastic. It provided for imprisonment of even a very minor offense. Under FERA, a person was presumed guilty unless he proved himself innocent whereas under other laws, a person is presumed innocent unless he is proven guilty. With liberalization, a need was felt to remove the drastic measures of FERA and replace them by a set of liberal foreign exchange management regulations. Therefore FEMA was enacted to replace FERA. FEMA extends to the whole of India. It applies to all branches, offices and agencies outside India owned or controlled by a person resident in India and also to any contravention thereunder committed outside India by any person to whom this Act applies. FEMA contains definitions of certain terms which have been used throughout the Act. The meaning of these terms may differ under other laws or under common language. But for the purposes of FEMA, the terms will signify the meaning as defined thereunder. Let us take up some of the more important ones.

means an 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;
"Authorized person"

a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes transactions by way of giving guarantees or surety for any debt, obligation or other liability of (1) a person resident outside India or (2) of a person resident in India and owed to a person resident outside India.
"Currency" includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank; "Currency Notes" means and includes cash in the form of coins and bank notes; "Current Account Transaction" means a transaction other than a capital account transaction and includes :-

"Capital Account Transaction" means

i. ii. iii. iv.

payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business, payments due as interest on loans and as net income from investments, remittances for living expenses of parents, spouse and children residing abroad, expenses in connection with foreign travel, education and medical care of parents, spouse and children;

"Export", with its grammatical variations and cognate expressions, means :-

i. ii.

the taking out of India to a place outside India any goods, provision of services from India to any person outside India;

"Foreign currency" means any currency other than Indian currency;

"Foreign Exchange" means foreign currency and includes :-

i. ii. iii.

deposits, credits and balances payable in any foreign currency, drafts, travelers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency, drafts, travelers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency;

" means any security, in the form of shares, stocks, bonds, debentures or any other instrument denominated or expressed in foreign currency 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;
"Foreign Security

with its grammatical variations and cognate expressions, means bringing into India any goods or services;
"Import",

means currency which is expressed or drawn in Indian .rupees but does not include special bank notes and special one rupee notes issued under section 28A of the Reserve Bank of India Act, 1934 by the Ministry of Finance.
"Indian currency" "Person" includes

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 :-

i.

a person residing in India for more than one hundred and eighty-two days during the course of the preceding Financial year but does not include :-

(a) a person who has gone out of India or who stays outside India, i. for or on taking up employment outside India, or ii. for carrying on outside India a business or vocation outside India, or iii. for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period; a. a person who has come to or stays in India, otherwise than i. for or on taking up employment in India, or ii. for carrying on in India a business or vocation in India, or iii. for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

i. ii. iii.

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.

"Repatriate to India" means bringing into India the realized foreign exchange and i. the selling of such foreign exchange to an authorized person in India in exchange for rupees, or ii. 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:

"Security" means

shares, stocks, bonds and debentures, Government securities, savings certificates, deposit receipts in respect of deposits of securities and units of the Unit Trust of India or of any mutual fund and includes certificates of title to securities, but does not include bills of exchange or promissory notes other than Government promissory notes or any other instruments which may be notified by the Reserve Bank as security for the purposes of this Act;
"Service" means service of any description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, medical assistance, legal assistance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service; "Transfer" includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien. Regulation and management of foreign exchange Except with the general or special permission of the Reserve Bank, no person can :-

a. deal in or transfer any foreign exchange or foreign security to any person not being an authorized b. c. d.
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; 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 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

e.

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. No person resident in India can acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India except with the general or special permission of the Reserve Bank. Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawal is a current account transaction. However, the Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed. Any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction. The Reserve Bank may, in consultation with the Central Government, specify :-

a. any class or classes of capital account transactions which are permissible; b. the limit up to which foreign exchange shall be admissible for such transactions:
However, the Reserve Bank cannot impose any restriction on the drawal of foreign exchange for payments due on account of amortization of loans or for depreciation of direct investments in the ordinary course of business. The Reserve Bank can, 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 d. e. f. g. h. i. j.
resident outside India; any borrowing or lending in foreign exchange in whatever form or by whatever name called; any borrowing or tending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India; deposits between persons resident in India and persons resident outside India; export, import or holding of currency or currency notes; transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India; acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India; 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.

A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. A person resident 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 resident in India or inherited from a person who was resident in India. The Reserve Bank may, by regulation, prohibit, restrict, or regulate establishment in India of a branch, office or other place of business by a person resident outside India, for carrying on any activity relating to such branch, office or other place of business. Every exporter of goods must :-

a. furnish to the Reserve Bank or to such other authority a declaration in such form and in such manner
as may be specified, containing true and correct material particulars, including the amount representing the full export value or, if the full export value of the goods is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions, expects to receive on the sale of the goods in a market outside India; furnish to the Reserve Bank such other information as may be required by the Reserve Bank for the purpose of ensuring the realization of the export proceeds by such exporter.

b.

The Reserve Bank may, for the purpose of ensuring that the full export value of the goods or such reduced value of the goods as the Reserve Bank determines, having regard to the prevailing market-conditions, is received without any delay, direct any exporter to comply with such requirements as it deems fit. Every exporter of services shall furnish to the Reserve Bank or to such other authorities a declaration in such form and in such manner as may be specified, containing the true and correct material particulars in relation to payment for such services. Where any amount of foreign exchange is due or has accrued to any person resident in India, such person shall take all reasonable steps to realize and repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve Bank.

Authorised Persons The Reserve Bank may, on an application made to it in this behalf, authorize any person to be known as authorized person to deal in foreign exchange or in foreign securities, as an authorized dealer, money changer or off-shore banking unit or in any other manner as it deems fit. An authorization shall be in writing and shall be subject to the conditions laid down therein. Such authorization may be revoked by the Reserve Bank :-

a. it is in public interest so to do; or b. the authorized person has failed to comply with the condition subject to which the authorization was
granted or has contravened any of the provisions of the Act or any rule, regulation, notification, direction or order made thereunder: Provided that no such authorization can be revoked on any ground referred to in clause (b) unless the authorized person has been given a reasonable opportunity of making a representation in the matter. An authorized person must, in all his dealings in foreign exchange or foreign security, comply with such general or special directions or orders as the Reserve Bank may, from time to time, think fit to give, and, except with the previous permission of the Reserve Bank, an authorized person cannot not engage in any transaction involving any foreign exchange or foreign security which is not in conformity with the terms of his authorization . An authorized person must, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declaration and to give such information as will reasonably satisfy him that the transaction will not involve, and is not designed for the purpose of any contravention or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made thereunder, and where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith, the authorized person must refuse in writing to undertake the transaction and must, if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person, report the matter to the Reserve Bank. Any person, other than an authorized person, who has acquired or purchased foreign exchange for any purpose mentioned in the declaration made by him to authorized person does not use it for such purpose or does not surrender it to authorized person within the specified period or uses the foreign exchange so acquired or purchased for any other purpose for which purchase or acquisition of foreign exchange is not permissible under the provisions of the Act or the rules or regulations or direction or order made thereunder shall be deemed to have committed contravention of the provisions of the Act. The Reserve Bank may, for the purpose of securing compliance with the provisions of this Act and of any rules, regulations, notifications or directions made thereunder, give to the authorized persons any direction in regard to making of payment or the doing or desist from doing any act relating to foreign exchange or foreign security. The Reserve Bank may, for the purpose of ensuring the compliance with the provisions of this Act or of any rule, regulation, notification, direction or order made thereunder, direct any authorized person to furnish such information, in such manner, as it deems fit. Where any authorized person contravenes any direction given by the Reserve Bank under this Act or fails to file any return as directed by the Reserve Bank, the Reserve Bank may, after giving reasonable opportunity of being heard, impose on the authorized person a penalty which may extend to ten thousand rupees and in the case of continuing contravention with an additional penalty which may extend to two thousand rupees for every day during which such contravention continues. The Reserve Bank may, at any time, cause an inspection to be made, by any officer of the Reserve Bank specially authorized in writing by the Reserve Bank in this behalf, of the business of any authorized person as may appear to ii to be necessary or expedient for the purpose of :-

a. verifying the correctness of any statement, information or particulars furnished to the Reserve Bank;

b. obtaining any information or particulars which such authorized person has failed to furnish on being
called upon to do so;

c. securing compliance with the provisions of this Act or of any rules, regulations, directions or orders
made thereunder. It shall be the duty of every authorized person, and where such person is a company or a firm, every director, partner or other officer of such company or firm, as the case may be, to produce to any officer making an inspection, such books, accounts and other documents in his custody or power and to furnish any statement or information relating to the affairs of such person, company or firm as the said officer may require within such time and in such manner as the said officer may direct. Contravention and 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 two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues. Any Adjudicating Authority adjudging any contravention 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 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. "Property" in respect of which contravention has taken place, shall include deposits in a bank, where the said property is converted into such deposits, Indian currency, where the said property is converted into that currency; and any other property which has resulted out of the conversion of that property. 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. 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 on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Adjudicating Authority, for reasons in writing, is satisfied :-

a. that the defaulter, with the object or effect of obstructing the recovery of penalty, has after the issue of b.
notice by the Adjudicating Authority, dishonestly transferred, concealed or removed any part of his property ; or that the defaulter has, or has had since the issuing of notice by the Adjudicating Authority, the means to pay the arrears or some substantial part thereof and refuses or neglects or has reused or neglected to pay the same.

A warrant for the arrest of the defaulter may be issued by the Adjudicating Authority if the Adjudicating Authority is satisfied, by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Adjudicating Authority. Where appearance is not made pursuant to a notice issued and served, the Adjudicating Authority may issue a warrant for the arrest of the defaulter. A warrant of arrest issued by the Adjudicating Authority may also be executed by any other Adjudicating Authority within whose jurisdiction the defaulter may for the time being be found.

Every person arrested in pursuance of a warrant of arrest shall be brought before the Adjudicating Authority issuing the warrant as soon as practicable and in any event within twenty-four hours of his arrest (exclusive of the time required for the journey). However, if the defaulter pays the amount entered in the warrant of arrest as due and the costs of the arrest to the officer arresting him, such officer shall at once release him. When a defaulter appears before the Adjudicating Authority pursuant to a notice to show cause or is brought before the Adjudicating Authority, the Adjudicating Authority shall give the defaulter an opportunity showing cause why he should not be committed to the civil prison. Pending the conclusion of the inquiry, the Adjudicating Authority may, in his discretion, order the defaulter to be detained in the custody of such officer as the Adjudicating Authority may think fit or release him on his furnishing the security to the satisfaction of the Adjudicating Authority for his appearance as and when required. Upon the conclusion of the inquiry, the Adjudicating Authority may make an order for the detention of the defaulter in the civil prison and shall in that event cause him to be arrested if he is not already under arrest. However in order to give a defaulter an opportunity of satisfying the arrears, the Adjudicating Authority may, before making the order of detention, leave the defaulter in the custody of the officer arresting him or of any other officer for a specified period not exceeding fifteen days, or release him on his furnishing security to the satisfaction of the Adjudicating Authority for his appearance at the expiration of the specified period if the arrears are not satisfied. When the Adjudicating Authority does not make an order of detention, he shall, if the defaulter is under arrest, direct his release. Every person detained in the civil prison in execution of the certificate may be so detained ;-

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
However 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. A defaulter released from detention shall not, merely by reason of is/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. A detention order may be executed at any place in India in the manner provided for the execution of warrant of arrest under the Code of Criminal Procedure, 1973. Any such contravention may, on an application made by the person committing such contravention, be compounded (i.e. fine paid in lieu of imprisonment) within one hundred and eighty days from the date of receipt of application by the Director of Enforcement or such other officers of the Directorate of Enforcement and officers of the Reserve Bank as may be authorized in this behalf by the Central Government in such manner as may be prescribed. Where a contravention has been compounded, no proceeding or further proceeding, as the case may be, shall be initiated or continued, as the case may be, against the person committing such contravention, in respect of the contravention so compounded. Adjudication and appeal For the purpose of adjudication, the Central Government may, by an order published in the Official Gazette, appoint as many officers of the Central Government as it may think fit, as the Adjudicating Authorities for holding an inquiry in the manner prescribed after giving the person alleged to have committed contravention, against whom a complaint has been made a reasonable opportunity of being heard for the purpose of imposing any penalty.

However where the Adjudicating Authority is of opinion that the said person is likely to abscond or is likely to evade in any manner, the payment of penalty, if levied, it may direct the said person to furnish a bond or guarantee for such amount and subject to such conditions as it may deem fit. No Adjudicating Authority shall hold an enquiry except upon a complaint in writing made by any officer authorized by a general or special order by the Central Government. The said person may appear either in person or take the assistance of a legal practitioner or a chartered accountant of his choice for presenting his case before the Adjudicating Authority. Every Adjudicating Authority shall have the same powers of a civil court and :-

a. all proceedings before it shall be deemed to be judicial proceedings within the meaning of sections
193 and 228 of the Indian Penal Code;

b. shall be deemed to be a civil court for the purposes of sections 345 and 346 of the Code of Criminal
Procedure, 1973.

c.
Every Adjudicating Authority shall deal with the complaint as expeditiously as possible and endeavor shall be made to dispose off the complaint finally within one year from the date of receipt of the complaint. However, where the complaint cannot be disposed off within the said period, the Adjudicating Authority shall record periodically the reasons in writing for not disposing off the complaint within the said period. The Central Government shall, by notification, appoint one or more Special Directors (Appeals) to hear appeals against the orders of the Adjudicating Authorities under this section and shall also specify in the said notification the matter and places in relation to which the Special Director (Appeals) may exercise jurisdiction. Any person aggrieved by an order made by the Adjudicating Authority, being an Assistant Director of Enforcement or a Deputy Director of Enforcement, may prefer an appeal to the Special Director (Appeals). Every appeal must be filed within forty-five days from the date on which the copy of the order made by the Adjudicating Authority is received by the aggrieved person and it shall be in such form verified in such manner and be accompanied by such fee as may be prescribed. However, the Special Director (Appeals) may entertain an appeal after the expiry of the said period of forty-five days if he is satisfied that there was sufficient cause for not filing it within that period. On receipt of an appeal, the Special Director (Appeals) may after giving the parties to the appeal an opportunity of being heard, pass such order thereon as he thinks fit confirming, modifying or setting aside the order appealed against. The Special Director (Appeals) shall send a copy of every order made by him to the parties to appeal and to the concerned Adjudicating Authority. Every Special Director (Appeals) shall have the same powers of a civil court and :-

d. all proceedings before it shall be deemed to be judicial proceedings within the meaning of sections
193 and 228 of the Indian Penal Code;

e. shall be deemed to be a civil court for the purposes of sections 345 and 346 of the Code of Criminal
Procedure, 1973. The Central Government shall, by notification, establish an Appellate Tribunal to be known as the Appellate Tribunal for Foreign Exchange to hear appeals against the orders of the Adjudicating Authorities and the Special Director (Appeals) under this Act.

The Central Government or any person aggrieved by an order made by the Adjudicating Authority or Special Director (Appeals), may prefer an appeal to the Appellate Tribunal. However, any person appealing against the order of the Adjudicating Authority or the Special Director (Appeals) levying any penalty, shall while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Central Government. Where in any particular case, the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realization of penalty. An appeal to the Appellate Tribunal must be filed within a period of forty-five days from the date on which a copy of the order made by the Adjudicating Authority or the Special Director (Appeals) is received by the aggrieved person or by the Central Government and it shall be in such form, verified in such manner and be accompanied by such fee as may be prescribed. The Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period. On receipt of an appeal, the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against. The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned Adjudicating Authority or the Special Director (Appeals), as the case may be. The appeal filed before the Appellate Tribunal shall be so dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose the appeal finally within one hundred and eighty days from the date of receipt of the appeal. Where any appeal could not be disposed oft' within the said period of one hundred and eighty days, the Appellate Tribunal shall record its reasons in writing for not disposing off the appeal within the said period. The Appellate Tribunal may, for the purpose of examining the legality, propriety or correctness of any order made by the Adjudicating Authority in relation to any proceeding, on its own motion or otherwise, call for the records of such proceedings and make such order in the case as it thinks fit. Miscellaneous Where any document :-

a. is produced or furnished by any person or has been seized from the custody or control of any person,
in either case, under this Act or under any other law; or

b. 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 of any contravention under this Act alleged to have been committed by any person, and such document is tendered in any proceeding under this Act in evidence against him, or against him and any other person who is proceeded against jointly with him, the court or the Adjudicating Authority, as the case may be 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 particular person or which the court may reasonably assume to have been signed by, or to be in the handwriting of, any particular person, is in that person's handwriting, and in the case of 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. admit the document in evidence notwithstanding that it is not duly stamped if such document is otherwise admissible in evidence. unless the contrary is proved, the truth of the contents of such document.

b. c.

For the purposes of this Act, the Central Government may, from time to time, give to the Reserve Bank such general or special directions as it thinks fit, and the Reserve Bank shall, in the discharge of its functions under this Act, comply with any such directions. Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention was committed, was in charge of, and was responsible to the company for the conduct of the business of the company 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. However any such person will not be liable to punishment if he proves that the contravention took place without his knowledge or that he exercised due diligence to prevent such contravention. Where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a 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. The same provisions also apply to a firm or other association of individuals. Notwithstanding anything contained in any other law for the time being in force, no court shall take cognizance of an offence under FERA and no adjudicating officer shall take notice of any contravention under section 51 of the repealed FERA after the expiry of a period of two years from the date of the commencement of this Act. If any difficulty arises in giving effect to the provisions of this Act, the Central Government by order do anything not inconsistent with the provisions of this Act for the purpose of removing the difficulty. The Central Government may by notification make rules to carry out the provisions of this Act. The Reserve Bank may by notification make regulations to carry out the provisions of this Act and the rules made thereunder.