Amity School of Business Foreign Exchange Regulation Act (FERA), 1973 1
Amity School of Business Foreign Exchange Regulation Act (FERA) • Soon after independence, the Govt. of India enacted Foreign Exchange Regulation Act in 1947, to regulate operations of foreign controlled companies in India. • The Act was latter on comprehensively amended in 1973. • FERA, 1973 was enacted in wake of acute foreign exchange shortage faced by the country at that point of time. The major objectives of FERA, 1973: • Conservation and proper utilisation of India’s precious foreign exchange; • To issue guidelines to the foreign companies investing in India. 2
Amity School of Business FERA, 1973 (continued) • Under FERA, 1973, it was required to take necessary permission from the government in respect of transactions those involved foreign exchange dealings. • The Enforcement Directorate, under FERA had unlimited powers to search, arrest and seize. • FERA (1973) categorized foreign exchange law violators as criminals and actions against them were very strict. It was replaced by FEMA (1999) which aimed at facilitating external trade and payment. Also law violators under FEMA were treated as civic offenders rather than as criminals as under FERA. 3
Amity School of Business Foreign Exchange Management Act (FEMA), 1999 4
Amity School of Business Foreign Exchange Management Act (FEMA), 1999 • Enacted in 1999, replaced the earlier Foreign Exchange Regulation Act (FERA), 1973. • Came into force on the 1 st day of June, 2000; Objectives of FEMA: 1. To facilitate external trade and payments; and 2. To promote orderly development and maintenance of foreign exchange market in India. 5
Amity School of Business FEMA (continued) • To investigate into violations of the Act, the Central Govt. has established a department called ‘Enforcement Directorate’. • This Act extends to the whole of India and also applies on all branches, offices and agencies outside India owned or controlled by a person resident in India. It is also applicable on any contravention committed outside India by any person to whom this Act is applicable. 6
Amity School of Business Various provisions (measures) of FEMA, 1999 • Section 3 - Prohibits dealings in foreign exchange except through an ‘authorised person’ (forex dealer). • Section 2(c) - defines ‘authorised person’ as one who is an authorised dealer, money changer, off shore banking unit or any other person for the time being authorized (by RBI) to deal in foreign exchange or foreign securities. 7
Amity School of Business • Section 4 – provides that no person, without a general or special permission of the Reserve Bank of India (RBI), can - (a) Deal in or transfer any foreign exchange or foreign securities; (b) Make / receive any payment to/from any person resident outside India; (c) Enter into any financial transaction for acquiring any asset outside India. 8
Amity School of Business Section 5 - provides that any person may sell or draw foreign exchange to and from an ‘authorised person’ for a current account transaction, provided that the Central Government may, in public interest, impose such reasonable restrictions as may be prescribed. Section 6 - provides that any person may sell or draw foreign exchange to and from an ‘authorised person’ for a capital account transaction, provided that the Central Government may, in public interest, impose such reasonable restrictions as may be prescribed. 9
Amity School of Business • Section 7 - deals with export of goods and services. Every exporter is required to furnish to the RBI or any other authority, a declaration regarding full export value. • Section 8 - casts the responsibility on the persons resident in India who have any amount of foreign exchange due or accrued in their favour to get same realised and repatriated to India within the specific period and the manner specified by RBI. 10
Amity School of Business • Sections 10 and 12 - deal with duties and liabilities of the ‘authorised persons’. • Sections 13 and 15 - of the Act (FEMA) deal with enforcement and penalties under the Act. • Section 36 and 37 - pertains to the establishment of Enforcement Directorate and its powers to investigate any violation of under the Act. 11
Amity School of Business Malpractices violating FEMA Under FEMA, The Enforcement Directorate (ED) is mandated with enforcing the provisions of FEMA, especially w. r. t. preventing leakage of foreign exchange. Such leakage of foreign exchange generally occurs through following malpractices (contraventions of FEMA): - 1) Foreign exchange remittances by Indians otherwise than through normal banking channels; 2) Acquisition of foreign currency illegally by a person in India (say through Hawala); 12
Amity School of Business Continued 3) Non-repatriation of export proceeds; 4) Under-invoicing of exports and over-invoicing of imports and any other type of invoice manipulation; 5) Unauthorised maintenance of accounts in foreign countries; 13
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