Saturday, April 13, 2013

Foreign Exchange Management Act (FEMA)

When a business enterprise imports goods from other countries, exports its products to them or makes investments abroad, it deals in foreign exchange. Foreign exchange means 'foreign currency' and includes: - (I) deposits, credits and balances payable in any foreign currency;(II) drafts, travellers' cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency; and (III) drafts, travellers' cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency.
In India, all transactions that include foreign exchange were regulated by Foreign Exchange Regulation Act (FERA), 1973. 

The main objective of FERA was conservation and proper utilization of the foreign exchange resources of the country. It also sought to control certain aspects of the conduct of business outside the country by Indian companies and in India by foreign companies. It was a criminal legislation (punishable with imprisonment as per code of criminal procedure) which meant that its violation would lead to imprisonment and payment of heavy fine. It had many restrictive clauses which deterred foreign investments.

In the light of economic reforms and the liberalized scenario, FERA was replaced by a new Act called the Foreign Exchange Management Act (FEMA), 1999. The Act applies to all branches, offices and agencies outside India, owned or controlled by a person resident in India.

FEMA emerged as an investor friendly legislation which is purely a civil legislation in the sense that its violation implies only payment of monetary penalties and fines. However, under it, a person will be liable to civil imprisonment only if he does not pay the prescribed fine within 90 days from the date of notice but that too happens after formalities of show cause notice and personal hearing. FEMA also provides for a two year sunset clause for offences committed under FERA which may be taken as the transition period granted for moving from one 'harsh' law to the other 'industry friendly' legislation.

Broadly, the objectives of FEMA are: 
(i)  To facilitate external trade and payments; and (ii) To promote the orderly development and maintenance of foreign exchange market. 
The Act has assigned an important role to the Reserve Bank of India (RBI) in the administration of FEMA. The rules, regulations and norms pertaining to several sections of the Act are laid down by the Reserve Bank of India, in consultation with the Central Government. The Act requires the Central Government to appoint as many officers of the Central Government as Adjudicating Authorities for holding inquiries pertaining to contravention of the Act.

There is also a provision for appointing one or more Special Directors (Appeals) to hear appeals against the order of the Adjudicating authorities. The Central Government also establishes an Appellate Tribunal for Foreign Exchange to hear appeals against the orders of the Adjudicating Authorities and the Special Director (Appeals).

The FEMA provides for the establishment, by the Central Government, of a Director of Enforcement with a Director and such other officers or class of officers as it thinks fit for taking up for investigation of the contraventions under this Act.

The Act deals with two types of foreign exchange transactions – Capital Account Transactions and Current Account Transactions.

FEMA permits only authorized persons to deal in foreign exchange or foreign security. Such an authorized person, under the Act, means authorized dealer, money changer, off-shore banking unit or any other person for the time being authorized by Reserve Bank.

No comments:

Post a Comment

Random Articles:

  • Accredited Social Health Activists (ASHAs)
    12.04.2013 - 0 Comments
    Recognizing the importance of health in social and economic development and improving the quality of life of the people, Government of India has launched the National Rural Health Mission, (NRHM), in the year 2005. The mission adopts a synergistic approach by relating health to determinants of…
  • Vishaka Guidelines
    21.02.2015 - 0 Comments
    Guidelines and norms laid down by the Hon’ble Supreme Court in Vishaka and Others Vs. State of Rajasthan and Others(JT 1997 (7) SC 384) HAVING REGARD to the definition of ‘human rights’ in Section 2 (d) of the Protection of Human Rights Act, 1993, TAKING NOTE of the fact that the present civil…
  • NATIONAL HUMAN RIGHTS COMMISSION
    09.05.2013 - 1 Comments
    The National Human Rights Commission is a statutory body in India which came into existence through the Protection of Human Rights Act, 1993 and came into force in 1994.  The protection of Human Rights Act, 1993 provides for setting up the National Human Rights Commission at the centre…
  • SABLA scheme
    07.04.2013 - 0 Comments
    With the objective to improve the nutritional and health status of adolescent girls in the age group of 11-18 years and empower them by providing education in life-skills, health and nutrition, the Government of India introduced the Rajiv Gandhi Scheme for Empowerment of Adolescent Girls -…
  • Software Technology Parks of India (STPI)
    16.07.2014 - 6 Comments
    Software Technology Parks of India (STPI) is a government agency in India, established in 1991 under the Ministry of Communications and Information Technology, that manages the Software Technology Park scheme. It is an export oriented scheme for the development and export of computer software,…
  • Mullaperiyar dam Controversy
    17.04.2013 - 0 Comments
    The Mullaperiyar Dam was constructed by the British during 1887-1895 across Periyar River in the then Travancore state (now Kerala) territory. During the rule of the British in India a 999-year lease was made and accordingly, the Government of Tamil Nadu has been operating the dam.The Periyar…
  • Education Initiatives by Indian government
    28.04.2013 - 0 Comments
    A National Higher Education Qualification Framework (NHEQF)-Considering the exigency and need for a national framework for higher education, it is proposed to set up a CABE Committee to consider the proposal and make recommendations for evolving the National Higher Education Qualification…
  • REGULATIONS ON SURROGACY
    03.05.2013 - 0 Comments
    While the new Assisted Reproductive Technology (ART) Regulation Bill and Rules, 2010, are still in the womb, the non-statutory Indian Council of Medical Research (ICMR) Guidelines, 2005, are being followed. As per the latest and new Indian visa regulations, effective November…