Fema Oct 2013
Content
FERA and FEMA If individuals or organisations have failed to comply with foreign exchange regulations, they should voluntarily approach the RBI to regularise the contraventions and minimise the penal consequences. The Foreign Exchange anagement !ct "FE!# was w as enacted in $%%%, replacing the Foreign Exchange Regulation !ct "FER!#, to consolidate and amend the laws related to foreign exchange and facilitate external trade and payments, &esides promoting the orderly development of the foreign exchange mar'et. FE! regulates two types of foreign exchange transactions ( capital account and current account. In general, all current account transactions under FE! are permitted except those specified. !dditionally, all capital account transactions transactions are prohi&ited or regulated except those those specified. As FEMA is intended to manage foreign foreign exchange (and not regulate regulate it like FERA), parties underta'ing cross)&order transactions should adhere to the prescri&ed compliances or see' approval, where needed. For example, when shares of an Indian company are transferred &y a resident to a non)resident, the price cannot &e less than the value computed on the &asis of the *+F "discounted free cash flow# method. Further, the transfer details should &e filed with the Reserve Ban' of India through an authorised dealer in Form F+)TR within - days from receipt of consideration. !lthough FE!, unli'e unli'e FER!, does not carry draconian provisions, any contravention could result in penalty. FE! prescri&es a penalty up to thrice the sum involved where it is quantifia&le, or up to Rs / la'h where it is not quantifia&le. Further, if the contravention continues, an additional penalty of Rs 0, a day is levied. 1iven the penal implications, FE! contains provisions permitting compounding of contraventions. +ompounding refers to the process of voluntarily admitting to contravention, pleading guilty and see'ing redressal. The compounding provisions are designed to provide comfort to citi2ens and the corporate community &y minimising transaction costs, even while ta'ing a severe view on wilful, mala fide, and fraudulent transactions. ! compounding application is made to the RBI RBI +ompounding !uthority in the prescri&ed format, along with the necessary documents and a demand draft for Rs 0,. It is important to note that compounding is possi&le only after rectifying r ectifying the records &y o&taining post)facto approvals or unwinding the transactions that are not permissi&le under FE!. !ccordingly, all requisite approvals3 compliances should &e completed &efore see'ing compounding. The +ompounding !uthority decides, on a case)to)case &asis, whether the contravention is technical, material, or sensitive in nature. 4here it is technical, the applicant may &e issued a cautionary advice. 4hen it is material, the contravention c ontravention is compounded &y imposing a penalty after giving the contravener an opportunity for a personal hearing. 5owever, where the contravention is sensitive in nature and
requires further investigations, it is referred to the *irectorate of Enforcement. Prima facie, sensitive contraventions include money laundering and national and security concerns involving serious infringement of the regulatory framewor'. In passing the compounding order and determining the quantum of penalty, the factors ta'en into consideration include the amount of unfair advantage gained, where quantifia&le6 the loss to any authority3 agency3 exchequer6 economic benefits accrued from delayed compliance or avoidance6 history of non)compliance6 contravener’s conduct in underta'ing the transaction, and disclosure of full facts in the su&missions during the personal hearing6 whether contravener suo motu approached the RBI with the defaults6 and so on. The process concludes when the +ompounding !uthority passes an order indicating the provisions of FE! contravened, along with the sum paya&le for compounding it. It is pertinent to note that an offence cannot &e compounded if a similar contravention was committed within three years. The RBI is 'eeping a watchful eye on non)compliances. In practice, it is o&served that where a personsuo motu approaches the RBI for compounding, the !uthority generally ta'es a pragmatic view, su&7ect to the nature of the contravention. !ccordingly, it is vital for individuals and organisations to identify their non) compliances and thereafter voluntarily approach the RBI to regularise the contraventions ( this could help minimise the penal consequences.
Contravention: Breach of provisions and norms under FEMA Mar 8, 2011
What is contravention and compounding of contraventions? Contravention is the breach of provisions and norms under the Foreign Echange Management Act, or FEMA 1!!!" Compounding of contraventions refers to the process #here the individua$ or the corporate entit % can admit the contravention and see& redress from the 'eserve Ban&, restricted to a specific sum" What is the nature of these contraventions and how far can the central bank go?
(he app$ications for compounding contraventions are categorised into technica$, materia$ or sensitive b% the 'eserve Ban& of )ndia" (he contravention invo$ving mone% $aundering, nationa$ and securit% concerns invo$ving serious infringement of the regu$ator% frame#or&, etc", are sensitive contraventions" 'B) has no po#er to compound cases #hich are sensitive in nature" *uch cases #i$$ then have to be directed to the +irectorate of Enforcement" )f technica$, the app$icant is issued a cautionar% advice" How does compounding of contraventions help? hen the contravention is materia$ in nature, the individua$ or the corporate entit% is given an opportunit% for a persona$ hearing b % the compounding authorit%, #hich is optiona$" B% admitting the contraventions, the erring entit % can save on the transaction costs as it #ou$d get a#a% b% pa%ing a sma$$er pena$t% $evied b% 'B)" )n not doing so, the individua$ remains eposed to the action that can be ta&en b% the centra$ ban& under FEMA" (he pena$t% after compounding the contravention, though much reduced, can be up to thrice the sum invo$ved, in cases #here the amount if -uantifiab$e and it can be up to 2 $a&h in cases, #here it is not -uantifiab$e and for a continuing contravention, 'B) charges .,000 each da%, ti$$ the reso$ution of the case" A$$ these matters re$ated to compounding are hand$ed b% the Ce$$ for effective imp$ementation of FEMA /CEFA, #hich has to be &ept informed about matters of compounding at a$$ times" What is the fee to be paid for applying for compounding and how long do the cases last? (he individua$s are re-uired to furnish a$$ the detai$s of the contravention a$ong #ith the app$ication form #hich costs .,000" (he person, in his app$ication, is a$so re-uired to mention if the case is under the investigation of the +irectorate of Enforcement or under the revention of Mone% aundering Act /2002" (he contravention pena$t% has to be paid up #ithin 1. da%s of the compounding order being signed" )f the erring individua$ fai$s to pa% the pena$t% #ithin three da%s, it is treated as if the individua$ never app$ied for compounding contravention, thus he #ou$d be $iab$e for the $ega$ action under FEMA /1!!!" (he compounding process is norma$$% comp$eted #ithin 180 da%s of the receipt of compounding app$ication"
FEMA NOTIFICATION BY RBI The wait for international retail majors to set up shop in India may be extended. While refusing to stay foreign direct investment (FDI in the retail sector! the "upreme #ourt on $onday said the government policy on the issue didn%t have a legal sanction. It added this could be resolved by the &eserve 'an of India (&'I amending regulations in the Foreign )xchange $anagement *ct (Fema.
The court has given the #entre two wees to get the regulations amended. *n &'I spoesperson explained the role of the central ban in enabling multi+brand retail FDI, &'I has to come out with a circular! which could be done immediately. A Fema notifcation also has to be issued. *s the noti-cation would be a legal amendment! &'I would reuire the government%s permission for this. While &'I would approach the -nance ministry for approval! other ministries! too! may be consulted. *fter the government nod! the central ban would place the noti-cation on the ga/ette. 0ow uicly the regulations are amended would depend on the time the government taes to approve the Fema noti-cation. The amendment doesn%t reuire the 1arliament%s approval. 2ast month! the #abinet had cleared 34 per cent FDI in multi+brand retail. 'ut lawyer $ 2 "harma had -led a public interest litigation challenging the #entre5s policy on the grounds that retail trading was strictly prohibited under Fema! for which the power to come out with a circular was vested with &'I. The central ban hadn%t issued any regulation in this regard after 6778. 9n $onday! judges & $ 2odha and * & Dave said the policy su:ered from ;curable< irregularity! as RBI had not amended Fema regulations ! which should have been done before the #entre had issued its noti-cation. The judges said! ;It is a legal process which has to be taen to the logical conclusion.< Foreign investors in the retail sector have already raised concern over the conditions on investment. #ontentious issues in the sector include a state+ wise roll+out of FDI! the criterion that only cities with a population of more than a million can allow foreign retail set+ups and the clause of at least =477+million fresh investment! 37 per cent of which would have to be in bac+end infrastructure.
8RIs can transfer funds from 8R9 to 8RE a3c Ma !" #$%#
The &eserve 'an on $onday allowed non+resident Indians to transfer funds from a non+resident ordinary (>&9 account to a non+resident external (>&) account subject to a ceiling of =4 million in a -nancial year. The decision came after the ? @ Adeshi committee recommendation to facilitate persons under the Foreign )xchange $anagement *ct! 4BBB! it said.
)ndividua$s cannot trade in fore mar&et: 'B)
Feb 21, 2011
(he 'eserve Ban& toda% said resident )ndians cannot trade in fore mar&et as per the eisting regu$ation" The existing regulations under Foreign Exchange Management ct !FEM"# $%%%# do not permit residents to trade in foreign exchange in domestic or overseas markets# &'( said in a statement)
(he c$arification of the 'B) assumes significance in the $ight of severa$ peop$e $osing heavi$% in forge trade through internet porta$s in the recent past" )t a$so said, remittance in an% form to#ards overseas foreign echange trading through e$ectronic3internet trading porta$s is not permitted under the FEMA" 'B) cautioned investors against advertisements issued b% certain e$ectronic and internet porta$s offering trading or investing in foreign echange #ith guaranteed high returns" Man% companies even engage agents #ho persona$$% contact gu$$ib$e peop$e to underta&e fore trading and investment schemes and entice them #ith promises of disproportionate or eorbitant returns, it said"
Fema to apply to reverse overseas :!s, says RBI October &" #$$&
The &eserve 'an of India has said Indian companies merging with overseas -rms will continue to be treated as entities resident in the country under the Foreign )xchange $anagement *ct (Fema. There is no provision for such a merger under the current #ompanies *ct. 'ut a 'ill to amend the *ct tabled in the 'udget session of 1arliament proposes to allow Indian companies to merge with overseas companies! under section 673! a move that could introduce greater Cexibility in cross+border merger and acuisitions ($*s. The amendment to allow Indian companies to merge with foreign companies was -rst suggested in 6773 by an expert committee on company law chaired by Tata "ons Director @ @ Irani. If this amendment goes through! it will meet a ey demand of many multinationals investing in India.
Ander Fema! an entity resident in India will be treated on a par with a person resident in India! who is de-ned as somebody who has stayed in the country for more than 6E7 days. In its feedbac to the $inistry of #orporate *:airs a couple of wees ago! the central ban said the Indian entity! after its merger with the foreign company! will operate as its branch in India! and therefore has to comply with all provisions of Fema for inward remittance of funds! investments by the foreign company through its Indian entity in any Indian ventures! dividend payment besides repatriation of pro-t to the foreign company. The central ban has also clari-ed that payment by the foreign company to shareholders of listed Indian companies being merged can be made in the form of cash! shares or Indian Depository &eceipts (ID&s issued by the overseas companies. In this case! &'I has clari-ed that Fema will have to amended suitably. 'esides! ID&s in their existing form do not have voting rights and the law has to be changed to incorporate this change. This will be important if the merger involves allotting voting rights to Indian shareholders or some sort of management control. "ources familiar with the developments said! #urrently there is no provision in Fema for share transfer by a foreign company beyond 3 per cent in a company based in India<. The #entral 'oard of Direct Taxes (#'DT is also woring on its views on the tax implications! the sources said. * tax oGcial said even if the Indian company ceases to exist in India! it will continue to operate as a branch or Indian oGce of the foreign company and will be taxed in the same way as any Indian branch of foreign company gets taxed on the basis of being a permanent establishment. * permanent establishment is a concept that allows Indian tax authorities to derive taxes from local oGces of a foreign company on the basis that income is accruing from operations in India. 2egal experts said the merger of an Indian company with a foreign one can help structure $* deals in many ways. For example! if an overseas company has acuired another foreign company that has a subsidiary in India! the new provision will allow the acuirer to merge the Indian operations with it! instead of retaining it as a separate entity.
Relief in Fera cases li'ely April 18, 2008 The government has asked the Reserve Bank of India to review the pending cases of alleged violation of theForeign !change Reg"lation Act so that these can #e dealt with "nder the more li#eral Foreign !change $anagement Act %Fema&, which replaced the earlier law' The initiative co"ld help a large n"m#er of the alleged Fera violators get awa( with )"st
financial penalties instead of criminal charges' The government*s advisor(, informed so"rces said, will not appl( to all the cases as the RBI will decide on a case+to+case #asis' The government wants the RBI to take "p cases which do not have ma)or ramifications on foreign e!change management and deal with minor repatriations matters' The Reserve Bank is in the process of collating s"ch cases and making a ro"gh estimate of the amo"nt of foreign e!change involved' fficials clarified that this will not res"lt in Fera cases #eing dropped' -.hat wo"ld happen is that if RBI realises that the violation is not significant, its views will #e forwarded to the co"rts for e!amination and the offender co"ld get awa( thro"gh compo"nding of offence "nder Fema instead of facing criminal charges "nder Fera,- an official said'
'IFE (N)ER FEMA 9:ence no longer a criminal o:ence! punishable with a -nancial penalty For a uanti-able o:ence! penalty could be up to twice the sum involved In non+uanti-able cases! the penalty can go up to &s 477!777. In cases where contravention is a continuing o:ence! a further penalty of up to &s 3!777 for a day can be levied from the day the o:ence -rst too place As a precedent, the( cited the long+pending share transfer case of /"rachan hawla, a Thailand+#ased RI, who was to ac"ire a 38 per cent stake in atholic /(rian Bank' 4ermission for the deal had #een withheld since he had a pending Fera case' Recentl(, RBI and the nforcement 5irectorate have approved the share transfer and forwarded their views to the /"preme o"rt' The official said that the agenc( did not have the precise n"m#er of the cases which were (et to #e decided, tho"gh there were nearl( 3,000 cases pending in vario"s co"rts and onl( 300+600 cases were to #e decided'
FE! revamp to allow *ha'a firms li'ely $arch 31, 2007 India is considering amendments to the Foreign !change $anagement Act to allow corporate entities from Bangladesh to invest in India' B"t restrictions on individ"al investments from the co"ntr( are likel( to contin"e #eca"se of sec"rit( concerns' The proposal is "nder active consideration of the finance ministr( and the Reserve Bank of India' /o"rces close to the development said a final decision wo"ld #e taken at the highest
level' At present, corporate entities from Bangladesh and 4akistan are #arred from investing in India "nder F$A r"les' The r"les also prohi#it setting "p of a #ranch or liaison office, witho"t the RBI*s approval, #( 4akistani, /ri ankan, Afghan, Iranian and hinese citi9ens' The investment restrictions for citi9ens from /ri anka were lifted in /eptem#er 2006' The move is #eing considered as a sweetener for Bangladesh, where several Indian companies, incl"ding Tata 4ower and the :as A"thorit( of India td, are keen to invest' The Bangladesh government is (et to clear the investments' fficials said the move was also #eing considered as a prec"rsor to finalising a #ilateral investment protection agreement with Bangladesh' The agreement was e!pected to #e signed d"ring the recent visit of Bangladesh 4remier ;haleda <ia to India' =owever, it was held "p on acco"nt of the restrictions on corporate investments from 5haka' According to Akash :"pt, principal cons"ltant, 4ricewaterho"seoopers the proposed rela!ation will enco"rage direct investment' -In practical terms, entreprene"rs from Bangladesh and even 4akistan have made investments in India thro"gh other intermediate )"risdictions like $a"riti"s and (pr"s' The removal of these prohi#itions will enco"rage more direct investment,- he said'
Fema flouters can settle through monetary penalty Fe# 2, 200> The Reserve Bank of India %RBI& on T"esda( said persons who have flo"ted the Foreign !change $anagement Act %Fema& will #e allowed to settle the offence #( pa(ing monetar( penalt( and will not have to go for litigation if s"ch a eprson acknowledges contravention' This, however, will not appl( to hawala transactions, the RBI said in a release' The government has, in cons"ltation with the RBI reviewed the proced"res for compo"nding of contravention "nder the Fema, the central #ank said' -The proced"res have #een reviewed to provide comfort to the citi9ens and corporate comm"nit( #( minimising transaction costs, while taking severe view of wilf"l, malafide and frad"lent transactions,- it said' =ence, the responsi#ilit( of administering compo"nding of contravention cases "nder Fema has #een vested with the RBI, with the e!ception of havala transactions, which will #e dealt with #( the 5irectorate of nforcement'
l"##ed "nder /ection 3 %a& of Fema, these offences will contin"e to #e dealt with #( the nforcement 5irectorate' As per the new norms, the RBI will #e re"ired to concl"de case proceedings within 180 da(s from the receipt for application for compo"nding and the s"m worked o"t after compo"nding has to #e paid within 1> da(s from the order of compo"nding' The RBI has graded the contraventions' ffences involving "p to Rs > lakh will #e handled #( an officer in the rank of assistant general manager? more than Rs > lakh #( dep"t( general manager? Rs 20 lakh and a#ove #( general manager? and contravention a#ove Rs >0 lakh #( chief general manager' The order passed #( RBI will #e applica#le for a period of three (ears' If a second offense is committed after the e!pir( of three (ears, it will #e deemed as a fresh contravention and not a repetition of the earlier one' /imilarl(, for offences to #e dealt #( the nforcement 5irectorate, the g"idelines specif( that offenses will dealt #( officers in the rank of dep"t( director who will handle contravention of "p to Rs > lakh' ffences a#ove Rs >0 lakh will #e dealt either #( the special director or dep"t( legal adviser of the directorate of enforcement' In #etween, the offences of more than Rs > lakh, "p to Rs 10 lakh and more will #e handled #( additional director and special director, respectivel(' o contravention shall #e compo"nded "nless the amo"nt involved in s"ch contravention is "antifia#le'
'B) to dea$ #ith Fema vio$ations Feb 2, 200.
M4MBA): From no# on, individua$s and corporates #i$$ have to dea$ #ith the 'eserve Ban& of )ndia, and not the Enforcement +irectorate, to sett$e most vio$ations of foreign echange regu$ations" hi$e E+ #i$$ continue to decide on cases pertaining to ha#a$a transactions /or irregu$ar foreign currenc% dea$ings, the move is vie#ed as a partia$ di$ution of E+5s po#ers"
6ther than ha#a$a, a$$ other fore vio$ations re$ating to eport and import #ou$d be hand$ed b% the ban&ing regu$ator" According to a 'B) re$ease, the Centra$ ban& can compound the vio$ations of foreign echange regu$ation ru$es under Foreign Echange Management Act /FEMA, enab$ing the part% to sett$e the matter #ithin si months, and probab$% #ith a $o#er rate of pena$t%" (he 'B) #as vested #ith this po#er after the government revie#ed the eisting procedures for compounding, the re$ease said" 4nder FEMA, a vio$ation can attract pena$t% of up to 700 of the amount invo$ved, but if the part% invo$ved chooses to compound 9 in other #ords, the part% admits the vio$ation and is read% to for& out a fine 9 it ma% get a#a% #ith a pena$t% that cou$d be $ess than 100 or .0, depending on the
seriousness of the offence" Besides, the vio$ation #i$$ be compounded #ithin 180 da%s of fi$ing the app$ication" 6nce an app$ication is made before the compounding authorit%, a$$ other procedure on this matter #i$$ be suspended ti$$ the offence is compounded" o#ever, compounding order is not binding on the part%" )f the amount determined b% the compounding authorit% is not paid #ithin 1. da%s of the order, the order #i$$ become nu$$ and void" A$so, a$$ other proceedings suspended #ith the beginning of compounding process #i$$ resume automatica$$%" (he part% can ma&e an app$ication before the compounding authorit%, either on being advised of a contravention under FEMA or on itse$f after being a#are of a contravention"
Fema has more of fines ; <ai$ =un 17, 2002,
Fema shou$d be more $ibera$ than Fera on a$$ counts, right> ?ot rea$$%" According to officia$s, the Foreign Echange Management Act /Fema #hich is no# in force, is soft on preventive action, but tough on pena$ties, as compared to the $a# it has rep$aced, the Foreign Echange 'egu$ation Act" ence, if a compan% or individua$ fai$s to pa% up the pena$t% imposed on them, the% are $iab$e to imprisonment" (his #as not the case ear$ier, #here the E+ sa# itse$f as a preventive department rather than a revenue generating arm of the government" (his meant that it used its po#ers to deter vio$ations through fear, rather than bother to prove gui$t and punish through pena$ties"
(he government too sa# this as E+5s ro$e" ence, Fera itse$f did not ho$d the E+ responsib$e for the co$$ection of the pena$ties imposed" )nstead, it empo#ered district co$$ectors to co$$ect the pena$ties imposed b% the ad<udicators on vio$ators" (he net resu$t #as poor co$$ection of dues, resu$ting in the Comptro$$er and Auditor @enera$ of )ndia /CA@ passing strictures against the E+ for poor co$$ection of pena$ties in one of its reports" (his position has no# changed" Fema not on$% provides for severe pena$ties, but a$so provides for imprisonment #hen the pena$ties are not paid #ithin !0 da%s of imposition" 4nder Fema, the ad<udicator /an officer #ith the E+ can impose a pena$t% three times the sie of the contravention invo$ved #here the sum is -uantifiab$e" )n case the contravention is not -uantifiab$e, the pena$t% is set at 's 2 $a&h" Further, #here the vio$ation is a continuing one, an additiona$ pena$t% of 's .,000 per da% of contravention can be imposed" (he ad<udicating officer can a$so order the confiscation of the propert%, securit%, foreign echange etc invo$ved in the contravention b% the Centra$ government" )t can a$so order the repatriation of the foreign echange invo$ved" )nteresting, #hi$e these pena$ties are considered to be reasonab$e, Fema pac&s a punch as far as the fai$ure to comp$% #ith the pena$ties is concerned" +efau$ts can attract civi$ imprisonment, sub<ect to certain safeguards" (he ad<udicating authorit% can order arrest and detention of the defau$ter in a civi$ prison, provided he has a notice and fo$$o#ed it up #ith a sho# cause as&ing #h% the defau$ter shou$d not be imprisoned for not appearing before the ad<udicating authorit%"
E*+erts ,oice concern o,er FEMA +ro,isions July 8, 2000 THE Foreign Exchange Management Act (FEMA), which replace the Foreign Exchange !egulation Act (FE!A) on June ", i# $y an large acclaime to $e a $etter piece o% legi#lation& Howe'er, at a #eminar on aturay $y the Forex A##ociation o% nia (outhern *hapter), expert# 'oice their concern# a$out #ome o% it# pro'i#ion#& Mr& A&+& !awae, a Mum$ai-$a#e %orex con#ultant, wonere i% the legi#lation an the regulator -- !. -- were mo'ing in i%%erent irection#& Mr& !awae wante to /now why the !. clampe own on import#, in the wa/e o% the rupee wea/ening again#t the ollar in the %ir#t wee/ o% June, when FEMA wa# a li$eral #tatute $y intent an purpo#e& He ae that the 0 per cent intere#t #urcharge on import %inance wa# a #ort o% a #u$#iy to the $an/ing inu#try, which coul lea to enle## i#pute#& 11oul the#e mea#ure# $e truly temporary3,44 he a#/e, aing that the exchange control# introuce %or the %ir#t time in nia in "565 were al#o meant to $e temporary, $ut ha'e continue till ate& Mr& !awae critici#e the prohi$ition on rawal o% %oreign exchange %or the purpo#e o% 11payment relate to call $ac/ #er'ice# o% telephone#44, #aying that the mea#ure wa# perhap# $ro ught in only to protect +7& He wa# #upporte in thi# contention $y Mr& 9& :e#utha#en, %orex con#ultant an %ormer !. o%%icial, who #ai that i% +7 coul $e protecte, then Air nia coul eman a prohi$ition on remittance o% %oreign exchange %or the purpo#e o% $uying a tic/et % rom #ome other airline& M#& ;e'a/i Muthu/ri#hnan, <eneral Manager, !. (*hennai), o$#er'e that payment relate to call $ac/ #er'ice# o% telephone# wa# a current account tran#action& For all current account tran#action#, it wa# the <o'ernment o% nia which %rame the rule#, an not the !., #he pointe out& Mr& !awae #ai that FEMA ha one away with the 1raconian pro'i#ion#4 o% FE!A -- #uch a# putting the $uren o% proo% on the accu#e, power# to the En%orcement ;irectorate to 1#earch an
#ei=e4, power# to arre#t, no time limit %or eciing the ca#e# -- $ut cautione that it remaine to $e #een whether the#e pro'i#ion# woul $e retaine in the Money aunering .ill, which i# uner 9arliament4# con#ieration& Mr& :e#utha#en wonere FEMA wa# neee at all, a# all the change# coul ha'e $een e%%ecte in FE!A it#el%& He ae that o'er the year#, FE!A ha $y it#el% $ecome li$eral, $ecau#e the !. coul gi'e general purpo#e appro'al#, e'en on po#t-%acto $a#i#& Mr& :e#utha#en an M#& Muthu/ri#hnan #ai that there ha $een no pro$lem with FE!A a# a law, $ut only in the en%orcement part& hile the !. coul gi'e po#t-%acto appro'al# to tran#action# uner FE!A, FEMA allow# no po#t-%acto appro'al#& 11% you ha'e 'iolate, you ha'e 'iolate,44 Mr& :e#utha#en #ai, aing that to thi# extent, FEMA wa# not /eeping in line with the #pirit o% l i$erali#ation& FEMA re>uire# authori#e ealer# (rename in the Act a# authori#e per#on#) to #ati#%y them#el'e# that the purpo#e %or which %oreign exchange wa# $eing rawn wa# really current account in nature& ?nli/e earlier, the !. oe# not pre#cri$e ocument# or %orm# %or the rawee to %ill up& n#tea, e#igning #uch %orm# i# up to the authori#e ealer& Howe'er, the authori#e ealer# were re>uire to /eep the ocument#, #uch a# a letter o% eclaration o% purpo#e %or which %oreign exchange wa# $eing rawn& n#pector# %rom the !. woul in#pect #uch ocument#& Mr& A& Alagappan, A##i#tant <eneral Manager, nian @'er#ea# .an/ (*hennai), who i# al#o an o%%ice-$earer o% Feeration o% Authori#e ;ealer# o% nia (FE;A), #ai that thi# a#pect woul lea to pro$lem# $etween the authori#e ealer# an the !.& @n one han, the authori#e ealer# only ha to #ati#%y them#el'e# a$out the genuinene## o% the tran#action %or which %oreign exchange wa# $eing #ought -- which coul $e technically one $y wor o% mouth& .ut on the other han, the !. woul in#pect ocu ment#&
FEMA e-ecti,e rom /une % 7E ;EH The <o'ernment ha# noti%ie that the Foreign Exchange Management Act (FEMA) "555 which ha# $een appro'e $y 9arliament will come into %orce %rom June "& The !. i# now expecte to #hortly #peci%y the permi##i$le cla## o% capital account tran#action#, the manner an %orm in which the eclaration i# to $e %urni#he $y e'ery exporter o% goo#, the perio an the manner o% repatriation o% %oreign exchange an the permi##i$le limit# up to which %oreign currency, %oreign coin# an %oreign exchange may $e ac>uire or retaine&
requires further investigations, it is referred to the *irectorate of Enforcement. Prima facie, sensitive contraventions include money laundering and national and security concerns involving serious infringement of the regulatory framewor'. In passing the compounding order and determining the quantum of penalty, the factors ta'en into consideration include the amount of unfair advantage gained, where quantifia&le6 the loss to any authority3 agency3 exchequer6 economic benefits accrued from delayed compliance or avoidance6 history of non)compliance6 contravener’s conduct in underta'ing the transaction, and disclosure of full facts in the su&missions during the personal hearing6 whether contravener suo motu approached the RBI with the defaults6 and so on. The process concludes when the +ompounding !uthority passes an order indicating the provisions of FE! contravened, along with the sum paya&le for compounding it. It is pertinent to note that an offence cannot &e compounded if a similar contravention was committed within three years. The RBI is 'eeping a watchful eye on non)compliances. In practice, it is o&served that where a personsuo motu approaches the RBI for compounding, the !uthority generally ta'es a pragmatic view, su&7ect to the nature of the contravention. !ccordingly, it is vital for individuals and organisations to identify their non) compliances and thereafter voluntarily approach the RBI to regularise the contraventions ( this could help minimise the penal consequences.
Contravention: Breach of provisions and norms under FEMA Mar 8, 2011
What is contravention and compounding of contraventions? Contravention is the breach of provisions and norms under the Foreign Echange Management Act, or FEMA 1!!!" Compounding of contraventions refers to the process #here the individua$ or the corporate entit % can admit the contravention and see& redress from the 'eserve Ban&, restricted to a specific sum" What is the nature of these contraventions and how far can the central bank go?
(he app$ications for compounding contraventions are categorised into technica$, materia$ or sensitive b% the 'eserve Ban& of )ndia" (he contravention invo$ving mone% $aundering, nationa$ and securit% concerns invo$ving serious infringement of the regu$ator% frame#or&, etc", are sensitive contraventions" 'B) has no po#er to compound cases #hich are sensitive in nature" *uch cases #i$$ then have to be directed to the +irectorate of Enforcement" )f technica$, the app$icant is issued a cautionar% advice" How does compounding of contraventions help? hen the contravention is materia$ in nature, the individua$ or the corporate entit% is given an opportunit% for a persona$ hearing b % the compounding authorit%, #hich is optiona$" B% admitting the contraventions, the erring entit % can save on the transaction costs as it #ou$d get a#a% b% pa%ing a sma$$er pena$t% $evied b% 'B)" )n not doing so, the individua$ remains eposed to the action that can be ta&en b% the centra$ ban& under FEMA" (he pena$t% after compounding the contravention, though much reduced, can be up to thrice the sum invo$ved, in cases #here the amount if -uantifiab$e and it can be up to 2 $a&h in cases, #here it is not -uantifiab$e and for a continuing contravention, 'B) charges .,000 each da%, ti$$ the reso$ution of the case" A$$ these matters re$ated to compounding are hand$ed b% the Ce$$ for effective imp$ementation of FEMA /CEFA, #hich has to be &ept informed about matters of compounding at a$$ times" What is the fee to be paid for applying for compounding and how long do the cases last? (he individua$s are re-uired to furnish a$$ the detai$s of the contravention a$ong #ith the app$ication form #hich costs .,000" (he person, in his app$ication, is a$so re-uired to mention if the case is under the investigation of the +irectorate of Enforcement or under the revention of Mone% aundering Act /2002" (he contravention pena$t% has to be paid up #ithin 1. da%s of the compounding order being signed" )f the erring individua$ fai$s to pa% the pena$t% #ithin three da%s, it is treated as if the individua$ never app$ied for compounding contravention, thus he #ou$d be $iab$e for the $ega$ action under FEMA /1!!!" (he compounding process is norma$$% comp$eted #ithin 180 da%s of the receipt of compounding app$ication"
FEMA NOTIFICATION BY RBI The wait for international retail majors to set up shop in India may be extended. While refusing to stay foreign direct investment (FDI in the retail sector! the "upreme #ourt on $onday said the government policy on the issue didn%t have a legal sanction. It added this could be resolved by the &eserve 'an of India (&'I amending regulations in the Foreign )xchange $anagement *ct (Fema.
The court has given the #entre two wees to get the regulations amended. *n &'I spoesperson explained the role of the central ban in enabling multi+brand retail FDI, &'I has to come out with a circular! which could be done immediately. A Fema notifcation also has to be issued. *s the noti-cation would be a legal amendment! &'I would reuire the government%s permission for this. While &'I would approach the -nance ministry for approval! other ministries! too! may be consulted. *fter the government nod! the central ban would place the noti-cation on the ga/ette. 0ow uicly the regulations are amended would depend on the time the government taes to approve the Fema noti-cation. The amendment doesn%t reuire the 1arliament%s approval. 2ast month! the #abinet had cleared 34 per cent FDI in multi+brand retail. 'ut lawyer $ 2 "harma had -led a public interest litigation challenging the #entre5s policy on the grounds that retail trading was strictly prohibited under Fema! for which the power to come out with a circular was vested with &'I. The central ban hadn%t issued any regulation in this regard after 6778. 9n $onday! judges & $ 2odha and * & Dave said the policy su:ered from ;curable< irregularity! as RBI had not amended Fema regulations ! which should have been done before the #entre had issued its noti-cation. The judges said! ;It is a legal process which has to be taen to the logical conclusion.< Foreign investors in the retail sector have already raised concern over the conditions on investment. #ontentious issues in the sector include a state+ wise roll+out of FDI! the criterion that only cities with a population of more than a million can allow foreign retail set+ups and the clause of at least =477+million fresh investment! 37 per cent of which would have to be in bac+end infrastructure.
8RIs can transfer funds from 8R9 to 8RE a3c Ma !" #$%#
The &eserve 'an on $onday allowed non+resident Indians to transfer funds from a non+resident ordinary (>&9 account to a non+resident external (>&) account subject to a ceiling of =4 million in a -nancial year. The decision came after the ? @ Adeshi committee recommendation to facilitate persons under the Foreign )xchange $anagement *ct! 4BBB! it said.
)ndividua$s cannot trade in fore mar&et: 'B)
Feb 21, 2011
(he 'eserve Ban& toda% said resident )ndians cannot trade in fore mar&et as per the eisting regu$ation" The existing regulations under Foreign Exchange Management ct !FEM"# $%%%# do not permit residents to trade in foreign exchange in domestic or overseas markets# &'( said in a statement)
(he c$arification of the 'B) assumes significance in the $ight of severa$ peop$e $osing heavi$% in forge trade through internet porta$s in the recent past" )t a$so said, remittance in an% form to#ards overseas foreign echange trading through e$ectronic3internet trading porta$s is not permitted under the FEMA" 'B) cautioned investors against advertisements issued b% certain e$ectronic and internet porta$s offering trading or investing in foreign echange #ith guaranteed high returns" Man% companies even engage agents #ho persona$$% contact gu$$ib$e peop$e to underta&e fore trading and investment schemes and entice them #ith promises of disproportionate or eorbitant returns, it said"
Fema to apply to reverse overseas :!s, says RBI October &" #$$&
The &eserve 'an of India has said Indian companies merging with overseas -rms will continue to be treated as entities resident in the country under the Foreign )xchange $anagement *ct (Fema. There is no provision for such a merger under the current #ompanies *ct. 'ut a 'ill to amend the *ct tabled in the 'udget session of 1arliament proposes to allow Indian companies to merge with overseas companies! under section 673! a move that could introduce greater Cexibility in cross+border merger and acuisitions ($*s. The amendment to allow Indian companies to merge with foreign companies was -rst suggested in 6773 by an expert committee on company law chaired by Tata "ons Director @ @ Irani. If this amendment goes through! it will meet a ey demand of many multinationals investing in India.
Ander Fema! an entity resident in India will be treated on a par with a person resident in India! who is de-ned as somebody who has stayed in the country for more than 6E7 days. In its feedbac to the $inistry of #orporate *:airs a couple of wees ago! the central ban said the Indian entity! after its merger with the foreign company! will operate as its branch in India! and therefore has to comply with all provisions of Fema for inward remittance of funds! investments by the foreign company through its Indian entity in any Indian ventures! dividend payment besides repatriation of pro-t to the foreign company. The central ban has also clari-ed that payment by the foreign company to shareholders of listed Indian companies being merged can be made in the form of cash! shares or Indian Depository &eceipts (ID&s issued by the overseas companies. In this case! &'I has clari-ed that Fema will have to amended suitably. 'esides! ID&s in their existing form do not have voting rights and the law has to be changed to incorporate this change. This will be important if the merger involves allotting voting rights to Indian shareholders or some sort of management control. "ources familiar with the developments said! #urrently there is no provision in Fema for share transfer by a foreign company beyond 3 per cent in a company based in India<. The #entral 'oard of Direct Taxes (#'DT is also woring on its views on the tax implications! the sources said. * tax oGcial said even if the Indian company ceases to exist in India! it will continue to operate as a branch or Indian oGce of the foreign company and will be taxed in the same way as any Indian branch of foreign company gets taxed on the basis of being a permanent establishment. * permanent establishment is a concept that allows Indian tax authorities to derive taxes from local oGces of a foreign company on the basis that income is accruing from operations in India. 2egal experts said the merger of an Indian company with a foreign one can help structure $* deals in many ways. For example! if an overseas company has acuired another foreign company that has a subsidiary in India! the new provision will allow the acuirer to merge the Indian operations with it! instead of retaining it as a separate entity.
Relief in Fera cases li'ely April 18, 2008 The government has asked the Reserve Bank of India to review the pending cases of alleged violation of theForeign !change Reg"lation Act so that these can #e dealt with "nder the more li#eral Foreign !change $anagement Act %Fema&, which replaced the earlier law' The initiative co"ld help a large n"m#er of the alleged Fera violators get awa( with )"st
financial penalties instead of criminal charges' The government*s advisor(, informed so"rces said, will not appl( to all the cases as the RBI will decide on a case+to+case #asis' The government wants the RBI to take "p cases which do not have ma)or ramifications on foreign e!change management and deal with minor repatriations matters' The Reserve Bank is in the process of collating s"ch cases and making a ro"gh estimate of the amo"nt of foreign e!change involved' fficials clarified that this will not res"lt in Fera cases #eing dropped' -.hat wo"ld happen is that if RBI realises that the violation is not significant, its views will #e forwarded to the co"rts for e!amination and the offender co"ld get awa( thro"gh compo"nding of offence "nder Fema instead of facing criminal charges "nder Fera,- an official said'
'IFE (N)ER FEMA 9:ence no longer a criminal o:ence! punishable with a -nancial penalty For a uanti-able o:ence! penalty could be up to twice the sum involved In non+uanti-able cases! the penalty can go up to &s 477!777. In cases where contravention is a continuing o:ence! a further penalty of up to &s 3!777 for a day can be levied from the day the o:ence -rst too place As a precedent, the( cited the long+pending share transfer case of /"rachan hawla, a Thailand+#ased RI, who was to ac"ire a 38 per cent stake in atholic /(rian Bank' 4ermission for the deal had #een withheld since he had a pending Fera case' Recentl(, RBI and the nforcement 5irectorate have approved the share transfer and forwarded their views to the /"preme o"rt' The official said that the agenc( did not have the precise n"m#er of the cases which were (et to #e decided, tho"gh there were nearl( 3,000 cases pending in vario"s co"rts and onl( 300+600 cases were to #e decided'
FE! revamp to allow *ha'a firms li'ely $arch 31, 2007 India is considering amendments to the Foreign !change $anagement Act to allow corporate entities from Bangladesh to invest in India' B"t restrictions on individ"al investments from the co"ntr( are likel( to contin"e #eca"se of sec"rit( concerns' The proposal is "nder active consideration of the finance ministr( and the Reserve Bank of India' /o"rces close to the development said a final decision wo"ld #e taken at the highest
level' At present, corporate entities from Bangladesh and 4akistan are #arred from investing in India "nder F$A r"les' The r"les also prohi#it setting "p of a #ranch or liaison office, witho"t the RBI*s approval, #( 4akistani, /ri ankan, Afghan, Iranian and hinese citi9ens' The investment restrictions for citi9ens from /ri anka were lifted in /eptem#er 2006' The move is #eing considered as a sweetener for Bangladesh, where several Indian companies, incl"ding Tata 4ower and the :as A"thorit( of India td, are keen to invest' The Bangladesh government is (et to clear the investments' fficials said the move was also #eing considered as a prec"rsor to finalising a #ilateral investment protection agreement with Bangladesh' The agreement was e!pected to #e signed d"ring the recent visit of Bangladesh 4remier ;haleda <ia to India' =owever, it was held "p on acco"nt of the restrictions on corporate investments from 5haka' According to Akash :"pt, principal cons"ltant, 4ricewaterho"seoopers the proposed rela!ation will enco"rage direct investment' -In practical terms, entreprene"rs from Bangladesh and even 4akistan have made investments in India thro"gh other intermediate )"risdictions like $a"riti"s and (pr"s' The removal of these prohi#itions will enco"rage more direct investment,- he said'
Fema flouters can settle through monetary penalty Fe# 2, 200> The Reserve Bank of India %RBI& on T"esda( said persons who have flo"ted the Foreign !change $anagement Act %Fema& will #e allowed to settle the offence #( pa(ing monetar( penalt( and will not have to go for litigation if s"ch a eprson acknowledges contravention' This, however, will not appl( to hawala transactions, the RBI said in a release' The government has, in cons"ltation with the RBI reviewed the proced"res for compo"nding of contravention "nder the Fema, the central #ank said' -The proced"res have #een reviewed to provide comfort to the citi9ens and corporate comm"nit( #( minimising transaction costs, while taking severe view of wilf"l, malafide and frad"lent transactions,- it said' =ence, the responsi#ilit( of administering compo"nding of contravention cases "nder Fema has #een vested with the RBI, with the e!ception of havala transactions, which will #e dealt with #( the 5irectorate of nforcement'
l"##ed "nder /ection 3 %a& of Fema, these offences will contin"e to #e dealt with #( the nforcement 5irectorate' As per the new norms, the RBI will #e re"ired to concl"de case proceedings within 180 da(s from the receipt for application for compo"nding and the s"m worked o"t after compo"nding has to #e paid within 1> da(s from the order of compo"nding' The RBI has graded the contraventions' ffences involving "p to Rs > lakh will #e handled #( an officer in the rank of assistant general manager? more than Rs > lakh #( dep"t( general manager? Rs 20 lakh and a#ove #( general manager? and contravention a#ove Rs >0 lakh #( chief general manager' The order passed #( RBI will #e applica#le for a period of three (ears' If a second offense is committed after the e!pir( of three (ears, it will #e deemed as a fresh contravention and not a repetition of the earlier one' /imilarl(, for offences to #e dealt #( the nforcement 5irectorate, the g"idelines specif( that offenses will dealt #( officers in the rank of dep"t( director who will handle contravention of "p to Rs > lakh' ffences a#ove Rs >0 lakh will #e dealt either #( the special director or dep"t( legal adviser of the directorate of enforcement' In #etween, the offences of more than Rs > lakh, "p to Rs 10 lakh and more will #e handled #( additional director and special director, respectivel(' o contravention shall #e compo"nded "nless the amo"nt involved in s"ch contravention is "antifia#le'
'B) to dea$ #ith Fema vio$ations Feb 2, 200.
M4MBA): From no# on, individua$s and corporates #i$$ have to dea$ #ith the 'eserve Ban& of )ndia, and not the Enforcement +irectorate, to sett$e most vio$ations of foreign echange regu$ations" hi$e E+ #i$$ continue to decide on cases pertaining to ha#a$a transactions /or irregu$ar foreign currenc% dea$ings, the move is vie#ed as a partia$ di$ution of E+5s po#ers"
6ther than ha#a$a, a$$ other fore vio$ations re$ating to eport and import #ou$d be hand$ed b% the ban&ing regu$ator" According to a 'B) re$ease, the Centra$ ban& can compound the vio$ations of foreign echange regu$ation ru$es under Foreign Echange Management Act /FEMA, enab$ing the part% to sett$e the matter #ithin si months, and probab$% #ith a $o#er rate of pena$t%" (he 'B) #as vested #ith this po#er after the government revie#ed the eisting procedures for compounding, the re$ease said" 4nder FEMA, a vio$ation can attract pena$t% of up to 700 of the amount invo$ved, but if the part% invo$ved chooses to compound 9 in other #ords, the part% admits the vio$ation and is read% to for& out a fine 9 it ma% get a#a% #ith a pena$t% that cou$d be $ess than 100 or .0, depending on the
seriousness of the offence" Besides, the vio$ation #i$$ be compounded #ithin 180 da%s of fi$ing the app$ication" 6nce an app$ication is made before the compounding authorit%, a$$ other procedure on this matter #i$$ be suspended ti$$ the offence is compounded" o#ever, compounding order is not binding on the part%" )f the amount determined b% the compounding authorit% is not paid #ithin 1. da%s of the order, the order #i$$ become nu$$ and void" A$so, a$$ other proceedings suspended #ith the beginning of compounding process #i$$ resume automatica$$%" (he part% can ma&e an app$ication before the compounding authorit%, either on being advised of a contravention under FEMA or on itse$f after being a#are of a contravention"
Fema has more of fines ; <ai$ =un 17, 2002,
Fema shou$d be more $ibera$ than Fera on a$$ counts, right> ?ot rea$$%" According to officia$s, the Foreign Echange Management Act /Fema #hich is no# in force, is soft on preventive action, but tough on pena$ties, as compared to the $a# it has rep$aced, the Foreign Echange 'egu$ation Act" ence, if a compan% or individua$ fai$s to pa% up the pena$t% imposed on them, the% are $iab$e to imprisonment" (his #as not the case ear$ier, #here the E+ sa# itse$f as a preventive department rather than a revenue generating arm of the government" (his meant that it used its po#ers to deter vio$ations through fear, rather than bother to prove gui$t and punish through pena$ties"
(he government too sa# this as E+5s ro$e" ence, Fera itse$f did not ho$d the E+ responsib$e for the co$$ection of the pena$ties imposed" )nstead, it empo#ered district co$$ectors to co$$ect the pena$ties imposed b% the ad<udicators on vio$ators" (he net resu$t #as poor co$$ection of dues, resu$ting in the Comptro$$er and Auditor @enera$ of )ndia /CA@ passing strictures against the E+ for poor co$$ection of pena$ties in one of its reports" (his position has no# changed" Fema not on$% provides for severe pena$ties, but a$so provides for imprisonment #hen the pena$ties are not paid #ithin !0 da%s of imposition" 4nder Fema, the ad<udicator /an officer #ith the E+ can impose a pena$t% three times the sie of the contravention invo$ved #here the sum is -uantifiab$e" )n case the contravention is not -uantifiab$e, the pena$t% is set at 's 2 $a&h" Further, #here the vio$ation is a continuing one, an additiona$ pena$t% of 's .,000 per da% of contravention can be imposed" (he ad<udicating officer can a$so order the confiscation of the propert%, securit%, foreign echange etc invo$ved in the contravention b% the Centra$ government" )t can a$so order the repatriation of the foreign echange invo$ved" )nteresting, #hi$e these pena$ties are considered to be reasonab$e, Fema pac&s a punch as far as the fai$ure to comp$% #ith the pena$ties is concerned" +efau$ts can attract civi$ imprisonment, sub<ect to certain safeguards" (he ad<udicating authorit% can order arrest and detention of the defau$ter in a civi$ prison, provided he has a notice and fo$$o#ed it up #ith a sho# cause as&ing #h% the defau$ter shou$d not be imprisoned for not appearing before the ad<udicating authorit%"
E*+erts ,oice concern o,er FEMA +ro,isions July 8, 2000 THE Foreign Exchange Management Act (FEMA), which replace the Foreign Exchange !egulation Act (FE!A) on June ", i# $y an large acclaime to $e a $etter piece o% legi#lation& Howe'er, at a #eminar on aturay $y the Forex A##ociation o% nia (outhern *hapter), expert# 'oice their concern# a$out #ome o% it# pro'i#ion#& Mr& A&+& !awae, a Mum$ai-$a#e %orex con#ultant, wonere i% the legi#lation an the regulator -- !. -- were mo'ing in i%%erent irection#& Mr& !awae wante to /now why the !. clampe own on import#, in the wa/e o% the rupee wea/ening again#t the ollar in the %ir#t wee/ o% June, when FEMA wa# a li$eral #tatute $y intent an purpo#e& He ae that the 0 per cent intere#t #urcharge on import %inance wa# a #ort o% a #u$#iy to the $an/ing inu#try, which coul lea to enle## i#pute#& 11oul the#e mea#ure# $e truly temporary3,44 he a#/e, aing that the exchange control# introuce %or the %ir#t time in nia in "565 were al#o meant to $e temporary, $ut ha'e continue till ate& Mr& !awae critici#e the prohi$ition on rawal o% %oreign exchange %or the purpo#e o% 11payment relate to call $ac/ #er'ice# o% telephone#44, #aying that the mea#ure wa# perhap# $ro ught in only to protect +7& He wa# #upporte in thi# contention $y Mr& 9& :e#utha#en, %orex con#ultant an %ormer !. o%%icial, who #ai that i% +7 coul $e protecte, then Air nia coul eman a prohi$ition on remittance o% %oreign exchange %or the purpo#e o% $uying a tic/et % rom #ome other airline& M#& ;e'a/i Muthu/ri#hnan, <eneral Manager, !. (*hennai), o$#er'e that payment relate to call $ac/ #er'ice# o% telephone# wa# a current account tran#action& For all current account tran#action#, it wa# the <o'ernment o% nia which %rame the rule#, an not the !., #he pointe out& Mr& !awae #ai that FEMA ha one away with the 1raconian pro'i#ion#4 o% FE!A -- #uch a# putting the $uren o% proo% on the accu#e, power# to the En%orcement ;irectorate to 1#earch an
#ei=e4, power# to arre#t, no time limit %or eciing the ca#e# -- $ut cautione that it remaine to $e #een whether the#e pro'i#ion# woul $e retaine in the Money aunering .ill, which i# uner 9arliament4# con#ieration& Mr& :e#utha#en wonere FEMA wa# neee at all, a# all the change# coul ha'e $een e%%ecte in FE!A it#el%& He ae that o'er the year#, FE!A ha $y it#el% $ecome li$eral, $ecau#e the !. coul gi'e general purpo#e appro'al#, e'en on po#t-%acto $a#i#& Mr& :e#utha#en an M#& Muthu/ri#hnan #ai that there ha $een no pro$lem with FE!A a# a law, $ut only in the en%orcement part& hile the !. coul gi'e po#t-%acto appro'al# to tran#action# uner FE!A, FEMA allow# no po#t-%acto appro'al#& 11% you ha'e 'iolate, you ha'e 'iolate,44 Mr& :e#utha#en #ai, aing that to thi# extent, FEMA wa# not /eeping in line with the #pirit o% l i$erali#ation& FEMA re>uire# authori#e ealer# (rename in the Act a# authori#e per#on#) to #ati#%y them#el'e# that the purpo#e %or which %oreign exchange wa# $eing rawn wa# really current account in nature& ?nli/e earlier, the !. oe# not pre#cri$e ocument# or %orm# %or the rawee to %ill up& n#tea, e#igning #uch %orm# i# up to the authori#e ealer& Howe'er, the authori#e ealer# were re>uire to /eep the ocument#, #uch a# a letter o% eclaration o% purpo#e %or which %oreign exchange wa# $eing rawn& n#pector# %rom the !. woul in#pect #uch ocument#& Mr& A& Alagappan, A##i#tant <eneral Manager, nian @'er#ea# .an/ (*hennai), who i# al#o an o%%ice-$earer o% Feeration o% Authori#e ;ealer# o% nia (FE;A), #ai that thi# a#pect woul lea to pro$lem# $etween the authori#e ealer# an the !.& @n one han, the authori#e ealer# only ha to #ati#%y them#el'e# a$out the genuinene## o% the tran#action %or which %oreign exchange wa# $eing #ought -- which coul $e technically one $y wor o% mouth& .ut on the other han, the !. woul in#pect ocu ment#&
FEMA e-ecti,e rom /une % 7E ;EH The <o'ernment ha# noti%ie that the Foreign Exchange Management Act (FEMA) "555 which ha# $een appro'e $y 9arliament will come into %orce %rom June "& The !. i# now expecte to #hortly #peci%y the permi##i$le cla## o% capital account tran#action#, the manner an %orm in which the eclaration i# to $e %urni#he $y e'ery exporter o% goo#, the perio an the manner o% repatriation o% %oreign exchange an the permi##i$le limit# up to which %oreign currency, %oreign coin# an %oreign exchange may $e ac>uire or retaine&
