Legal Dimensions of Indias Foreign Trade

An Assignment
Submitted to
Prof. Navdeep Kaur

On November 7, 2014

Submitted By:
Mehak Gupta
MBA IB 3rd Semester
Roll Number: 21

TABLE OF CONTENTS
1. Contract Of laws
2. Foreign trade development and regulation act, 1992
3. The foreign exchange management act, 1999
4. Customs Act 1962
5. Quality Control And Pre-shipment Inspection Act
6. Types of Legal Issues
7. Laws related to Product
8. Laws Related to Export Import Contracts
9. Laws Relating to Relationship between exporter and agent/distributor
10. Laws Relating to Credit Contracts

1
1
7
10
12
12
13
13
15
15

Conflict Of laws

Exporters have to deal with different legal systems. Buyers and the seller are at great
geographical distance from each other , many intermediaries like shipping , airlines ,
insurance companies and banks are involved and trade terms and usages differ across the
countries.
Major Laws while entering into export contracts:
FTDR Act 1992
FEMA Act 1990
Preshipment Inspection and Quality Control Act 1963
Customs Act 1962
International Commercial Practices

1) FOREIGN TRADE DEVELOPMENT AND REGULATION ACT, 1992

CHAPTER I
PRELIMINARY
Short title and commencement
1. (1) This Act may be called the Foreign Trade (Development and Regulation) Act, 1992.
(2) Sections 11 to 14 shall come into force at once and the remaining provisions of this Act
shall be deemed to have come into force on the 19th day of June 1992.
Definitions.
2. In this Act, unless the context otherwise requires:(a) "Adjudicating Authority" means the authority specified in, or under, section 13;
(b) "Appellate Authority" means the authority specified in, or under, sub-section (1) of
section 15;

(c) "conveyance" means any vehicle, vessel, aircraft or any other means of transport
including any animal;
(d) "Director General" means the Director General of Foreign Trade appointed under section
6;
(e) "import" and "export" means respectively bringing into, or taking out of, India any goods
by land. sea or air;
(f) "Importer-exporter Code Number" means the Code Number granted under section 7;
(g) "licence" means a licence to import or export and includes a customs clearance permit and
any other permission issued or granted under this Act;
(h) "Order" means any order made by the Central Government under section 3; and
(i) "Prescribed" means prescribed by rules made under this Act.
CHAPTER II
POWER OF CENTRAL GOVERNMENT TO MAKE ORDERS AND ANNOUNCE
EXPORT AND IMPORT POLICY
Powers to make provision relating to imports and exports.
3. (1) The Central Government may by Order published in the Official Gazette, make
provision for the development and regulation of foreign trade by facilitating imports and
increasing exports.
(2) The Central Government may also, by Order published in the Official Gazette, make
provision for prohibiting. restricting or otherwise regulating, in all cases or in specified
classes of cases and subject to such exceptions, if any, as may be made by or under the Order,
the import or export of goods.
(3) All goods to which any Order under sub-section (2) applies shall be deemed to be goods
the import
or export of which has been prohibited under section 11 of the Customs Act, 1962 and all the
provisions of that Act shall have effect accordingly.

Continuance of existing orders

4. All Orders made under the Imports and Exports (Control) Act, 1947 and in force
immediately before the commencement of this Act shall, so far as they are not inconsistent
with the provisions of this Act, continue to be in force and shall be deemed to have been
made under this Act.
Export and import policy.
5. The Central Government may, from time to time, formulate and announce by notification
in the Official Gazette, the export and import policy and may also, in the like manner, amend
that policy.
Appointment of Director General and his functions.
6. (1) The Central Government may appoint any person to be the Director General of Foreign
Trade for the purposes of this Act.
(2) The Director General shall advise the Central Government in the formulation of the
export and import policy and shall be responsible for carrying out that policy.
(3) The Central Government may, by Order published in the Official Gazette direct that any
power exercisable by it under this Act (other than the powers under sections 3,5,15,16 and
19) may also be exercised, in such cases and subject to such conditions, by the Director
General or such other officer subordinate to the Director General, as may be specified in the
Order.
CHAPTER II
POWER OF CENTRAL GOVERNMENT TO MAKE ORDERS AND ANNOUNCE
EXPORT AND IMPORT POLICY
Powers to make provision relating to imports and exports.
3. (1) The Central Government may by Order published in the Official Gazette, make
provision for the development and regulation of foreign trade by facilitating imports and
increasing exports.
(2) The Central Government may also, by Order published in the Official Gazette, make
provision for prohibiting. restricting or otherwise regulating, in all cases or in specified
5

classes of cases and subject to such exceptions, if any, as may be made by or under the Order,
the import or export of goods.
(3) All goods to which any Order under sub-section (2) applies shall be deemed to be goods
the import or export of which has been prohibited under section 11 of the Customs Act, 1962
and all the provisions of that Act shall have effect accordingly.
Continuance of existing orders
4. All Orders made under the Imports and Exports (Control) Act, 1947 and in force
immediately before the commencement of this Act shall, so far as they are not inconsistent
with the provisions of this Act, continue to be in force and shall be deemed to have been
made under this Act.
Export and import policy.
5. The Central Government may, from time to time, formulate and announce by notification
in the Official Gazette, the export and import policy and may also, in the like manner, amend
that policy.
Appointment of Director General and his functions.
6. (1) The Central Government may appoint any person to be the Director General of Foreign
Trade for the purposes of this Act.
(2) The Director General shall advise the Central Government in the formulation of the
export and import policy and shall be responsible for carrying out that policy.
(3) The Central Government may, by Order published in the Official Gazette direct that any
power exercisable by it under this Act (other than the powers under sections 3,5,15,16 and
19) may also be exercised, in such cases and subject to such conditions, by the Director
General or such other officer subordinate to the Director General, as may be specified in the
Order.
CHAPTER IV
SEARCH, SEIZURE, PENALTY AND CONFISCATION
Power relating to search and seizure

10. (1) The Central Government may, by notification in the Official Gazette, authorise any
person for the purposes of exercising such powers with respect to entering such premises and
searching inspecting and seizing of such goods, documents, things and conveyances subject
to such requirements and conditions, as may be prescribed.
(2) The provisions of the Code of Criminal Procedure, 1973 relating to searches and seizures
shall, so far as may be, apply to every search and seizure made under this section.
Contravention of provisions of this Act, rules, orders and export and import policy.
11. (1) No export or import shall be made by any person except in accordance with the
provisions of this Act, the rules and orders made thereunder and the export and import policy
for the time being in force.
(2) Where any person makes or abets or attempts to make any export or import in
contravention of any provision of this Act or any rules or orders made thereunder or the
export and import policy, he shall be liable to a penalty not exceeding one thousand rupees or
five times the value of the goods in respect of which any contravention is made or attempted
to be made, whichever is more.
(3) Where any person, on a notice to him by the Adjudicating Authority, admits any
contravention, the Adjudicating Authority may, in such class or classes of cases and in such
manner as may be prescribed, determine, by way of settlement, an amount to be paid by that
person.
(4) A penalty imposed under this Act may, if it is not paid, be recovered as an arrear of land
revenue and the Importer-exporter Code Number of the person concerned, may, on failure to
pay the penalty by him, be suspended by the Adjudicating Authority till the penalty is paid.
(5) Where any contravention of an provision of this Act or any rules or orders made there
under or the export and import policy has been, is being or is attempted to be made, the goods
together with any package, covering or receptacle and any conveyances shall, subject to such
requirements and conditions as may be prescribed, be liable to confiscation by the
Adjudicating Authority.
(6) The goods or the conveyance confiscated under sub-section (5) may be released by the
Adjudicating Authority, in such manner and subject to such conditions as may be prescribed,
7

on payment by the person concerned of the redemption charges equivalent to the market
value of the goods or conveyance, as the case may be.
Penalty or confiscation not to interfere with other punishments.
12. No penalty imposed or confiscation made under this Act shall prevent the imposition of
any other punishment to which the person affected thereby is liable under any other law for
the time being in force.
Adjudicating Authority
13. Any penalty may be imposed or any confiscation may be adjudged under this Act by the
Director General or, subject to such limits as may be specified, by such other officer as the
Central Government may by notification in the Official Gazettte, authorise in this behalf.
Giving of opportunity to the owner of the goods, etc.
14. No order imposing a penalty or of adjudication of confiscation shall be made unless the
owner of the goods or conveyance or other person concerned, has been given a notice in
writing (a) informing him of the grounds on which it is proposed to impose a penalty or to confiscate
such goods or conveyance; and
(b) to make a representation in writing within such reasonable time as may be specified in the
notice against the imposition of penalty or confiscation mentioned therein, and, if he so
desired, of being heard in the matter.
Giving of opportunity to the owner of the goods, etc.
14. No order imposing a penalty or of adjudication of confiscation shall be made unless the
owner of the goods or conveyance or other person concerned, has been given a notice in
writing (a) informing him of the grounds on which it is proposed to impose a penalty or to confiscate
such goods or conveyance; and
(b) to make a representation in writing within such reasonable time as may be specified in the
notice against the imposition of penalty or confiscation mentioned therein, and, if he so
desired, of being heard in the matter.
8

2) THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999

NO. 42 OF 1999 [29th December, 1999.]
An Act to consolidate and amend the law relating to foreign exchange with the objective of
facilitating external trade and payments and for promoting the orderly development and
maintenance of foreign exchange market in India
BE it enacted by Parliament in the Fiftieth Year of the Republic of India as follows:CHAPTER I
PRILIMINARY
1. Short title, extent, application and commencement.- (1) This Act may be called the
Foreign Exchange Management Act, 1999.
(2) It extends to the whole of India.
(3) It shall also apply to all branches, offices and agencies outside India owned or controlled
by a person resident in India and also to any contravention there under committed outside
India by any person to whom this Act applies.
(4) It shall come into force on such date as the Central Government may, by notification in
the Official Gazette, appoint:
Provided that different dates may be appointed for different provisions of this Act and any
reference in any such provision to the commencement of this Act shall be construed as a
reference to the coming into force of that provision.
2. Definitions.-In this Act, unless the context otherwise requires,(a) "Adjudicating Authority" means an officer authorized under sub-section (1) of section 16
(b) "Appellate Tribunal" means the Appellate Tribunal for Foreign Exchange established
under section 18;
(c) "authorized person" means an authorized dealer, money changer, off-shore banking unit or
any other person for the time being authorized under sub-section (1) of section 10 to deal in
foreign exchange or foreign securities;
(d) "Bench" means a Bench of the Appellate Tribunal;
(e) "capital account transaction" 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, and includes transactions referred to in
sub-section (3) of section 6;
(f) "Chairperson" means the Chairperson of the Appellate Tribunal;
(g) "chartered accountant" shall have the meaning assigned to it in clause (b) of sub-section
(1) of section 2 of the Chartered Accounts Act, 1949 (38 of 1949);
9

(h) "currency" includes all currency notes, postal notes, postal orders, money orders, cheques,
drafts, travellers 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;
(i) "currency notes" means and includes cash in the form of coins and bank notes;
(j) "current account transaction" means a transaction other than a capital account transaction
and without prejudice to the generality of the foregoing such transaction includes,(i) payments due in connection with foreign trade, other current business, services, and shortterm banking and credit facilities in the ordinary course of business, (ii) payments due as
interest on loans and as net income from investments,
(iii) remittances for living expenses of parents, spouse and children residing abroad, and
(iv) expenses in connection with foreign travel, education and medical care of parents, spouse
and children;
(k) "Director of Enforcement" means the Director of Enforcement appointed under subsection (1)
of section 36;
(l) "export", with its grammatical variations and cognate expressions, means(i) the taking out of India to a place outside India any goods,
(ii) provision of services from India to any person outside India;
(m) "foreign currency" means any currency other than Indian currency;
(n) "foreign exchange" means foreign currency and includes,(i) deposits, credits and balances payable in any foreign currency,
(ii) drafts, travelers cheques, letters of credit or bills of exchange, expressed or drawn in
Indian urrency but payable in any foreign currency,
(iii) drafts, travelers cheques, letters of credit or bills of exchange drawn by banks,
institutions or persons outside India, but payable in Indian currency;
(o) "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;
(p) "import", with its grammatical variations and cognate expressions, means bringing into
India any goods or services;
(q) "Indian currency" 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 (2 of 1934);
10

(r) "legal practitioner" shall have the meaning assigned to it in clause (i) of sub-section (1) of
section 2 of the Advocates Act, 1961 (25 of 1961);
(s) "Member" means a Member of the Appellate Tribunal and includes the Chairperson
thereof;
(t) "notify" means to notify in the Official Gazette and the expression "notification" shall be
construed accordingly;
(u) "person" includes(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 juridical person, not falling within any of the preceding sub-clauses, and
(vii) any agency, office or branch owned or controlled by such person;
(v) "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, in either case(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay
outside India for an uncertain period;
(B) a person who has come to or stays in India, in either case, otherwise than(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India,
or (c) for any other purpose, in such circumstances as would indicate his intention to stay in
India for an uncertain period;
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident outside
India,
(iv) an office, branch or agency outside India owned or controlled by a person resident in
India;
(w) "person resident outside India" means a person who is not resident in India;
(x) "prescribed" means prescribed by rules made under this Act;
(y) "repatriate to India" means bringing into India the realized foreign exchange and11

(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;
(z) "Reserve Bank" means the Reserve Bank of India constituted under sub-section (1) of
section 3 of the Reserve Bank of India Act, 1934 (2 of 1934);
(za) "security" means shares, stocks, bonds and debentures, Government securities as defined
in he Public Debt Act, 1944 (18 of 1944), savings certificates to which the Government
Savings Certificates Act, 1959 (46 of 1959) applies, deposit receipts in respect of deposits of
securities and units of the Unit Trust of India established under sub-section (1) of section 3 of
the Unit Trust of India Act, 1963 (52 of 1963) 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;
(zb) "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 ;
(zc) "Special Director (Appeals)" means an officer appointed under section 18;
(zd) "specify" means to specify by regulations made under this Act and the expression
"specified" shall be construed accordingly;
(ze) "Transfer" includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other
form of transfer of right, title, possession or lien.
3) Customs Act 1962
The Customs Act was formulated in 1962 to prevent illegal imports and exports of goods.
Besides, all imports are sought to be subject to a duty with a view to affording protection to
indigenous industries as well as to keep the imports to the minimum in the interests of
securing the exchange rate of Indian currency.
12

The levy and the rate of customs duty in India are governed by the Customs Act 1962 and the
Customs Tariff Act 1975. Imported goods in India attract basic customs duty, additional
customs duty and education cess.
Customs duty on Imports and Exports
Customs duty is on imports into India and export out of India. Section 12 of Customs Act,
often called charging section, provides that duties of customs shall be levied at such rates as
may be specified under The Customs Tariff Act, 1975', or any other law for the time being in
force, on goods imported into, or exported from, India.
Basic Customs Duty
All goods imported into India are chargeable to a duty under Customs Act, 1962 .
The rates of this duty, popularly known as basic customs duty, are indicated in the
First Schedule of the Customs Tariff Act, 1975 as amended from time to time under
Finance Acts.
The duty may be fixed on ad -valorem basis or specific rate basis.
The duty may be a percentage of the value of the goods or at a specific rate.
The Central Government has the power to reduce or exempt any good from these
duties.
Additional (Countervailing) Duty of Customs
This countervailing duty is livable as additional duty on goods imported into the
country and the rate structure of this duty is equal to the excise duty on like articles
produced in India.
The base of this additional duty is c.i.f. value of imports plus the duty levied earlier.
If the rate of this duty is on ad-valorem basis, the value for this purpose will be the
total of the value of the imported article and the customs duty on it (both basic and
auxiliary).

13

4) Quality Control And Pre-shipment Inspection Act

The international market is very competitive and quality of export products is one of
the important determinants of business.
Inferior quality of exports damages the credibility of not only the exporter but also
the nation.
Hence, there shall not be any compromise on quality of exports.
Objectives Of Quality Control
1. Promoting and ensuring the image of Indian goods exported to other countries.
2. Ensuring goods of assured quality only move into the export markets.
3. Sustaining the foreign market
4. Inspiring confidence in the minds of foreign buyers
5. Adhering strictly to technological requirements accepted by foreign buyers of the
product.
6. Ensuring sound and safe performance of the products without causing any health or
safety hazards.
7. Observing conformity of rules and regulations of the importing countries
8. Maintaining proper packaging for the safety of the product during transit.
9. Eliminating the causes of complaints
10. Maximizing production and effecting economies by International Marketing
standardization.

Types of Legal Issues

Relating to products

14

 Relating to Export Import Contracts

Relating to Relationship between exporter and agent/distributor
Relating to Credit Contracts

1) Laws related to Product

TradeMark
A trademark or trade mark is a distinctive sign or indicator of some kind which is used
by an individual, business organization or other legal entity to uniquely identify the
source of its products and/or services to consumers, and to distinguish its products or
services from those of other entities
A trademark is a device which can take almost any form, as long as it is capable of
identifying and distinguishing specific goods or services.

2) Laws Related to Export Import Contracts

Legal Elements of a Contract
The essential elements necessary to form a binding contract are usually described as:
An Offer
An Acceptance in strict compliance with the terms of the offer
Legal Purpose/Objective
Mutuality of Obligation also known as the meeting of the minds
Consideration
Competent Parties
Offer
An offer is defined as the manifestation of the willingness to enter into a bargain so made as
to justify another person in understanding that his assent to the bargain is invited and will
conclude it.

15

Acceptance
Acceptance of an offer can occur in several ways: Acceptance of an offer is a manifestation
of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
An acceptance must not change the terms of an offer. If it does, the offer is rejected. A
material change in a proposed contract constitutes a counteroffer, which must be accepted by
the other party.
Legal Purpose
The objective of the contract must be for a legal purpose. For example, a contract for illegal
distribution of drugs is not a binding contract because the purpose for which it exists is not
legal.
Mutuality of Obligation
This element is also known as the meeting of the minds. Mutuality of obligation refers to
the parties mutual understanding and assent to the expression of their agreement.vii The
parties must agree to the same thing, in the same sense, at the same time. The determination
of a meeting of their minds, and thus offer and acceptance, is based on the objective standard
of what the parties said and did and not their subjective state of mind. Unexpressed subjective
intent is irrelevant. In determining whether mutual assent is present, the court looks to the
communications between the parties and to the acts and circumstances surrounding these
communications. The offer must be clear and
definite just as there must be a clear and definite acceptance of all terms contained in the
offer. Where a meeting of the minds is contested, the determination of the existence of a
contract is a question of fact. If the fact finder determines that one party reasonably drew the
inference of a promise from the other partys conduct, that promise will be given effect in
law.
To be enforceable, the parties must have agreed on the essential terms of the contract.xiii
However, parties may agree upon some contractual terms, understanding them to be an
agreement and leave other contract terms to be made later. Full agreement on all contractual
terms is the best practice and should be the norm. It is only when an essential term is left
open for future negotiation that there is nothing more than an unenforceable agreement to
agree.
16

Such an agreement is void as a contract.

Consideration
Consideration is an essential element of any valid contract. Consideration consists of either a
benefit to the promissory or a detriment to the promise. It is a present exchange bargained for
in return for a promise. It may consist of some right, interest, profit, or benefit that accrues to
one party, or alternatively, of some forbearance, loss or responsibility that is undertaken or
incurred by the other party. It is not necessary for a contract to be supported by a monetary
consideration.

3) Laws Relating to Relationship between exporter and agent/distributor

Export Agency agreement
It is a legal document, which establishes commercial relationship between the
principal and the agent. It incorporates the conditions mutually agreed upon by the concerned
parties for the conduct of business
Agent agreement vs Distribution Agreement

4) Laws Relating to Credit Contracts

Doctrine of Strict Compliance
This doctrine provides that the bank can reject any document which is not in strict conformity
with the terms set out in the documentary letter of credit. Therefore, firstly, the letter of
credit deals purely with documents. Secondly, this doctrine demands that the documents
which are tendered by the beneficiary must be in strict conformity with the terms and
conditions of the letter of credit. This doctrine is also entrenched in the UCP Article 4
provides that in letter of credit transactions, all the parties concerned deal with documents,
and not with the goods, services and other performances to which the documents relate. The
issuing bank relies solely on what appears on the face of the documents presented to it by the
beneficiary to determine whether the conditions in the letter of credit have been complied
with. The banks that deal with finance and not with goods are not aware of all trade customs
and usages. Therefore their expertise extends as far as dealing with the documents without
getting embroiled in the facts and practices of a particular trade. As far as the standard of
examination in arranging for the carriage of goods overseas is concerned, the beneficiary
17

needs reassurance that the standards applied by banks in scrutinising documents will not vary
from country to country.
Effects of the doctrine strict compliance
The doctrine of strict documentary compliance requires not only that the tendered documents
conform to the terms and conditions of the documentary letter of credit but that they appear
on their face to be consistent with one another. This requires that all the documents are
consistent with one another in the sense that they make up a set which is apparently referring
to the same container of goods. A measure of certainty is needed because, if the documents
are rejected, this is likely to cause delay and expense in selling the goods elsewhere. The
UCP appears to confirm this view by making reference to international standard banking
practice. Therefore the overall effect of the doctrine of compliance is that the bank honouring
the documentary letter of credit must strictly conform to the conditions set out in the letter of
credit, and should the documents handed in by the beneficiary not meet this criteria then the
bank must not pay out. Therefore the required standard is that of strict conformity

18

REFERENCES

Foreign trade development and regulation act, 1992 Retrieved

http://dgft.gov.in/exim/2000/download/Appe&ANF/38A.pdf
The

foreign exchange management act, 1999. Retrieved

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/13273.pdf

online
online

from
from

Customs Act 1962. Retrieved online from http://www.cbec.gov.in/customs/cs-act/cs-actidx.htm

Quality Control And Pre-shipment Inspection Act. Retrieved
http://commerce.nic.in/publications/pdf/CHAPTER_6.pdf
Laws

online

Relating
to
Credit
Contracts.
Retrieved
online
http://umexpert.um.edu.my/file/publication/00008256_97294.pdf

from

from

INCOTERMS. Retrieved online from http://www.export.gov/faq/eg_main_023922.asp

19