A STUDY OF FEMA 1999.

CHAPTER 1: INTRODUCTION.
1.1: FOREIGN EXCHANGE MANAGEMENT ACT.
The Foreign Exchange Management Act (FEMA) is a 1999 Indian law "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". It was passed in the winter
session of Parliament in 1999, replacing the Foreign Exchange Regulation
Act (FERA). This act seeks to make offenses related to foreign exchange civil
offenses. It extends to the whole of India., replacing FERA, which had become
incompatible with the pro-liberalisation policies of the Government of India. It
enabled a new foreign exchange management regime consistent with the emerging
framework of the World Trade Organisation (WTO). It is another matter that the
enactment of FEMA also brought with it the Prevention of Money Laundering
Act of 2002, which came into effect from 1 July 2005.
Unlike other laws where everything is permitted unless specifically prohibited,
under this act everything was prohibited unless specifically permitted. Hence the
tenor and tone of the Act was very drastic. It required imprisonment even for minor
offences. Under FERA a person was presumed guilty unless he proved himself
innocent, whereas under other laws a person is presumed innocent unless he is
proven guilty. As most of us who are dealing with foreign exchange (currency or
negotiable instrument equivalent of currency, of any country except Indian
currency) must have heard or dealt with FEMA as it is the main statute which deals
with transactions of foreign exchange.

A STUDY OF FEMA 1999.

The main objectives of FEMA are:

To facilitate external trade and payments
To promote the orderly development and maintenance of foreign exchange
market
FERA was the first statute/law passed by the parliament in year 1973 for governing
foreign exchange dealings in India. As FERA come into existence at the time when
India was facing a severe deficiency of foreign exchange, it was very harsh law
and violation of this Law was always criminal offence. Unlike other laws
where everything is permitted unless specifically prohibited, under this
act everything was prohibited unless specifically permitted. Hence the tenor and
tone of the Act was very drastic. It required imprisonment even for minor offences.
Under FERA a person was presumed guilty unless he proved himself innocent,
whereas under other laws a person is presumed innocent unless he is proven guilty
Since FERA had become incompatible with the pro-liberalization policies of the
Government of India (Reform policies introduced in India in 1991 which make our
economy open for outside business world to come and do business here) hence by
perceiving the need of that time FEMA was introduced by repealing/replacing
FERA in India in year 1999.
1.2: APPLICABILITY OF FEMA.
FEMA is applicable to the whole of India.
The expression whole of India would indicate that the provisions of the Act are
applicable to all transactions taking place in India. Thus, any person who is present
in India at the time of transaction has to comply with provisions of FEMA.

A STUDY OF FEMA 1999.

FEMA is applicable to all branches, offices and agencies outside India owned or
controlled by a person resident in India. Thus, FEMA has retained its extraterritorial application, as under FERA.
Illustration: If an Indian Company opens a branch in London, U.K., that branch
will become resident of India and, therefore, all restrictions applicable to Indian
residents for overseas transactions are equally applicable to such a branch. In such
a situation, the overseas branch of an Indian Company would require or prior
approval of RBI for undertaking any capital account or a current account
transaction which is otherwise not permitted either by way of a general or special
permission.

1.3: OBJECTIVES AND EXTENT OF FEMA.

The objective of the Act is 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.
FEMA extends to the whole of India. It applies to all branches, offices and
agencies outside India owned or controlled by a person who is a resident of India
and also to any contravention there under committed outside India by any person to
whom this Act applies.
Except with the general or special permission of the Reserve Bank of India, no
person can: deal in or transfer any foreign exchange or foreign security to any person not
being an authorized person;
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A STUDY OF FEMA 1999.

make any payment to or for the credit of any person resident outside India in
any manner;
receive otherwise through an authorized person, any payment by order or on
behalf of any person resident outside India in any manner;
Reasonable restrictions for current account transactions as may be prescribed.
Any person may sell or draw foreign exchange to or from an authorized person for
a capital account transaction. The Reserve Bank may, in consultation with the
Central Government, specify: any class or classes of capital account transactions which are permissible;
the limit up to which foreign exchange shall be admissible for such transactions
However, the Reserve Bank cannot impose any restriction on the drawing of
foreign exchange for payments due on account of amortization of loans or for
depreciation of direct investments in the ordinary course of business.
The Reserve Bank can, by regulations, prohibit, restrict or regulate the following: transfer or issue of any foreign security by a person resident in India;
transfer or issue of any security by a person resident outside India;
transfer or issue of any security or foreign security by any branch, office or
agency in India of a person resident outside India;
any borrowing or lending in foreign exchange in whatever form or by
whatever name called;
any borrowing or tending in rupees in whatever form or by whatever name
called between a person resident in India and a person resident outside India;
deposits between persons resident in India and persons resident outside
India;
export, import or holding of currency or currency notes;
transfer of immovable property outside India, other than a lease not
exceeding five years, by a person resident in India;
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A STUDY OF FEMA 1999.

acquisition or transfer of immovable property in India, other than a lease not

exceeding five years, by a person resident outside India;
giving of a guarantee or surety in respect of any debt, obligation or other
liability incurred
(i)
by a person resident in India and owed to a person resident outside
(ii)

India or
By a person resident outside India.

A person, resident in India may hold, own, transfer or invest in foreign currency,
foreign security or any immovable property situated outside India if such currency,
security or property was acquired, held or owned by such person when he was
resident outside India or inherited from a person who was resident outside India.
A person resident outside India may hold, own, transfer or invest in Indian
currency, security or any immovable property situated in India if such currency,
security or property was acquired, held or owned by such person when he was
resident in India or inherited from a person who was resident in India.
The Reserve Bank may, by regulation, prohibit, restrict, or regulate establishment
in India of a branch, office or other place of business by a person resident outside
India, for carrying on any activity relating to such branch, office or other place of
business. Every exporter of goods and services must : furnish to the Reserve Bank or to such other authority a declaration in such
form and in such manner as may be specified, containing true and correct
material particulars, including the amount representing the full export value or,
if the full export value of the goods is not ascertainable at the time of export, the
value which the exporter, having regard to the prevailing market conditions,
expects to receive on the sale of the goods in a market outside India;

A STUDY OF FEMA 1999.

Furnish to the Reserve Bank such other information as may be required by the
Reserve Bank for the purpose of ensuring the realization of the export proceeds
by such exporter.
The Reserve Bank may, for the purpose of ensuring that the full export value of the
goods or such reduced value of the goods as the Reserve Bank determines, having
regard to the prevailing market-conditions, is received without any delay, direct
any exporter to comply with such requirements as it deems fit.
Where any amount of foreign exchange is due or has accrued to any person
resident in India, such person shall take all reasonable steps to realize and
repatriate to India such foreign exchange within such period and in such manner as
may be specified by the Reserve Bank.

CHAPTER 2: IMPLICATIONS OF FEMA ON DIFFERENT

CATEGORIES.

A STUDY OF FEMA 1999.

2.1: CATEGORIES & STATUS OF DIFFERENT PERSONS.

Broadly speaking FEMA, covers, three different types of categories, and deals
differently with them:
These categories are:
1. Person
2. Person Resident In India
3. Person Resident Outside India
1. Person:
For the purpose of provisions, a person shall include any of the following:
An individual
A Hindu Undivided family
A company
A Firm
An association of persons or a body of individuals, whether incorporated
or not,
Every artificial judicial person, not falling within any of the preceding
sub clauses, and
Any agency, office or branch owned or controlled by such person.
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A STUDY OF FEMA 1999.

2. Person resident in India:

"A person resident in India", shall include any of the following
A person who has been residing in India for more than 182 days, in the last
financial year. This means if a person has to be assessed, as to whether he is
person resident in India, for any offence committed in August 2001, then he
should be residing in India for more than 182 days during April 2000 to
March 2001
Any person or body corporate registered or incorporated in India, or
An office, branch or agency in India owned or controlled by a person
resident outside India, or
An office, branch or agency outside India owned or controlled by a person
resident in India.
However, in following cases a person shall not be person resident in India", even if
he is residing in India for more than 182 days in the last financial year:
i.

A person who has gone abroad, for:

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

ii.

Similarly, a person who has come to India for any purpose except:

A STUDY OF FEMA 1999.

Taking up employment in India, or

Carrying on any business in India, or
For any other purpose, which itself would indicate his intention
to stay in India for an uncertain period.
3. Person resident outside India:
Simply putting it, "a person resident outside India" means "a person who is not
resident in India"

2.2: PERSON RESIDENT IN INDIA.

Provision of FEMA, are applicable with different implication on Person resident
in, and outside India.
With respect to Person Resident in India", they are:1. A person who is resident in India, can acquire, hold, own possess or transfer
any foreign Exchange, foreign security or any immovable property situated
outside India, only according to FEMA
FOREIGN SECURITY: means any security, in the form of shares, stocks, bonds,
debentures or any other instrument denominated or expressed in foreign currency
and includes securities expressed in foreign currency, but where redemption or any
form of return such as interest or dividends is payable in Indian currency
2. The Reserve Bank of India (R.B.I), may prohibit, restrict or regulate any of
the following:
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A STUDY OF FEMA 1999.

i.

Transfer or issue of any foreign security by a person resident in India.

ii.

Any borrowing or lending in rupees in whatever form or by whatever

name called between a person resident in India and a person resident
outside India.

iii.

Deposits between persons resident in India and person resident

outside India:

R.B.I. may make all these restrictions, in general or with respect to "Capital
Account Transactions."
"CAPITAL ACCOUNT TRANSACTIONS" means a transaction, which alters the
assets or liabilities, including contingent liabilities, outside India of persons
resident in India or assets or liabilities in India of persons resident outside India.
iv.

Giving of a guarantee or surety in respect of any debt, obligation or

other liability incurred, by a person resident in India and owed to a
person resident outside India.

v.

Transfer of immovable property outside India, other than a lease not,

exceeding five years, by a person resident outside India.

4. A person resident in India may hold, own transfer or invest in foreign

currency, foreign security or any immovable property situated outside India
if such currency, security or property was acquired, held or owned by such
person when he was resident outside India or inherited from a person who
was resident outside India.

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A STUDY OF FEMA 1999.

5. If any amount of foreign exchange has become due or has accrued to any
person resident in India, then he shall take steps to realise and bring it back
to India within the time frame and manner specified by Reserve Bank
2.3: PERSON RESIDENT OUTSIDE INDIA.
Implications of FEMA, on "Person Resident outside India", are as follows:
1. For making any sort of payment in any manner, to a "person resident outside
India", provisions of FEMA has to be complied, and also general or special
permission of Reserve Bank is required Similarly, for receiving any payment
by order or on behalf of any "person resident outside" in any manner,
provisions of FEMA has to be complied, and also general or special
permission of Reserve Bank is required.
2. The Reserve Bank may prohibit, restrict or regulate any of the following
i.

Transfer or issue of any security by a person resident outside India.

ii.

Transfer or issue of any security or foreign security by any branch,

office or agency in India of a "person resident outside India."

iii.

Any borrowing or lending in rupees in whatever name called between

a "person resident in India" and a "person resident outside India"

iv.

Deposit between "persons resident in India" and "persons resident

outside India"

v.

Acquisition or transfer of immovable property in India other than a

lease, not exceeding five years, by a person resident outside india.

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A STUDY OF FEMA 1999.

vi.

Giving of a guarantee or surety in respect of any debt, obligation or

other liability incurred, by a person resident outside India.

The Reserve Bank of India may also regulate the above noted activities, with
respect to "Capital Account Transactions".
3. A "person resident in india" may hold, own, transfer or invest in foreign
currency, foreign security, or any immovable property situated outside India
if such currency, security or property was acquired, held or owned by such
person when he was ' resident outside India" or inherited from a "person who
was resident outside India."
4. A "person resident outside India" may hold, own, transfer or invest in Indian
currency, security or any immovable property situated in India if such
currency, security or property was acquired, held or owned by such person
when he was "resident in India" or inherited from a person who was resident
in India.
2.4: EXEMPTIONS UNDER FEMA.
Circumstances where holding and repatriation of foreign exchange is "exempted"
from FEMA rules:
In following circumstances, the provisions of FEMA will not apply with regard to
Holding and Repatriation of Foreign Exchange:
Possession of foreign currency or foreign coins by any person upto such limit as
the Reserve Bank may specify.
Foreign currency account held or operated by such person or class of persons
and the limit upto, which the Reserve Bank specifies.
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A STUDY OF FEMA 1999.

Foreign Exchange acquired or received before the 8th day of July 1947 or any
income arising or accruing thereon, which is held outside India by any person in
pursuance of a general or special permission granted by the Reserve Bank.
Foreign Exchange held by a person resident in India upto such limit as the
Reserve Bank may specify, if such foreign exchange was acquired by way of
gift or inheritance from a person who acquired or received it before 8th of July
1947 or if the income has occurred to him, which was held outside India in
pursuance of a general or special permission granted by the Reserve Bank.
Foreign Exchange acquired from employment, business, trade vocation,
services, honorarium, gifts, inheritance or any other legitimate means upto such
limit as the Reserve Bank may specify.
Such other receipt in foreign Exchange as the Reserve Bank may specify.

2.5: IMPORTANT PROVISIONS FROM FEMA.

Some of the relevant provisions of Exchange Control Manual under FEMA, which
still exist, are:

REFUND OF INWARD REMITTANCES:

If a request is made from the overseas for cancellation of Inward Remittances,
Authorised Dealers may do so without referring to Reserve Bank, if refunds are
not to compensate for a loss.
APPLICATION FOR REMITTANCES IN FOREIGN CURRENCY:
i.

A person firm or bank may apply to an Authorised Dealer for remittances in

any foreign currency to a beneficiary abroad.

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A STUDY OF FEMA 1999.

ii.

Application should be made in FORM -A1, if the purpose of remittance is

import of goods into India.

iii.

For any other purpose in Form-A2

iv.

The Authorised Dealer may sell the foreign Exchange applied for if he think
fit provided it is within his powers, and the purpose of remittance is an
approved one.

MODE OF PAYMENT OF RUPEES AGAINST SALE OF FOREIGN

EXCHANGE: In case of sale of foreign Exchange or remittance foreign
Exchange amounting to Rs. 20,000 or more the payment received by the
Authorised Dealer, from the applicant should be through a crossed cheque
drawn on the applicant bank account or on the bank account of the Firm/
Company. Payment can also be accepted in the form of a Banker's cheque / Pay
Order / Demand Draft. Receipt of Payment in cash in case of such sale of
foreign Exchange or remittance in foreign Exchange is strictly prohibited.
TRAVELLERS CHEQUE NEGOTIABLE ONLY IN INDIA: Rupee
Travelers cheque cannot be encashed outside India, if they are issued solely for
use within India. In such a case they cannot be taken or sent out of India.
Reimbursements should be strictly refused where such travellerscheques have
been encashed outside India.
REIMBURSEMENT OUTSIDE INDIA: Rupee Travelers cheque, which is
issued by authorised dealers, encashable outside India, may be reimbursed by
Authorised Dealers or by their selling Agent.
IMPORT OF FOREIGN CURRENCY NOTES: When the stock of foreign
currency notes with Authorised Dealer is not adequate for meeting their normal
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A STUDY OF FEMA 1999.

business requirement they could import foreign currency notes from their
overseas branches or correspondents.
RECONVERSION OF INDIAN CURRENCY:
i.

Foreign currency may be sold against Indian Rupees held by persons who
are not resident of India but are passing through or leaving India after a visit,
at the time of their departure from India.

ii.

For this purpose, a Bank or Encashment certificate issued by Authorised

Dealer, exchange bureau or Authorised Money changer in form BCI, ECF
OR ECR, is required to show that the rupee had been acquired by sale of
foreign Exchange to an Authorised Dealer or money changer in India.

iii.

Such a certificate is valid for such reconversion i.e. a period of three months
is not over from the date of sale of the foreign currency by the traveller

RATES OF EXCHANGE: Authorised dealers and their Exchange bureau may

buy from and sell to public foreign currency notes and coins at rates of
exchange determined by market conditions. Dealings in foreign currency notes
and coins between authorised dealers and between authorised dealers and
money changers would also be at rates determined by market conditions

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A STUDY OF FEMA 1999.

CHAPTER 3: FERA AND FEMA- COMPARISION.

3.1 SIMILARITIES
3.2 DIFFERENCES
3.3 CHANGES/PROGRESSION FROM FERA TO FEMA- A STEP AHEAD
3.1: SIMILARITIES.
The similarities between FERA and FEMA are as follows:
1. The Reserve Bank of India and central government would continue to be the
regulatory bodies.

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A STUDY OF FEMA 1999.

2. Presumption of extra territorial jurisdiction as envisaged in section (1) of

FERA has been retained.
3. The Directorate of Enforcement continues to be the agency for enforcement
of the provisions of the law such as conducting search and seizure

3.2: DIFFERENCES BETWEEN FERA AND FEMA.

Sr. DIFFERENCES
No
1 PROVISIONS
2

FERA

FEMA

FERA consisted of 81 FEMA is much simple, and consist of

sections, and was more only 49 sections.
complex
FEATURES
Presumption of negative These presumptions of Mens Rea and
intention (Mens Rea ) abatement have been excluded in
and joining hands in
FEMA
offence (abatement)
existed in FEMA
NEW TERMS IN
Terms like Capital
Terms like Capital Account
FEMA
Account Transaction,
Transaction, current account
current Account
Transaction person, service etc., have
Transaction, person,
been defined in detail in FEMA
service etc. were not
defined in FERA.
DEFINITION OF
Definition of
The definition of Authorised person
AUTHORISED
"Authorised Person" in has been widened to include banks,
PERSON
FERA was a narrow one money changes, off shore banking
( 2(b)
Units etc. (2 ( c )
MEANING OF
There was a big
The provision of FEMA, are in
"RESIDENT" AS
difference in the
consistent with income Tax Act, in
COMPARED WITH definition of "Resident", respect to the definition of term "
INCOME TAX ACT. under FERA, and
Resident". Now the criteria of "In
Income Tax Act
India for 182 days" to make a person
resident has been brought under
FEMA. Therefore a person who
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A STUDY OF FEMA 1999.

6 PUNISHMENT

7 QUANTUM OF
PENALTY.
8 APPEAL

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

qualifies to be a non-resident under

the income Tax Act, 1961 will also be
considered a non-resident for the
purposes of application of FEMA, but
a person who is considered to be nonresident under FEMA may not
necessarily be a non-resident under
the Income Tax Act, for instance a
business man going abroad and
staying therefor a period of 182 days
or more in a financial year will
become a non-resident under FEMA.
Here, the offence is considered to be a
civil offence only punishable with
some amount of money as a penalty.
Imprisonment is prescribed only when
one fails to pay the penalty.

Any offence under

FERA, was a criminal
offence , punishable
with imprisonment as
per code of criminal
procedure, 1973
The monetary penalty Under FEMA the quantum of penalty
payable under FERA, has been considerably decreased to
was nearly the five times three times the amount involved.
the amount involved.
An appeal against the The appellate authority under FEMA
order of "Adjudicating is the special Director
office", before " Foreign ( Appeals)Appeal against the order of
Exchange Regulation Adjudicating Authorities and special
Appellate Board went Director (appeals) lies before
before High Court
"Appellate Tribunal for Foreign
Exchange."An appeal from an order
of Appellate Tribunal would lie to the
High Court. (sec 17,18,35)
FERA did not contain FEMA expressly recognises the right
any express provision on of appellant to take assistance of legal
the right of on
practitioner or chartered accountant
impleaded person to take (32)
legal assistance
FERA conferred wide The scope and power of search and
powers on a police
seizure has been curtailed to a great
officer not below the
extent
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A STUDY OF FEMA 1999.

rank of a Deputy
Superintendent of Police
to make a search

3.3: A STEP AHEAD FROM FERA TO FEMA.

Enactment of FEMA has brought in many changes in the dealings of Foreign

Exchange, as compared to FERA. Some of them are restrictive, and some has
widened the scope.
However some of the relevant progress made, from FERA to FEMA, are as
follows:
1. Drawal of foreign exchange:
Now, the restrictions on drawal of Foreign Exchange for the purpose of current
Account Transactions, has been removed. However, the Central Government may,
in public interest in consultation with the Reserve Bank impose such reasonable
restrictions for current account transactions as may be prescribed.
FEMA has also by and large removed the restrictions on transactions in foreign
Exchange on account of trade in goods, services except for retaining certain
enabling provisions for the Central Government to impose reasonable restriction in
public interest.
2. Omission of criminal proceedings:

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A STUDY OF FEMA 1999.

Under FERA, any contravention was a criminal offence and the proceedings were
governed by the code of Criminal Procedure. Moreover the Enforcement
Directorate had powers to arrest any person, search any premises, seize documents,
initiate proceeding.
Now all these have been done away with, and contravention of FEMA is no more a
Criminal offence, and only monetary penalty, i.e. civil proceedings are applicable.
Civil imprisonment is provided, only in case of default to pay fine.
3. Residential status:
The definition of "Residential Status" under FEMA has gone through considerable
change. It has now been made compatible with the definition provided under
"Income Tax" Act.
The residential status is now based on the physical stay of the person in the
country. The period of 182 days as provided, indicates that it is not necessary that
there should be a continuos period of stay. The period of stay would be calculated
by adding up all the days of stay of the individual in the country.
An Indian resident becomes a non-resident when he goes abroad and takes up a job
or engages in business.
A major change in the definition of residential status of partnerships and firms in
worth noticing. Earlier, under FERA, a branch was considered a resident of a place
where it was situated. Now, under FEMA, an office, branch or agency outside
India owned or controlled by a person resident in India will be considered a
resident in India for the purposes of this Act.
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A STUDY OF FEMA 1999.

For example, a person residing in India has a branch in Maurtius; such branch will
be considered a resident in India.
4. Immovable property outside India:
Earlier, under FERA, there was no restriction placed on foreign citizens who were
residents of India, for acquiring immovable property outside India.
Now FEMA prohibits a resident to acquire, own process, hold or transfer any
immovable property situated outside India. This restriction applies irrespective of
whether the resident is an Indian citizen or foreign citizen. With this provision
being effective a foreign citizen who is a resident in India has to take approval of
Reserve Bank of India for selling or buying any immovable property situated
outside India.

5. Immovable property in India:

Earlier, under FERA, a foreign citizen could acquire or transfer immovable
property in India only after seeking permission from the Reserve Bank.
Now, under FEMA, the control of Reserve Bank is determined by the residential
status of a person. Only a non-resident as defined within the meaning of FEMA
would require permission of the Reserve Bank to acquire or transfer an immovable

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property in India. The distinction based on citizenship has been abolished and that
based on residentship has been introduced.
6. Export of services:
FERA had no provision for export of services. Now, FEMA has included payment
received by an Exporter of Services in its ambit.
Every Exporter, who receives payment from outside India, for his services
rendered is obliged to furnish details of payment to the 'Reserve Bank.
For example; a Doctor, or Engineer or Lawyer or Accountant or any other
professional may give opinions or consultation to people outside India, via internet
or mail, and his fees may be credited to his credit account. Then he is obliged to
furnish details of such payment to Reserve Bank.
7. Inclusion of new terms:
Some new terms like "Capital Account Transactions, Current Account
Transactions"; have been included in FEMA. Reserve Bank has been confirmed
with powers and with consultation with central government to specify maximum
permissible limit upto which exchange is admissible for such transactions.

CHAPTER 4: TYPE OF OFFENCES.

Although under FEMA, offences pertain to transactions in foreign Exchange only.

However relevant offences are as follows:
4.1: DETAILS IN FOREIGN EXCHANGE.

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Only a person Authorized by Reserve Bank can deal in foreign Exchange

No one can make a payment to a person resident outside India, without
permission of Reserve Bank.
No one receives any payment from a person resident outside India, without
permission of Reserve Bank.
A person resident in India cannot deal in foreign exchange, foreign security or
any immovable property situated outside India, without permission of Reserve
Bank. (sec 4)
Similarly a person resident outside India, cannot acquire immovable property in
India without permission.
EXPORTER OF GOODS AND SERVICES.
Every exporter of goods and services is under an obligation, to give details to
Reserve Bank regarding value of export, mode of payment, amount of payment
received etc.

REPATRIATION OF FOREIGN EXCHANGE.

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Where any amount of foreign exchange has become due or accrued to any person
who is a resident in India, he shall realise and repatriate (Bring Back) such amount,
within the time specified by Reserve Bank.
AUTHORISED PERSON.
An "Authorised Person" under FEMA, is a person who is authorised by Reserve
Bank to deal in Foreign Exchange.
For being registered as an "Authorised Person", necessary application alongwith
relevant documents has to be furnished to Reserve Bank.
An "Authorised Person" is also, not given a free hand to deal in foreign Exchange.
He has to furnish details and information, to Reserve Bank from time to time as
may be required by it.

4.2: PROSECUTION OF OFFENCES COMMITTED.

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

4.3: PROCEDURE.
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INQUIRY BY ADJUDICATING AUTHORITY (14).

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

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APPEAL TO SPECIAL DIRECTOR (APPEALS) (17).

Appeal from an order of "Adjudicating Authority" lies before" special Director
(appeal)"
1. The appeal shall be made in "Form No. 1", alongwith three copies of the
order appealed against and the requisite fees.
2. The appeal should be filed within 45 days, from the date of receipt of receipt
of impugned order.
3. On the date of hearing the appeal the applicant may appoint a legal
practitioner or a chartered accountant to appear, plead and act on their behalf
before the special Director (Appeal)
4. The order of the special Director (Appeals) made at the conclusion of the
proceedings shall be in writing and shall state briefly the grounds for the
decision.
APPEAL TO THE APPELLATE TRIBUNAL (19).

"Appellate Tribunal" is entitled to hear appeal arising out of an order from

"Adjudicating Authority" and "special Director (appeal)."
1. The appeal shall be made in Form No. 2, alongwith three copies of the
impugned order and requisite fees.
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2. The appeal shall be made within 45 days, from the date on which copy of the
impugned order is received.
3. A copy of the order and appeal shall be sent to the opposite party, i.e.
"Director of Enforcement," and a date shall be fixed for hearing of the
appeal.
4. The appellant shall have the right to present his case/appeal through a legal
practitioner or chartered Accountant.
5. On the fixed date of hearing, the "Appellate Tribunal" shall pass its order in
writing and the reasons therefore.
APPEAL TO HIGH COURT (35).

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

4.4: AMOUNT OF PENALTY.

Any contravention, under FEMA, may invite following kinds of penalties:
1. If, the amount against which offence is quantities, then penalty will be
"THRICE" the sum involved in contravention.

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2. Where the amount cannot be quantified the penalty may be imposed upto
two lakh rupees.
3. If, the contravention is continuing every day, then Rs. Five Thousand for
every day after the first day during which the contravention continues.
Further in addition to the penalty, any currency, security or other money or
property involved in the contravention may also be confiscated.

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CHAPTER 5: CONCLUSION.
Foreign Exchange Management Act, 1999 (FEMA) has completed a decade of its
existence. It replaced Foreign Exchange Regulation Act, 1973 (FERA) with effect
from 1st June, 2000. The replacement was a great sigh of relief for the people as
FERA was unduly stringent in its criminal provisions. FEMA is a civil law and
proactive in its outlook compared to FERA. The thrust of FEMA is to manage
the scarce foreign exchange resources of the country rather than to control them
as was prevalent under FERA.

FEMA has formally recognised the distinction between Current Account and
Capital Account Transactions. Two golden rules or principles in FEMA are
mentioned below:
All Current account transactions are permitted unless otherwise prohibited; and
All Capital account transactions are prohibited unless otherwise permitted.

Under the FERA regime, the thrust was on regulation and control of the scarce
foreign exchange, whereas under the FEMA, emphasis is on management of
foreign exchange resources. Thus, there is a clear shift in focus from control to
management. Therefore, under FERA, it was safe to presume that any transaction

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in foreign exchange or with a non-resident was prohibited unless it was generally

or specially permitted.

WEBLIOGRAPHY:

http://indiankanoon.org/search/?formInput=foreign%20exchange
%20management%20act%201999%20
http://www.lawyersclubindia.com/articles/An-introduction-to-FEMA-19994088.asp#.UxrFoD-Sy3k
http://fema-india.blogspot.in/p/introduction-to-fema-synopsis-1.html
http://www.helplinelaw.com/docs/main.php3?id=FEMA1

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