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BACKGROUND The Foreign Exchange Regulation Act , 1973 (FERA) was repealed on 1st June, 2000 to repeal the draconian Foreign Exchange Regulation Act , 1973 . The Foreign Exchange Regulation Act ( FERA ) was replaced by the Foreign Exchange Management Act (FEMA), which was passed in the winter session of Parliament in 1999. Enacted in 1973, in the backdrop of acute shortage of Foreign Exchange in the country, FERA had a controversial 27 years long stint during which many big wigs of the Indian Corporate world found themselves at the mercy of the Enforcement Directorate (E.D.). Any offense under FERA was a criminal offense liable to imprisonment, whereas FEMA seeks to make offenses relating to foreign exchange civil offenses. FEMA which has replaced FERA, had become the need of the hour since FERA had become incompatible with the pro-liberalisation policies of the Government Of India . FEMA has brought a new management regime of Foreign Exchange consistent with the emerging frame work of the World Trade Organisation (WTO). It is another matter that enactment of FEMA also brought with it Prevention Of Money Laundering Act , 2002 which came into effect recently from 1st July, 2005 and the heat of which is yet to be felt as “Enforcement Directorate” would be invesitigating the cases under PMLA too. Any offence under erstwhile FERA was akin to criminal offence whereas FEMA seeks to make offences relating to Foreign Exchange Civil Offences . Unlike other laws where ''everything is permitted unless specifically prohibited, under FERA nothing was permitted unless specifically permitted''. Hence the tenor and tone of the Act was very drastic. It provided for imprisonment of even a very minor offence. 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''. OBJECTIVES AND EXTENT OF FEMA The object of the Act is to consolidate and amend the law relating to foreign exchange with 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. PROVISIONS, REGULATIONS AND MANAGEMENT OF FOREIGN EXCHANGE Except with the general or special permission of the Reserve Bank Of India , no person can :-
A Financial Transaction means making any payment to, or for the credit of any person, or receiving any payment for, by order or on behalf of any person, or drawing, issuing or negotiating any bill of exchange or promissory note, or transferring any security or acknowledging any debt. No person resident in India can acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India except with the general or special permission of the Reserve Bank. Any person may sell or draw foreign exchange to or from an authorized person if such sale or drawing is a Current Account Transaction . However, the Central Government may, in Public Interest and in consultation with the Reserve Bank, impose such 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 :-
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 :-
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 :-
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. CONTRAVENTIONS AND PENALTIES If any person contravenes any provision of this Act, or contravenes any , Regulation , Notification , Direction or Order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues. Any Adjudicating Authority adjudging any contravention may, if he thinks fit in addition to any penalty which he may impose for such contravention direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government and further direct that the foreign exchange holdings, if any, of the persons committing the contraventions or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf. "Property" in respect of which contravention has taken place, shall include deposits in a bank, where the said property is converted into such deposits, Indian Currency , where the said property is converted into that currency; and any other property which has resulted out of the conversion of that property. If any person fails to make full payment of the penalty imposed on him within a period of ninety days from the date on which the notice for payment of such penalty is served on him, he shall be liable to civil imprisonment. INVESTIGATION The Directorate of Enforcement investigate to prevent leakage of foreign exchange which generally occurs through the following malpractices :
ORGANISATIONAL SET UP AND FUNCTIONS OF ENFORCEMENT DIRECTORATE Directorate of Enforcement has to detect cases of violation and also perform substantially adjudicatory functions to curb above malpractices. The Enforcement Directorate, with its Headquarters at New Delhi has seven zonal offices at Bombay, Calcutta, Delhi, Jalandhar, Madras, Ahmedabad and Bangalore. The zonal offices are headed by the Deputy Directors. The Directorate has nine sub-zonal offices at Agra , Srinagar , Jaipur , Varanasi , Trivandrum , Calicut , Hyderabad , Guwahati and Goa , which are headed by the Assistant Directors. The Directorate has also a Unit at Madurai, which is headed by a Chief Enforcement Officer. Besides, there are three Special Directors of Enforcement and one Additional Director of Enforcement. The main functions of the Directorate are as under:
PROCEDURAL PROVISIONS For enforcing the provisions of various sections of FEMA, 1999, the officers of Enforcement Directorate of the level of Assistant Director and above will have to undertake the following functions
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