All About the Foreign Exchange Management Act, 1999
This article on 'All About the Foreign Exchange Management Act, 1999' was written by an intern at Legal Upanishad.
The article is dealing with the provisions of the Foreign Exchange Management Act, 1999 wherein the various rules and regulations for foreign exchange and security have been discussed.
Foreign Exchange Management Act, 1999
The Foreign Exchange Management Act, 1999 is a replacement for the Foreign Exchange Regulations Act, 1973. The FEMA, 1999 was enforced on 1st June 2000. It has a total of 7 chapters and 49 sections.
There FEMA, 1999 was introduced due to the change in prevailing conditions and changes in the environment. It was passed with a motive to ease the governmental control over the foreign exchange of India. The head office of FEMA is located in New Delhi headed by the director of the foreign exchange.
Purpose of FEMA,1999
The main purposes of the Foreign Exchange Management Act, 1999 are:
- To strengthen and amend the existing foreign exchange laws.
- To ease down the procedure of external trading and payments.
- To ensure systematic growth and maintenance of a fair foreign exchange market in the nation.
- To restrict any sort of disparity in the payments.
- To ensure effective utilization of the resources of the foreign exchange.
Salient Features of the FEMA, 1999
While highlighting and stating the salient features of the FEMA Act, 1999, it can be seen that:
- FEMA, 1999 does not apply to over NRI citizens. The criteria to determine the applicability of the law is to check the total number of residing days shall be more than 182 days in the previous financial year.
- With the power under FEMA, the central government can impose several restrictions and control three generalities which are payment done to a person residing in foreign, receipts of the payment from them, and foreign security share out.
Applicability of the Act
The Foreign Exchange Management Act, 1999 extends and applies to the whole Indian territory including any office or branch of the office or an agency located in a foreign country but is controlled by the Indian resident, and any infringement committed by the following entities in foreign is also regulated under this Act.
The FEMA, 1999 is applicable to a person, a person residing in India, and the person residing outside India.
Authorities under FEMA, 1999
There are two authorities incorporated under FEMA, 1999. The RBI and the Central Government are the main controlling authorities of the foreign exchange where the central government formulates the law and the RBI enforces it. Further the Directorate of the Enforcement is an administrative and management authority of the foreign exchange in the nation.
Restrictions under FEMA, 1999
S. 3 of the FEMA, 1999 provides for the restrictions upon unfair dealing in Foreign Exchange. According to the section, no person can deal in foreign exchange/ foreign security or transfer of foreign exchange/ foreign security to any other person. Further, a person shall not make any payment or credit to any Foreigner in any way. It is only an authorized person who can receive the payment by order or on behalf of the foreigner.
Lastly, it is provided under S.4 of the Act that no Indian resident can own, acquire, possess, hold or transfer foreign exchange or security or any of the immovable property present in foreign.
Appointment of Authority for Adjudication
It is the duty of the Central Government to appoint an adjudicating authority that could adjudicate matters related to foreign exchange and security under the Act.
According to S.16 of the Act, the central government can appoint as many officers as an adjudicating authority require to inquire in a prescribed form. Such officers can be appointed by the publication of an order of appointment in the official gazette.
The order published in the official gazette shall also prescribe the jurisdiction of the respective officers who have been appointed. The adjudication authority shall conduct an inquiry only when a complaint is made by an authorized person in written form upon the general or the special order of the central government.
The adjudication authority is provided with the same power as it is of a civil court. Further, the person who has been alleged can seek legal assistance from any practitioner or CA for presenting the case on his behalf.
It is the duty of the adjudication authority to diligently handle the matter and try to resolve the matter within one year from the date of receipt. And if the authority fails to comply with the estimated timeline, then the reasons shall be recorded in the writing for the same.
Establishment of the Appellate Tribunal
S.18 of the Act provides for the provision for the establishment of the Appellate Tribunal. The section states that it is the power of the central government to establish an appellate tribunal for hearing the appeals related to the orders of the adjudication authority and special directors.
Appeal to the Special Director under the Act
The provisions for the appeal made to the special director are provided under S.17 of the Act. According to S.17, the central government shall appoint either one or more special directors to consider and hear the appeal made in the context of the orders of the adjudication authority. It is done through a notification made by the central government specifying the matter and place of jurisdiction of the Special Director.
An aggrieved party can file an appeal against the order of the adjudication authority within 45 days from the date he received the order. However, in case a person files the appeal after the expiration of the specified days, then it is upon the discretion of such Special Director to consider the appeal only if he finds that sufficient ground to hear the appeal exists.
If the Special Directors accept to hear the appeal, then the copy of the Special Director’s order will be sent to the appellants and to the adjudication authority.
Appeal before the High Court
In case, if a person is disappointed with the respective decision of the Appellate Tribunal, then an appeal can be filed against the order of the Appellate Tribunal before the HC of the respective jurisdiction within 60 days from the date of passing of such order. However, this time period could be extended to another 60 days if the aggrieved person fails to file the appeal within the stipulated time period on believing the sufficient reason to do so.
Procedure and Powers provided to Appellate Tribunal and Special Directors
The provisions with respect to the powers and procedure of the Appellate Tribunal and the Special Director are provided under S.28 of the FEMA, 1999. According to the provisions of S.28, both the Appellate Tribunal as well as the Special Director is not bound to proceed as per CPC rather, the principle for their procedure and dealing way should be based upon the principle of natural justice and provisions of FEMA.
Further, any of the orders which are passed by these two authorities shall be considered as a decree of a civil court and both the authorities can transfer the order made by them to a civil court that has local jurisdiction and thus treat such order as a decree passed by that respective court.
The Power of Search and Seizure
The power of search and seizure upon the contravention of any rules, or order of provision is in the hands of the Director of Enforcement under S.37 of the Act. If any individual infringes any rule or order or provision under FEMA, then the Director of Enforcement or any other officer holding rank above the assistant director will inquire and investigate.
Apart from the Director of Enforcement, the central government can authorize any other person under the central government or RBI, or state government to hold such investigation and inquiry.
All About the Foreign Exchange Management Act, 1999
If there occurs a case where a person contravenes with the provisions, orders, or rules under FEMA, 1999, the person will be held liable for such contravention and will be invoked to pay desired fine which is thrice of the mentioned amount up to 2 Lakhs rupees under the Act. Where the infringement is continuing, then the penalty amount will be Rs. 5000 per day.
In case if the person fails to pay the full amount within 90 days from the date of serving of notice, he will be held liable for civil imprisonment.
In case an adjudication authority is adjudging the contravention and if it is found that the infringement has been done, the authority can direct the person liable for such contravention to confiscate the currency, security, money, or property to the central government for which such contravention has been done. If there are any foreign exchange holdings on part of the person doing contravention, they must be settled back to India or shall be retained in foreign as per the order made in this context.
Conclusion and Suggestions
The statute of FEMA solely permits the authorized person to deal with foreign exchange or security. The Act was brought as a replacement to have a flexible and liberal law relating to foreign exchange. Therefore, if a person seeks to establish a business in a foreign nation, he shall be complying with the provisions of FEMA. Lastly, it can be escaped that the enactment of FEMA has contributed to boosting the national economy with its flexible and worthy rules.
- FEMA-Reserve Bank of India. Reserve Bank of India. https://www.rbi.org.in/SCRIPTs/BS_FemaNotifications.aspx?Id=183.
- Foreign Exchange Management Act, 1999. https://legislative.gov.in/sites/default/files/A1999-42_0.pdf.
- Foreign Exchange Management Act, 1999. Byjus. https://byjus.com/free-ias-prep/foreign-exchange-management-act-fema/.
- Foreign Exchange Management Act. 07 December 2021. Clear tax. https://cleartax.in/s/fema-foreign-exchange-management-act.
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