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Jamia Millia Islamia

NEW DELHI
Faculty of Law

PROJECT
Dealing and Holding of Foreign Exchange under FEMA, 1999
CORPORATE LAW- II

Submitted To – Dr. Qazi Mohammad Usman

Submitted By – Rahul Gupta
B.A.LL.B. (H) Regular, VII Semester
Batch Of- 2017-2022
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ACKNOWLEDGEMENT

Firstly, I would like to thank my subject teacher Dr. Kazi Mohammad Usman
who furnished me this golden opportunity to research on the topic – “Dealing
and Holding of Foreign Exchange under FEMA”. This assignment work
assigned to me has proved to be very fruitful in acquiring a deep understanding
and knowledge regarding the topic. Finally, I would like to thank my Parents,
who always supported and promoted my interest without whose constant
support and blessings this assignment would not have been completed.
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INDEX

1. Introduction
2. History of FEMA, 1999
3. Transition from FERA to FEMA
4. Foreign Exchange Management Act, 1999
5. Scope of FEMA, 1999
6. Regulation & Management of Foreign Exchange
7. Authorities under FEMA
8. Transaction Covered Under FEMA
9. Conclusion
10.Bibliography.
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INTRODUCTION

Have you ever thought why the government needs foreign currency when the people are still
residing in India? If a person is residing in India and wants to go abroad for the purpose of
the job, travelling, education, migration or any other reason requires foreign currency.
Similarly, if a person residing outside India and for similar purposes wants to come here then
the person requires Indian currency. If an Indian resident goes outside then i.e. outflow of the
foreign currency and the person visiting India then that is the inflow of the foreign currency.
To manage and balance this inflow and outflow of the foreign currency is the objective. RBI
is the governing authority for this management. For this reason, this Act is named as FEMA
1999.1

HISTORY OF FEMA, 1999

In the backdrop of acute shortage of Foreign Exchange in the country, the Foreign Exchange
Regulation Act of 1973 (FERA) was enacted. This legislation was passed by the Indian
Parliament by the government of Indira Gandhi but it came into force with effect from
January 1, 1974. FERA had a controversial 27 year stint during which many bosses of the
Indian Corporate world found themselves at the mercy of the Enforcement Directorate.

FERA imposed stringent regulations on certain kinds of payments. It dealt in foreign

exchange and securities and the transactions which had an indirect impact on the foreign
exchange and the import and export of currency. The purpose of the act, inter alia, was to
“regulate certain payments, dealings in foreign exchange and securities, transactions
indirectly affecting foreign exchange and the import and export of currency, for the
conservation of foreign exchange resources of the country”. It was repealed in 1999 by the
government of Atal Bihari Vajpayee and replaced by the Foreign Exchange Management
Act, which liberalized foreign exchange controls and restrictions on foreign investment.2

1
Foreign Exchange Management Act, 1999
2
https://www.lawctopus.com/academike/foreign-exchange-management-act-1999/
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FEMA had become the need of the hour since FERA had become incompatible with the pro-
liberalization policies of the Government of India. It brought a new management regime of
Foreign Exchange consistent with the emerging framework of the World Trade Organization
(WTO). It is another matter that the enactment of FEMA also brought with it the Prevention
of Money Laundering Act 2002, which came into effect from 1 July 2005.

Transition from FERA to FEMA

FERA deals with laws related to foreign exchange in India. The law was basically made to
manage foreign investments in India. But there was a general dislike for it for a variety of
reasons. FERA consisted of 80 complex sections. Also under FERA any offence was a
criminal one which included imprisonment. FERA 1973 gave enormous powers to the
Enforcement Directorate which enforced the law strictly and rigidly. Several complaints of
harassment and misuse of powers were lodged. However, FERA was administered
rigorously.

The factors leading to dismantlement of FERA, besides economic developments mentioned

above, are:
 The conscious decision to move away from a controlled and regulated regime to
a free and market-driven economy

 Creation of an environment conducive to development of free and competitive

market forces by amendment of several statutes resulting in removal or reduction
of procedural and legal hurdles;

 Positive outlook towards forex reserve and market forces, shifting emphasis from
regulation to management

FERA (Foreign Exchange Regulation Act) which was passed in 1947 was amended in 1973.
The new FERA came into force from 1974. The main objective was the conservation of
India’s Foreign Exchange reserves, judicious use of foreign exchange. FERA was repealed in
1998 and Foreign Exchange Management Act (FEMA) was enacted.

The need for FEMA was because of the two crucial factors. Primary among them were the
obligations under which India must move fast to make the rupee fully convertible on the
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capital account.3 That automatically made FERA redundant. Secondly, FERA was relevant
when there was an enormous flight of capital from forex-scarce India but on 1997 the forex
reserves were of $19 billion plus.

After the various reforms, FERA has become totally dysfunctional. FERA created a huge
black market in foreign exchange and capital inflows were perking up sufficiently to
neutralize the current account deficit. The rupee's hardening shows that there's a clear case for
going for capital account convertibility soon. The main aim of FEMA was to formulate a law
consistent with full rupee convertibility and progressive liberalization of capital account
transaction.

The inception of FEMA has proved to be a booster for productive investments as any
offences under the Act is treated only as civil offences whereas it was criminal offences
under FERA.

FOREIGN EXCHANGE MANAGEMENT ACT

The Foreign Exchange Management Act, 1999 was enacted 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.4 In fact it is the central legislation that deals with inbound investments into India and
outbound investments from India and trade and business between India and the other
countries.

 FEMA was enacted by Parliament of India and it came into force on 1st June, 2000. There
are a total of 49 Sections divided into 7 chapters. The reason for the replacement emerged
because it was not suitable for the prevailing environment and was harsh as it contained a
provision for imprisonment.

3
Article 8 of International Monetary Fund
4
 Objectives and Purpose, The Foreign Exchange Management Act, 1999.
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Objective of FEMA

The main objective of FEMA was to help facilitate external trade and payments in India. It
was also meant to help orderly development and maintenance of foreign exchange market in
India. It defines the procedures, formalities, dealings of all foreign exchange transactions in
India. These transactions are mainly classified under two categories -- Current Account
Transactions and Capital Account Transactions.

FEMA is applicable to all parts of India and was primarily formulated to utilize the foreign
exchange resources in efficient manner. It is also equally applicable to the offices and
agencies which are located outside India however is managed or owned by an Indian Citizen.
FEMA head office is known as Enforcement Directorate and is situated in heart of city of
Delhi.

Features of FEMA

1. FEMA does not apply to the Indian citizens who resides outside India. This criteria is
checked by the number of days a person stays in India for more than 182 days in the
preceding financial year.
2. Central Government has the authority given by FEMA to impose restrictions on and
supervise three things which are- payments made to any person outside India or
receipts from them, forex and foreign security deals.
3. It specified the areas for holding of forex that required specific permission of the
Reserve Bank of India (RBI) or the government. 
4. FEMA classified the transaction into a current and capital account.

Scope of FEMA
FEMA provides:

1. Free transactions on current account subject to reasonable restrictions that may be

imposed.

2. RBI controls over capital account transactions.

3. Control over realization of export proceeds.

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4. Dealing in foreign exchange through authorized persons like authorized dealer/money

changer/off shore banking unit.

5. Adjudication of Offences.

6. Appeal provision including Special Director (Appeals) and Appellate Tribunal.

REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE

Foreign Exchange refers to money denominated in the currency of another nation or group of
nations like Euro. Foreign exchange can be cash, funds available on credit cards and debit
cards, traveler’s checks, bank deposits, or other short-term claims. FEMA states that “foreign
exchange” means foreign currency and includes,5-

(i) deposits, credits and balances payable in any foreign currency,

(ii) drafts, traveler’ s cheques, letters of credit or bills of exchange, expressed or drawn in
Indian currency but payable in any foreign currency,

(iii) drafts, traveler’s cheques, letters of credit or bills of exchange drawn by banks,
institutions or persons outside India, but payable in Indian currency;

Dealing in foreign exchange6

 Save as otherwise provided in this Act, rules or regulations made thereunder, or with the
general or special permission of the Reserve Bank, no person shall—

(a)   Deal in or transfer any foreign exchange or foreign security to any person not being
an authorised person;
(b)   Make any payment to or for the credit of any person resident outside India in any
manner;

5
Section 2(n) of Foreign Exchange Management Act, 1999
6
Section 3 of Foreign Exchange Management Act, 1999
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(c)   Receive otherwise (than) through an authorised person, any payment by order or on
behalf of any person resident outside India in any manner;
  Explanation.—For the purpose of this clause, where any person in, or resident in,
India receives any payment by order or on behalf of any person resident outside
India through any other person (including an authorised person) without a
corresponding inward remittance from any place outside India, then, such person
shall be deemed to have received such payment otherwise than through an
authorised person;
(d)   Enter into any financial transaction in India as consideration for or in association
with acquisition or creation or transfer of a right to acquire, any asset outside India
by any person.
Explanation.—For the purpose of this clause, 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.

Holding of foreign exchange, etc.7

 Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own,
possess or transfer any foreign exchange, foreign security or any immovable property
situated outside India.

FEMA prohibits:

1. Dealing in or transfer of Foreign Exchange or Foreign Security to any person other

than Authorised Person
2. Make any payment otherwise through an authorized person to or for the credit of any
person resident outside India in any manner
3. Receive otherwise through an authorized person, any payment by order or on behalf
of any person resident outside India in any manner.

7
Section 4 of Foreign Exchange Management Act, 1999
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4. Enter into any financial transaction in India as consideration for or in association with
acquisition or creation or transfer of a right to acquire, any asset outside India by any
person

To whom it is applicable?

 It is applicable to the whole of India.

 Any branch, office, and agency, which is situated outside India, but it is owned or
controlled by a person resident in India. Any violation by these entities committed
outside India will be covered under this Act.

In general, FEMA includes three different types of categories and deals separately which
are:-

1. Person
2. A person resident in India
3. Person resident outside India

Person

For the object of the Act, a person includes 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,
 Any artificial judicial person not falling any of the preceding sub-clauses and,
 Any agency office or branch owned or controlled by such person.

Person resident in India 

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A person residing in India for more than 182 days during the course of a preceding
financial year but it does not include-

a) A person who has gone out of India or stays outside India, in any one of the cases-
 for taking up employment outside India, or 
 for carrying on outside India a business or vocation, or 
 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 any of the following cases-

 for taking up employment in India, or 

 for carrying on in India a business or vocation, or 
 for any other purpose, in such circumstances, as would indicate his intention to
stay in India for an uncertain period.

B. Any person or body corporate registered or incorporated in India.

C. An office, branch or agency in India owned or controlled by a person resident outside

India.

D. An office, branch or agency outside India owned or controlled by a person resident in

India.

Person resident outside India 

It means a person who is not an Indian resident or not a resident in Indian.

Foreign currency

It means any currency but other than Indian currency.

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Foreign Exchange

It means foreign currency and it also includes deposits, credits, and balances which are
payable in foreign currency. Also the drafts, travellers cheques, letters of credit or bills of
exchange which are expressed or drawn in Indian currency but is payable in any foreign
currency.

Also, the drafts, traveller’s cheques, letters of credit or bills of exchange drawn by banks, or
any institutions or person outside India but are payable in Indian currency.

Foreign Security

It means any security which is in the form of shares, stocks, bonds, debentures or any other
instrument denominated or expressed in foreign currency. It also includes foreign securities
which are denominated or expressed in foreign currency, but where the redemption or any
form of return on these securities such as interest or dividends should be payable in Indian
currency.

Authorised Person

Section 2(c) of this Act,8 defines Authorised person. An authorised person is a person who
has given the authority for the conversion of the foreign exchange.

For example, if an Indian resident wants to visit the USA and requires their currency which is
dollars so for the exchange he/she will only go to the authorised person or if a person residing
abroad wants to visit India and requires Indian currency then similarly he/she will approach
an authorised person for the foreign exchange.

The Reserve Bank on an application made on this behalf may authorise any person to deal in
foreign exchange or in foreign securities. So, an authorised person is governed under this
section which states 4 persons as an authorised person-

 Authorised dealer, or

8
Section 2(c) of Foreign Exchange Management Act, 1999
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 Money changer, or 

 Off-shore banking unit, or 
 Any other person for the time being authorised to deal in foreign exchange or
foreign securities under Section 10 (1) of FEMA.

Section 10 of the Act9

 Authorisation under this Section should be in writing and should be subjected to

the regulations mentioned in that. –
 Any authorised person made, the reserve bank at any time can revoke such person
if it is satisfied that-
 It is in the public interest to do so; or
 An authorised person has failed to comply with the conditions on the grounds for
which the authorisation was granted; or 
 The authorised person has violated any of the provisions, rules, regulations
mentioned in this Act.

The Reserve Bank may order an authorised person to comply with a general or special
direction to deal with the foreign exchange or foreign securities. 

And also if any transaction which involves any foreign exchange or foreign currency which is
not in compliance with the terms of this provision then an authorised person without any
prior permission from the Reserve Bank must not engage in any type of this transaction.

Before undertaking any transaction in foreign exchange on behalf of any person an authorised
person shall require the declaration or information of that person that the transaction is not
designed for the purpose of contravention of this Act, rule or regulation etc.

If the person refuses to undertake the declaration then an authorised person shall refuse in
writing to undertake the transaction and also if the authorised person believes that a person
contravenes the provision of the Act can report the matter to the Reserve Bank.

9
Section 10 of Foreign Exchange Management Act, 1999
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Other than the authorised person, if any person acquires or purchases the foreign exchange
and use it for any other purpose which is not permissible under the provisions of this Act or
does not surrender within a specified time to the authorised person shall be considered to
have committed the violation under the provisions of this Act.

AUTHORITIES AND ENFORCEMENT MACHINERY UNDER FEMA

FEMA in itself is not an independent and isolated law. The provisions of FEMA are spread at
different places and so are there regulatory bodies. Reserve Bank of India (RBI) makes
regulations for FEMA and the rules are made by Central Government.

Though RBI is the overall controlling authority in respect of FEMA, enforcement of FEMA
has been entrusted to a separate “Directorate of Enforcement” formed for this purpose.10

Authorities governing the enforcement of FEMA:

1. Enforcement Directorate – To investigate provisions of the Act, the Central

Government have established the Directorate of Enforcement with Director and other
officers as officers of the Enforcement. It is mainly concerned with the enforcement
of the provisions of the Foreign Exchange Management Act to prevent leakage of
foreign exchange which occurs through malpractices. Directorate has to detect cases
of violation and also perform substantial adjudicatory functions to curb malpractices.11

The Enforcement Directorate is an attached office of the Ministry of Finance, Department of

Revenue. Prior to 1st May, 1956, the responsibility for enforcement of exchange control laws
under FERA 1947 was discharged by the Investigation and Enforcement Section in the
Exchange Control Department of the R.B.I.

This Directorate is under the administrative control of the Department of Revenue for
operational purposes; the policy aspect of the Act and its legislation and its amendments are
however within the purview of the Department of Economic Affairs. The background of
keeping the policy aspects relating to the Act in the Department of Economic Affairs is that –

10
Section 36 of Foreign Exchange Management Act, 1999
11
Directorate of Enforcement, available at http://www.ceib.nic.in/ed.htm
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(i) The Department of Economic Affairs is more closely involved in the formulation of policy
responses at the macro level to the changing economic scenario; and

(ii) The Department of Economic Affairs coordinates with RBI in respect of trade and
invisible transactions and banking aspects of the Act.12
2. Adjudicating Authority – The adjudicating authority will issue a notice to the person
who has contravened the provisions of the Foreign Exchange Management Act,
Rules, and Regulations, Notifications or any directions issued by the RBI.13
3. Special Director (Appeals) – Any person aggrieved by an order made by the
Adjudicating Authority, being an Assistant Director of Enforcement or a Deputy
Director of Enforcement can prefer an appeal to the Special Director (Appeals).
4. Appellate Tribunal – Any person aggrieved by an order made by the Adjudicating
Authority, or the Special Director (Appeals) can prefer an appeal to the Appellate
Tribunal
5. Foreign Exchange Department of RBI (Earlier till 31.1.04, known as Exchange
Control Department) – The Foreign Exchange Department of the Reserve Bank
administers Foreign Exchange Management Act, 1999, (FEMA) which has replaced
the earlier Act , FERA, with effect from June 1, 2000. For purchase of foreign
exchange for most of the current account transaction, with exception of those listed in
Schedule III to the Government of India Notification G.S.R. No 381(E) dated May 3,
2000; no permission from the Reserve Bank is required. Extensive powers are
available to banks authorised to deal in foreign exchange, known as authorised
dealers. As a result, foreign exchange can be purchased for practically all transactions
which are of current account nature.
6. Foreign Investment Implementation Authority (FIIA) - Government of India has set
up the Foreign Investment Implementation Authority (FIIA) to facilitate quick
translation of Foreign Direct Investment (FDI) approvals into implementation, to
provide a pro-active one stop after care service to foreign investors by helping them
obtain necessary approvals, sort out operational problems and meet with various
Government agencies to find solution to their problems.14

12
Ibid
13
Foreign Exchange Market, Report on Currency and Finance available at
http://rbidocs.rbi.org.in/rdocs/publicationreport/pdfs/77577.pdf,
14
Foreign Investment Implementation Authority, available at http://dipp.nic.in/English/Investor/FIIA.aspx,
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7. Foreign Investment Promotion Board- The Foreign Investment Promotion Board

(FIPB) is a government body that offers a single window clearance for proposals on
Foreign Direct Investment (FDI) in India that are not allowed access through the
automatic route. FIPB comprises of Secretaries drawn from different ministries with
Secretary, Department of Economic Affairs, and MoF in the chair. 15 This inter-
ministerial body examines and discusses proposals for foreign investments in the
country for sectors with caps, sources and instruments that require approval under the
extant FDI Policy (prescribed vide Circular 1 of 2012)on a regular basis. The Minister
of Finance, considers the recommendations of the FIPB on proposals for foreign
investment up to 1200 crore. Proposals involving foreign investment of more
than 1200 crore require the approval of the Cabinet Committee on Economic Affairs
(CCEA).[7]
FIPB is mandated to play an important role in the administration and implementation of the
Government’s FDI policy. It has a strong record of actively encouraging the flow of FDI into
the country through speedy and transparent processing of applications, and providing on-line
clarification. In case of ambiguity or a conflict of interpretation, the FIPB has always stepped
in with an investor-friendly approach.

8. The Authority for Advance Rulings (AAR) pronounces rulings on the applications of
the non-resident/residents submitted in the prescribed form following prescribed
procedure and such rulings are binding both on the applicant and the income-tax
department.

TRANSACTIONS COVERED UNDER FEMA

As stated earlier all transactions between a resident and a non-resident is covered in FEMA,
these transaction can be broadly classified in two groups current account transactions and
capital account transactions.

1. Current Account Transactions

As per Sec 2 (e) “Capital account transaction” means a transaction which alters the assets or
liabilities, including contingent liabilities, outside India of persons resident in India or assetor

15
Foreign Investment Promotion Board, INDIA, available at  http://www.fipbindia.com/
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liabilities in India of persons resident outside India, and includes transactions referred to
in Sec 6(3). Any person may sell or draw foreign exchange to or from an authorized person if
such sale or drawl is a current account transaction.

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 required from
time to time.

The definition is inclusive and any expenditure which is not a capital account transaction will
be current account transaction. It includes:

 payments due in connection with foreign trade, other current business, services, and
short-term banking and credit facilities in the ordinary course of business
 payments due as interest on loans and as net income from investments
 remittances for living expenses of parents, spouse and children residing abroad, and
 expenses in connection with foreign travel, education and medical care of parents,
spouse and children.

The following transactions are therefore regarded as Capital Account Transaction.16

(a) Transfer or issue of any foreign security by a person resident in India;

(b) Transfer or issue of any security by a person resident outside India;

(c) Transfer or issue of any security or foreign security by any branch, office or
agency in India of a person resident outside India;

(d) Any borrowing or lending in foreign exchange in whatever form or by whatever

name called;

(e) 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;

16
Rajkumar S Adukia, Fathoming FEMA {Overview of Provisions of Foreign Exchange Management Act, 1999
(FEMA) and Rules and Regulations there under}, ICSI,A-418 November 2011 available
at http://www.icsi.edu/cs/November%202011/Articles/Fathoming%20FEMA%20%7BOverview ,
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(f) Deposits between persons resident in India and persons resident outside India;

(g) Export, import or holding of currency or currency notes;

(h) Transfer of immovable property outside India, other than a lease not exceeding
five years, by a person resident in India;

(i) Acquisition or transfer of immovable property in India, other than a lease not
exceeding five years, by a person resident outside India;

(j) 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 India; or

(ii) By a person resident outside India.

Though the norms of Capital Account Transactions have been considerably relaxed, as a
general rule all capital account are prohibited unless specifically allowed. Permissible capital
account transactions are governed by the Foreign Exchange Management (Permissible
Capital Account Transactions) Regulations, 2000

Release of Exchange for Travel

  The following do not require any approval from RBI:

 Up to USD 10,000 or equivalent in one financial year for one or more private visits
abroad (Nepal and Bhutan being exempted )
 up to USD 25,000 for business visits
 up to USD 1,00,000 for person going to abroad for employment, education (yearly)
and for medical Treatment.17

Business and Commercial Remittance Abroad

17
Ibid
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 Foreign Technology Agreements are permitted except in High Priority Industries

 Payment can be made on lump sum or Royalty based on sales or by issue of Equity
Shares after deducting TDS
 There are no limitations on royalty payment and payment of Technical Fees
 No collaboration permitted in Lottery, Gambling etc.18

1. Capital Account Transactions

Section 2 (j) of FEMA defines “capital account transaction” as 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
like:

 Changes in Assets/ Liabilities

 Transfer/ issue of security
 Borrowing/ Lending
 Export, import or holding of currency or currency notes
 Giving guarantee

As per the provisions laid down in Section 5, a person may sell or draw foreign exchange
freely for his current account transactions, except in a few cases where limits have been
prescribed The Central Government has the power to regulate current account transactions.
Unless the transaction is restricted, Foreign exchange can be drawn for the same. Current
Account transactions are governed by the Foreign Exchange Management (Current Account
Transactions) Rules, 2000

Drawl of foreign exchange for the following purposes are prohibited:

 A transaction specified in Schedule I.

 Travel to Nepal and/or Bhutan.
 Transaction with a person resident in Nepal or Bhutan.

Drawl means drawl of foreign exchange from an authorized person and includes opening of
Letter of credit or use of International Credit Card or International Debit Card or ATM Card

18
Ibid
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or any other thing by whatever name called which has the effect of creating foreign exchange
liability.19

Current Account Transactions are covered under the following:

 Transactions prohibited under Schedule I like Remittance of dividend by any

company to which the requirement of dividend balancing is applicable, Remittance
out of lottery winnings, Remittance of income from racing/riding, etc., Remittance for
purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes,
etc.
 Transactions that require prior approval of Government of India, mentioned
in Schedule II like Cultural Tours – Ministry of Human Resource Development
(Department of Education and Culture), Advertisement in foreign print media for the
purposes other than promotion of tourism, foreign investments and international
bidding (exceeding US$ 10,000) by a State Government and its Public Sector
Undertakings-Ministry of Finance, Department of Economic Affairs, Remittance of
Freight of vessel chartered by a PSU -Ministry of Surface Transport (Chartering
Wing) etc.
 Transactions that require prior approval of Reserve Bank of India, mentioned
in Schedule III like Release of exchange exceeding US $ 10,000 or its equivalent in
one financial year, for one or more private visits to any country (except Nepal and
Bhutan), Gift remittance exceeding US$ 5,000 per financial year per remitter/donor
other than resident individual etc.

19
What is Drawal, available at  http://www.wisegeek.com/what-is-drawal.htm
21 | P a g e

Conclusion

FEMA only permits an authorized person to deal in Foreign exchange or foreign security
(shares, stocks, bonds etc.). FEMA became the need of an hour to be replaced by an old act
which was FERA as FERA was stringent and FEMA is liberal and also more flexible than
FERA. 

Any person who wants to do business in a foreign country or to buy foreign securities he/she
needs an authorized person to do that and also to understand this Act in order to avoid
penalties and he/she should also be aware of the restrictions on it.

The main objective of FEMA was to consolidate and amend the laws relating to the foreign
exchange with the reason to facilitate the external trade and payments and for the
maintenance of the foreign exchange market in India. FEMA’s replacement with FERA to an
extent has boosted the Indian economy as it is flexible and also a civil offence in comparison
with FERA.

Also as per Section 3 of FEMA, all the current account transactions are free; however central
government at any time could impose reasonable instructions by issuing special rules. As per
Section 6 of FEMA, Capital Account Transactions are permitted only to the extent as
specified by RBI in its issued regulations. As per Section 10 of FEMA, RBI have controlling
role in its management however RBI cannot directly handle foreign exchange transaction and
22 | P a g e

must authorize a person to deal with it as per directions set by RBI. FEMA also have
provisions of various enforcement, penalties, adjudication and appeals in this area.

Bibliography

Books referred

1. Avtar Singh: Company Law, Eastern Book Company, Lucknow

2. J.P. Sharma: Corporate Laws, Ane Books Pvt. Ltd, New Delhi

References

 http://www.caaa.in/Image/fema2011.pdf
 https://keydifferences.com/difference-between-fera-and-fema.html
 http://www.yourarticlelibrary.com/economics/foreign-exchange/fema-provisions-of-
foreign-exchange-management-act/39542
 https://www.vakilno1.com/bareacts/fema/fema.html
23 | P a g e

 http://www.enforcementdirectorate.gov.in/ForeignExchangeManagementAct1999.pdf
?p1=117211488412800030
 http://legislative.gov.in/sites/default/files/A1999-42_0.pdf
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