Submitted to: Prof.

Ashfaq Ahmad Bhatti

Submitted by: Group no. 15
Asma Mumtaz (BC19-082)
Afifa Saeed (BC19-085)
Section: B (Morning)
Semester: 6th
Subject: Banking Law
Topic: Foreign Exchange Regulation Act,
1947 Report
Table Of Content:
➢ Introduction
➢ Background of FERA
➢ Objectives of Act
➢ Purpose of Act
➢ Sections
➢ Significance
➢ Faults in today implementation of law
➢ Conclusion
 FOREIGN EXCHANGE REGULATION
ACT,1947
Introduction
An Act to regulate certain payments, dealings in foreign exchange and
Securities and the import and export of currency and bullion.
Background of FERA
During the years 1914-18 many countries introduced various restrictions
on free export of their currencies. A system of exchange control was set
up in India in September,1939 soon after the outbreak of world war–II for
the purpose of conserving and directing best uses the limited supplies of
foreign exchange available. The provisions of the Act have been drafted
in such a manner that the degree of restriction on foreign exchange
transactions can be relaxed or increased by executive orders, either
generally or for particular foreign currencies in accordance with the need
of the trade and finance or international agreements thus ensuring that
flight capital or wild speculation which proved so injurious to foreign
trade in the period between two wars, can be immediately be controlled.
Pakistan inherited this Act at the time of its independence and it has been
modified from time to time. All foreign transactions involving foreign
exchange in Pakistan are thus regulated by the Foreign Exchange
Act,1947 as adopted by Pakistan.
Objectives of the act
All foreign exchange transactions are regulated under the provisions of
Foreign Exchange Regulations Act, 1947 and are controlled by the State
Bank of Pakistan. No exchange control measures can be effective or
successful without some sort of trade control. If export from a country
was not being monitored and imports were free and unrestricted, this will
lead to the deficiency of foreign currency resulting in balance of payment
deficit. The State Bank guides and facilitates the Authorized Dealers
through its F. E. Circulars etc. but Foreign Exchange Manual issued by
the SBP is the main source. This is the bible of bankers operating on the
foreign business in Pakistan.
Purpose of the Act
The Act was enforced on the 25th March,1947 vide Federal Government
Gazette, 1947, pt,1, p.362. The basic purpose of the Act is to regulate
international payments and receipts in order to Protect the economic
interest of the country. It is applicable to all foreign exchange transactions
in securities and bullion involving foreign exchange or non-residents,
rupee payments to or an account of non-residents and export and import
of gold and silver. The Act prohibits dealing in foreign exchange except
through Authorized Dealers and money changers. The State Bank has the
powers to authorize any person to deal in foreign exchange. The full
license is issued only to banks because these institutions are required, in
the normal course of business, to undertake all type of transactions.
Sections
This act has 27 sections.
Section 1 tells us about its short title, extent and commencement.

This Act may be called the foreign Exchange Regulation Act, 1947

It extends to the whole of Pakistan and applies to all citizens of Pakistan

and persons in the service of Government wherever they may be
It shall come into force on such date as the Central Government may, by
notification in the official Gazette, appoint in this behalf.
Section 2 describes few terms which are used in the Act
authorized dealer” means a person for the time being authorized under
section 3 to deal in foreign exchange;

“currency” includes all coins, currency notes, bank notes, postal notes,
money orders, cheques, drafts, traveler’s cheques, letters of credit, bills of
exchange and promissory notes;

“Foreign currency” means any currency other than Pakistan currency;

“Foreign exchange” means foreign currency

“Foreign security” means any security issued elsewhere than in Pakistan.

Section 3 talks about the Authorized dealers in foreign exchange. The
State Bank may, on application made to it in this behalf, authorize any
person to deal in foreign exchange.
The State Bank may, on application made to it in this behalf, and on
payment of a fee prescribed by it, from time to time, authorize any person
to deal in foreign currency notes and coins.

The State Bank may, on application made to it in this behalf, and on

payment of such fee as it may, from time to time prescribe, authorize any
company to deal in foreign currency notes, coins, postal notes, money
orders, bank drafts, travelers’ cheques and transfers.
Section 4 deals with restrictions on foreign exchange. Except with the
previous general or special permissions of the State Bank, no person
whether an authorized dealer or otherwise, shall enter into any transaction
which provides for the conversion of Pakistan currency into foreign
currency or foreign currency into Pakistan currency at rates of exchange
other than the rates for the time being authorized by the State Bank.
Nothing in this section shall be deemed to prevent a person from buying
from any post office, in accordance with any law or rules made thereunder
for the time being in force, any foreign exchange in the form of postal
orders or money orders.
Section 5 describes the restrictions on payments. Save as may be provided
in and in accordance with any general or special exemption from the
provisions of this sub-section which may be granted conditionally or
unconditionally by the State Bank, no person in, or resident in, Pakistan
shall make any payment to or for the credit of any person resident outside
Pakistan.
The making of any payment already authorized, either with foreign
exchange obtained from an authorized dealer under section 4 or with
foreign exchange retained by a person in pursuance of an authorization
granted by the State Bank.
Section 6 talks about the blocked accounts. The payment shall be made
to a blocked account in the name of the person in such manner as the State
Bank may by general or special order direct.
In this section “blocked account” means an account opened as a blocked
account at any office or branch in Pakistan of a bank authorised in this
behalf by the State Bank, or an account blocked, whether before or after
the commencement of this Act, by order of the State Bank.
Section 7 describes about Special accounts. Where in the opinion of the
Central government it is necessary or expedient to regulate payments due
to persons resident in any territory, the Central Government may, by
notification in the official gazette, direct that such payments or any class
of such payments shall be made only into an account (hereinafter referred
to as a special account) to be maintained for the purpose by the State Bank
or an authorised dealer specially authorised by the state Bank in the
behalf.
Section 8 is about restrictions on import and export of certain currency
and bullion. No person shall, except with the general or special permission
of the State Bank or the written permission of a person authorised in this
behalf by the State Bank, take or send out of Pakistan any gold, jewellery
or precious stones, or Pakistan currency notes, bank notes or foreign
exchange.
The Federal Government may, by notification in the official Gazette,
order that, subject to such exemptions, if any, as may be contained in the
notification, no person shall, except with the general or special permission
of the State Bank and on payment of the fee, if any, prescribed bring or
send into Pakistan any gold or silver or any currency notes or bank notes
or coin whether Pakistan or foreign.
Section 9 speaks abouts the Acquisition by central government of foreign
exchange. The Central Government may, by notification in the official
Gazette, order every person in, or resident in, Pakistan- --

who owns such foreign exchange as may be specified in the notification,

to offer it, or cause it to be offered for sale to the State Bank on behalf of
the Central Government or to such person, as the State Bank may
authorize for the purpose, at such price as the Central Government not less
than the market rate of the foreign exchange when it is offered for sale.
Group 10 declares about duty of persons entitled to receive foreign
exchange. No person who has a right to receive any foreign exchange or
to receive from a person resident outside Pakistan a payment in rupees
shall, except with the general or special permission of the State Bank, do
or refrain from doing any act with intent to secure that the receipt by him
of the whole or part of that foreign exchange or payment is delayed.
Where a person has failed to comply with the requirements of sub-section
(1) in relation to any foreign exchange or payment in rupees, the State
Bank may give to him such directions as appear to be expedient for the
purpose of securing the receipt of the foreign exchange or payment as the
case may be.
Section 11 clarifies about the power to regulate the uses of imported gold
and silver. The Central Government may, by notification in the official
Gazette, impose such conditions as it thinks necessary or expedient on the
use or disposal of or dealings in gold and silver prior to, or at the time of,
import into Pakistan.
Section 12 speaks about payment for exported good. The Central
government may, by notification in the official Gazette, prohibit the
export of any goods or class of goods specified in the notification from
Pakistan directly or indirectly to any place so specified unless a
declaration supported by such evidence as may be prescribed or so
specified, is furnished by the exporter to the prescribed authority that the
amount representing the full export value of the goods has been, or will
within the prescribed period be, paid in the prescribed manner
Where in relation to any such goods the value as stated in the invoice is
less than the amount which in the opinion of the State Bank represents the
full export value of those goods, the State Bank may issue an order
requiring the person holding the shipping documents to retain possession
thereof until such time as the exporter of the goods has made arrangements
for the State Bank or a person authorized by the State Bank to receive on
behalf of the exporter payment in the prescribed manner of an amount
which represents in the opinion of the State Bank the full export value of
the goods.
Section 13 is about the regulation of export and transfer of securities. No
person shall, except with the general or special permission of the State
Bank take or send any security to any place outside Pakistan.
Notwithstanding anything contained in any other law, no person shall,
except with the permission of the State Bank. The State Bank may, for the
purpose of securing that the provisions of this section are not evaded,
require that the person transferring any security and the person to whom
such security is transferred shall subscribe to a declaration that the
transferee is not resident outside Pakistan.
Section 14 speaks about the custody of securities. The federal government
may notification in official Gazette order every person by whom or whose
behalf security is held in Pakistan to cause the security to be kept in the
custody of an authorized depository. Except with the general or special
permission of State bank no person shall buy or transfer any security.
Section 15 is about restriction on issue of bearer securities. The federal
government may by notification in official gazette order that except with
the general special permission of the state bank no person shall in Pakistan
issue any bearer security or coupon.
Section 16 speaks about acquisition by federal government. Federal
government may order transfer of any foreign securities specified in the
notification at the price specified in the opinion of federal government to
itself.

Federal government may direct the owner of any foreign securities

specified in the notification to sell securities and thereafter to offer net
price specified in the opinion of federal government not less than market
rate of foreign exchange.
Section 17 is about restriction on settlement No person resident in
Pakistan shall except permission of state bank settle any property with
person who are at the time of settlement is resident outside the Pakistan.
A settlement shall not be invalid except it confers any benefit on any
person who at time of time of settlement is outside the Pakistan
Section 18 declares about certain provisions as to companies. Except with
the general or special permission of state bank, no person resident in
Pakistan shall do any act of company which is controlled by person
resident in Pakistan ceased to be so controlled. No person resident in
Pakistan shall lend any money or security to company which is controlled
by person outside the Pakistan
Section 19 is about power to call for information. The federal government
or state bank may at any time by notification in official gazette direct
owners to such expectation of foreign exchange or securities as may
specified in the notification.
The federal government may by writing require any person specified in
the order with any information document with his possession with federal
government.
Section 20 provides supplemental provisions. For the purpose of this act
and of any rules or direction made thereunder
State bank by general or special order direct any person who has been
resident in Pakistan at any time after commencement of this act shall be
treated as still being in Pakistan.

In case, any person resident in Pakistan who leave Pakistan state bank
may give direction to bank not to deal with the credit sum of that person
except permission of state bank.
Section 21 is about contract in evasion of this act. No person shall enter
into any contract which would directly or indirectly evade or avoid the
provision of this act.

Any provision of this act that a thing shall not be done without the
permission of federal government or state bank shall not render invalid
agreement by any person to do those things.
Section 22 gives information about false statements. No person shall give
any information or make any statement which he knows to be false or not
true in any material particular when making any declaration to any
authority under this act.
Section 23 is about penalty and procedures. Whoever contravenes with
any provision of this act shall be punishable with imprisonment for a term
which may extend to two years or with fine.
When the guilty of the offence under this act is a company; every director,
manager, secretary and other officers who are knowingly part of offence
shall also be guilty of same offence and liable to the same punishment.
Section 24 speaks about burden of proof. Where any person tried to
contravene any provision of this act which prohibits him from doing an
act without permission the burden of providing that he had the requisite
permission shall be upon him. The case in which proof of complicity of
person resident in Pakistan with person outside Pakistan, the burden of
proving that there was no complicity shall be on accused of offence.
Section 25 is about power to central government to give direction. Central
government may give direction to state bank from time to time to exercise
its function according to provision of this act.
Section 26 says about bar of legal proceedings. No suit or other legal
proceedings shall lie against any person for anything in good faith done
under this act.
Section 27 gives power to make rules. The central government may by
notification in official gazette make rules for carrying into effect the
provision of this act.
Significance of FERA
Foreign currency means currency other than local currency OR the
currency (i.e., money) of another country. We all know that earning of
foreign exchange by any country contributes to boost up the overall
volume of its economy which also enhances its foreign exchange reserves
and makes it stronger in the international market but sometimes due to
market failure or some bad intention of the importer / exporter the foreign
exchange cannot be repatriated. To avoid any apprehension in such
situations it is necessary to formulate certain rules & regulations with
regard to FX. Particularly countries like us where in current scenario wide
rooms are open for misuse of the same.
Faults in today implementation of FERA’47
The preamble to FERA’47 declares that it aims to “regulate certain
payments, dealings in foreign exchange and securities and the import
and export of currency and bullion”. Therefore, under FERA’47,

“the intention of the legislature is to punish the socio-economic

offenders and to regulate the foreign exchange in the country in the
interest of economic development of the country”.

“A perusal of the provisions of [FERA’47] makes clear that it controls

and regulates the payment and dealing in foreign exchange and security
which according to the preamble of [FERA’47] is necessary and

Expedient in the economic and financial interest of Pakistan. Such control

is necessary for the purposes of conserving and proper uses of the
limited supply of foreign exchange available to the country. Under
[FERA’47] only such persons are entitled to deal with the foreign
exchange who have been specifically authorised by the State Bank of
Pakistan and except with the permission of the State Bank of Pakistan no
person other than authorised dealer can buy,borrow, sell or lend or
exchange in foreign exchange; even any authorised dealer is not entitled
to enter into any transaction at the rate of exchange other than the rate
authroised by the State Bank. Therefore, the dealer also have to follow
the rates of exchange which is specified and fixed by the State Bank from
time to time. According to [FERA’47] if a person has acquired any
foreign exchange then he has to abide by the conditions on which it has
been provided to him and he is prohibited from using it in any other
manner and if it cannot be so used or the conditions cannot be
complied with such person shall immediately sell foreign exchange
to an authorised dealer at the rate fixed by the State Bank of
Pakistan for sale and purchase of foreign exchange.”
“Typically, countries that employ exchange controls are those
with weaker economies. These controls allow countries a greater degree
of economic stability by limiting the amount of exchange rate
volatility due to currency flows.”Unfortunately, Pakistan belongs
to the aforesaid group of countries.“Often, foreign exchange controls
result in the creation of black markets for foreign currencies, and
ultimately prove to be ineffective in stemming capital flight. While
foreign exchange controls may work in the short term, they can often
negatively impact national economies in the long term by hindering
international trade and preventing outside investment in the country
enacting the controls.”“Foreign exchange controls are various forms of
controls imposed by a government on the purchase/sale of foreign
currencies by residents or on the purchase/sale of local currency by
nonresidents. Such controls used to be common in most countries,
particularly poorer ones, until the 1990s when free trade and globalization
started a trend towards economic liberalization. Today, countries which
still impose exchange controls are the exception rather than the
rule.”Again, unfortunately, Pakistan’s foreign exchange control laws
fall within the exception that is defective.

Conclusion
Pakistan currently has a foreign exchange controls regime in the shape of
Foreign Exchange Regulation Act, 1947.In my humble view, FERA’47 is
faulty and needs to be replaced with a new law for effective liberalization
of forex market in Pakistan. The basic object of FERA’47, as a legacy
legislation of WWII, was to restrict outflow of foreign exchange.
However, in current times, with rapid developments in the field of trade,
commerce and communication and with modern technology the world
itself has become a global village and no country can prosper in isolation
of others. Presently there is an ongoing fierce competition among various
developed countries to attract foreign investment for the purpose of
development. In such a situation the importance of creating a liberal
environment to encourage inflow of foreign currency cannot be under
stated.