The lndian

government of free India legislated FERA in 1947.

The basic objectives of FERA 1947 were to
regulate and con-
trol (a) busines activities of
foreign companies; (b) the flow of
foreign capital, technology and managerial enterprises; and
(c) foreign collaborations. FERA 1973 was promulgated in 1973,
and it came into effect on 1 January, 1974. The main provisions
of FERA (Amendment) Act of 1973 were as follows (i) All
foreign companies that sought approval under FERA had to con-
vert themselves into Indian companies; (ii) A minimum of 74 per
cent of shareholding by foreign principals would be permitted
only in case of companies that produced (a) certain specified items
listed in the Industrial Policy of 1973; (b) primarily export-oriented
commodities; (c) goods employing state-of-the-art technology:
and (d) tea; (ii) If it is a 100 per cent
export-oriented company.
a foreign shareholding exceeding 74 per cent might be
permit
ted, the decision being based on merit in each case; (iv) A foreign
shareholding of 40 per cent would be permitted in case of compa-
nies engaged in the production of items other than those listed in
the Industrial Policy of 1973, trading. consultancy and plantation
companies other than those that produce tea; (v) In case of air-
lines and shipping companies, the extent of foreign shareholding
would be determined on a reciprocal basis; (vi) In case of banking
companies, the extent of foreign shareholding will be determined
based on the guidelines issued by the Reserve Bank of India and
the Banking Department.
FERA was a highly restrictive legislation. (i) the RBI was the
sole
authority to regulate foreign exchange transactions;
(ii) Section
9 imposed certain restrictions on payments; (iii) Restriction
on
import and export of certain currency and bullion: The Act laid
down that except with the approval of the RBI, no
person can bring
or send into India any foreign
exchange or any Indian currency
other than foreign exchange obtained by him from an authorized
dealer or from a money-changer; (iv) Duty of persons entitled to
receive foreign exchange: The Act stipulated that no person who
has a right to receive any foreign exchange or to receive from a
person resident outside India a payment in rupees shail, except
with the permission of the RBI, do anything which has the effect
of securing (a) that the receipt by him of the whole or part of that
foreign exchange or payment is delayed, or (b) that the foreign
exchange or payment ceases in whole or in part to be receivable by
him; (v) the Central Government may, by notification in the official
Gazette, prohibit the export of goods from India to any place so
specified unless the exporter furnishes to the prescribed authority a
declaration in the prescribed form all particulars relating to the full
affirms in the said declaration that; (vi)
export value of goods and
of and transfer of securities; (vii) Restrictions
Regulation export
on holding of immovable property
outside India; (viii) Restriction

on acquisition, holding, etc.

of immovable property in lndia; (ix)
certain persons and companies as
Restrictions on appointment of
management advisers in India; (x) Restric-
agents or technical or

establishment of place of business in India; and (xi) Prior

tions on
nationals of foreign states for taking up
permission necessary by
cmployment in India.
nacution: The
Provisions relating to enforcement, penalty and
prosecution: The
Central Government may, at any time by notification, direct the
Owners to submit returns regarding their transactions in foreign
exchange or foreign securities or immovable properties outside
india.
Fenaity, adjudication and appeal: Section 50 stipulates that if any
erSOn contravenes
any of the provisions of the Act orofany rule.
direction order made thereunder, he shall be liable to such pen-
or

alty not exceeding five times the amount or value involved in any
Such contravention or INR 5,000, whichever is more.

Oifences and prosecutions: Section 56 stipulates that it any person

Contravenes the provisions of the Act, he shall, upon conviction by
d
Court, be punishable: (i) in the case of an ofence the amount or
 value involved in which exceeds INR 100,000, with imprisonment
ranging from 6 months up to 7 years and with fine; (ii) in any other
case. with imprisonment extending to 3 years or with fine or with
both. Section 57 laid down that if a person fails to comply with
such directions or orders, he shall, upon conviction by a court,
be punishable with imprisonment for up to 2 years or with fine or
with both.
FERA with its sweeping and restrictive provision came under
severe criticism. FERA, 1973 was considered a piece of draconian
legislation because of the enormous powers that were vested with
the Enforcement Directorate. 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 they proved themselves innocent whereas under other
laws, a person is presumed innocent unless he is proven guilty.

FEMA, 1999 has repealed the FERA, 1973. The Act came into
force with effect from 1 June, 2000. FEMA has twin objectives
(i) to facilitate external trade and payments and (ii) to promote the
orderly development and maintenance of foreign exchange market
in India.
 If anybody contravenes any
provision of FEMA, (i) such person
shall be liable to penalty up to fwice the sum involved in
such
contravention: (ii) An Appellate Tribunal for Foreign
Exchange
shall be established by the Central Government to hear
appeals
against the orders of the adjudicating authorities; (iii) If anybody
does not make full payment of the penalty he shall be liable for
civil imprisonment; (iv) the Act
empowers the Central Govem-
ment to suspend or relax, either for a
specific period or indefi-
nitely the operation of all or any of the provisions of FEMA. The
Directorate of Enforcement shall investigate to prevent leakage
of foreign exchange which generally occurs through
malpractices.
The Directorate of Enforcement has to detect cases of violation
and also perform substantially adjudicatory functions to curb mal-
practices. The main functions of the Delhi-based Directorate are
colecting and collating intelligence in respect of violation of the
provisions of FEMA; Seizing ineriminating materials: Enquiring
into and investigating suspected violations of provisions of the
FEMA; Adjudicating cases of violations of FEMA and collecting
the penalties imposed in departmental adjudication.