DBB2101: Legal and Regulatory Framework Manipal University Jaipur (MUJ)

BACHELOR OF BUSINESS
ADMINISTRATION
SEMESTER 3

DBB2101
LEGAL AND REGULATORY
FRAMEWORK

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DBB2101: Legal and Regulatory Framework Manipal University Jaipur (MUJ)

Unit 9
Foreign Exchange Management Act, 1999
Table of Contents

SL Topic Fig No / Table SAQ / Page No

No / Graph Activity
1 Introduction
3
1.1 Objectives
2 Difference between FERA and FEMA 1 4-7
3 Scope of FEMA 2 8 - 11
4 Salient Features and Provisions of FEMA 3 12 - 17
4.1 Salient features of the Foreign
Exchange Management Act(FEMA)
4.2 Main provisions of the Foreign
exchange Management Act
4.3 Power to make rules
4.4 Power to make regulations
5 Offences under FEMA 4 18 - 20
5.1 Functions of Directorate of
Enforcement
5.2 Procedural Provisions
6 Summary 21
7 Glossary
8 Terminal Questions 22
9 Answers 22 - 23

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1. INTRODUCTION

In this unit, you will become familiar with the scope, main provisions and salient features of
FEMA and also learn about the provisions for imposition of penalties in case of contravention
of any part of the Act. The unit will also dwell on how FEMA differs from FERA.

1.1 Objectives:

After studying this unit, you should be able to:

❖ Describe the scope of the FEMA

❖ Define the salient features of the FEMA
❖ List the crimes and offences under FEMA

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2. DIFFERENCE BETWEEN FERA AND FEMA

Foreign Exchange Management Act, 1999 (FEMA) came into existence as a replacement for
the Foreign Exchange Regulation Act, 1973 (FERA) and came into force on the 1st of June,
2000. The new Act was brought into force because it was felt that FERA no longer addressed
all the issues related to foreign exchange, especially in light of the significant changes that
had taken place in the post-liberalization economic scenario. Extensive economic reforms
were undertaken in India in the early 1990s and this led to the deregulation and
liberalization of the country's economy. FEMA was thus enacted in order to be compatible
with the pro-liberalization economic policies of the Indian government.

The major changes in the economic scenario of the country were:

i) Large increase in the country’s foreign exchange reserves

ii) Substantial growth in foreign trade
iii) Rationalization of tariffs
iv) Current account convertibility
v) Liberalization of Indian investments abroad
vi) Enhanced access to external commercial borrowings by Indian corporate houses
vii) Active and significant participation of foreign institutional investors in Indian stock
market

In light of these changes, the Parliament decided to bring in a fresh Act relating to foreign
exchange which would be more appropriate for the post-liberalization economic and
business environment. The objective was to facilitate external trade, ease receipts and
payments pertaining to international trade and promote orderly and fully organized foreign
exchange markets. Therefore, the Foreign Exchange Management Act, 1999 was brought into
effect on 1st June, 2000 to replace the Foreign Exchange Regulation Act, 1973 (FERA).

FERA had 81 sections (some of which were deleted by the 1993 amendment), out of which
32 sections were related to the operational part and the balance dealt with Penalties,
Enforcement Directorate, etc. FEMA has 49 sections divided into seven chapters. FERA
sought to 'control' foreign exchange transactions whereas FEMA seeks to 'regulate' and
'manage' such transactions. FERA prohibited all foreign exchange transactions unless there

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was a general or specific permission. All such transactions were subject to conditions as
specified. Under FEMA, however, all current account transactions are permissible. Thus,
FEMA has a more positive thrust.

An offence under FERA attracted criminal proceedings, whereas the offence under FEMA is
considered as one of a civil nature. The maximum penalty imposable under FEMA is thrice
the sum involved whereas it was five times under FERA. However, if the contravention
amount is not quantifiable the penalty is two lakhs of rupees, and Rs. 5,000/- per day from
the second day onwards in case the contravention continues beyond one day. The
government, in consultation with the Reserve Bank of India (RBI), has reviewed the
procedures for compounding of contravention under FEMA 1999 vide its Circular 31 dated
01.02.2005. This has been done to provide comfort to the citizens and corporate community
by minimizing the transaction costs while taking a severe view of the willful, mala-fide and
fraudulent transactions. Accordingly, the responsibility of compounding contraventions has
been vested with RBI in all cases except Hawala transactions which continue to be dealt with
by the Directorate of Enforcement.

Under FEMA, compounding of offences allows the offender to settle an offence through the
imposition of a monetary penalty without going in for litigation after the admission of the
contravention by such contravener. The RBI has laid down a proper procedure for
compounding and has issued instructions to the authorized dealers to operate as per the
revised procedures for compounding contraventions. Once a contravention has been
compounded by a compounding authority, no proceeding can be further initiated against the
contravener. Under FERA there is a presumption of the existence of guilt unless the accused
person proves otherwise. Under FEMA, it is for the prosecution to prove that a person has
committed the offence.

Section 35 of FERA empowered the Enforcement Officers to arrest a person, if they had
reasons to believe that the person was guilty of FERA violations. FEMA provides such power
of arrest only if penalty levied under Section 13 of FEMA is not paid by the guilty party within
the given time. The objectives of FERA were:

i) control of certain payments.

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ii) dealings in foreign exchange and securities.

iii) transactions indirectly affecting foreign exchange.
iv) import and export of currency for the conservation of the foreign exchange resources
of the country.
v) proper utilisation of foreign exchange in the interests of the economic development of
the country.

The objectives of FEMA are:

i) to regulate and manage foreign exchange transactions.

ii) to consolidate and amend the law relating to foreign exchange.
iii) to facilitate the external, trade receipts and payments pertaining thereto.
iv) to promote the orderly development and maintenance of the foreign exchange (forex)
market in India.

The following table illustrates the major points of difference between FERA and FEMA:

FERA FEMA
Complex Simple
Terms like ‘current account transaction’, Terms like ‘ current account transaction’,
‘person’, etc. were not defined. ‘person’, etc. are clearly defined.
Definition of ‘ authorized person’ was Definition of ‘authorized person’ has been
narrow expanded
Definition of ‘resident’ was different from Definition of ‘resident’ is similar to that
that contained in the Income Tax Act contained in the Income Tax Act
Contravention was a criminal offence Contravention is a civil offence
FERA sought to 'control' foreign FEMA seeks to 'regulate' and 'manage'such
exchange transactions transactions
Police had wide powers to search and Powers of the police has been
seize considerably decreased

Transition from FERA to FEMA

A cut-off period of two years was stipulated for transition from FERA to FEMA, which means
that cases in which proceedings had already begun under FERA, will continue to be governed
by it. It was laid down that all such cases be disposed of within the period of two years from
the date of enforcement of FEMA, after which time they would become invalid under FERA.

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Self-assessment questions - 1

Match the following:

Foreign Exchange ManagementAct, It is a civil offence under FEMA

1999 (FEMA)
Foreign Exchange Management Act came into force on the 1st of June,2000
was formulated to be compatible with

RBI may prescribe reasonable FEMA seeks to 'regulate' and

restrictions 'manage' such transactions
Contravention was a criminal The pro-liberalisation economic
offence in FERA whereas policies of the Indian government
FERA sought to 'control' foreign For current account transactions
exchange transactions whereas

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3. SCOPE OF FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)

The Foreign Exchange Management Act (FEMA) is applicable to the whole of India. Agencies,
branches and offices outside India, that are owned by persons residing in India also fall under
the jurisdiction of this Act. The Act also extends to all disputes that are committed in offices,
agencies and branches outside India if such offices, agencies and branches are owned by
individuals covered by this Act. Any contravention of the provisions of the law committed
outside India shall attract action under the Act.

As per the provisions of the Act the term ‘person’ includes:

• an individual
• a Hindu undivided family
• a company
• a firm, an association of persons or body of individuals, incorporated or otherwise

A ‘resident in India’ means a person residing in India for more than 182 days, during the
course of the preceding financial year. This definition, however, does not include a person
who has gone out of India, or who conducts a business or vocation, outside India. Similarly,
any person or corporate body registered in India and an office/branch/agency in India,
owned or controlled by a resident outside India is considered as a resident.

The head-office of FEMA is known as Enforcement Directorate and has its Headquarters in
New Delhi. It is headed by a Director. It has seven zonal offices at Mumbai, Kolkata, Delhi,
Jalandhar, Chennai, Ahmedabad and Bengaluru. The zonal offices are headed by the Deputy
Directors. The Directorate has nine sub-zonal offices at Agra, Jaipur, Goa, Srinagar,
Varanasi, Trivandrum, Calicut, Hyderabad and Guwahati, which are headed by the Assistant
Directors. The Directorate also has 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 Reserve Bank of India (RBI) has also been granted wide
ranging powers for ensuring the implementations of Foreign Exchange Management Act
(FEMA).

Except with the general or special permission of the Reserve Bank of India, no person can:

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• deal in or transfer any foreign exchange or foreign security to any person if he is not an
authorized person.
• make any payment to or for the credit of any person resident outside India in any
manner.
• receive otherwise than through an authorized person, any payment by order or on
behalf of any person resident outside India in any manner.
• RBI may also prescribe reasonable restrictions for current account transactions.

However, 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:

• 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.
• deposits between persons resident in India and persons resident outside India.
• export, import or holding of currency or currency notes.
• transfer of immovable property outside India, other than a lease not exceeding five
years, by a person resident in India.
• acquisition or transfer of immovable property in India, other than a lease not exceeding
five years, by a person resident outside India.
• giving of a guarantee or surety in respect of any debt, obligation or other liability
incurred by:
i) a person resident in India and owed to a person resident outside India or
ii) a person resident outside India

A person, resident in India may hold, own, transfer or invest in foreign currency, foreign
security or any immovable property situated outside India if these were acquired, held or
owned by him when he was resident outside India. He may also hold, own, transfer or invest
any foreign currency, foreign security or immovable property situated outside India that he
has 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

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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:

• furnish a declaration in the specified form or manner to the Reserve Bank containing
true and correct material particulars, including the amount representing the full export
or if the full export value of the goods is not ascertainable at the time of export, the
value which the exporter, having regard to the prevailing market conditions, expects to
receive on the sale of the goods in a market outside India.
• furnish to the Reserve Bank such other information as may be required by the Reserve
Bank for the purpose of ensuring the realization of the export proceeds by such
exporter.

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 may determine, having regard to the
prevailing market conditions, is received without any delay, direct any exporter to comply
with such requirements as it deems fit.

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Self-assessment questions – 2

Fill in the blanks with suitable words:

6. The Foreign Exchange Management Act (FEMA) is applicable to the_________.

7. Agencies, branches and offices outside India that are owned by persons residing
in India also fall under the jurisdiction of ___________ .
8. A person ‘resident in India’ means a person residing in India for more than
_________days, during the course of the preceding financial year.
9. The head-office of FEMA is known as ___________ .
10. The Act extends to all disputes that are committed in_____________ ,and outside
_____________India if they are owned by individuals covered by FEMA.

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4. SALIENT FEATURES AND PROVISION OF FEMA

The main thrust of the Foreign Exchange Management Act was revising and uniting all the
laws that related to foreign exchange, promoting foreign payments and trade in the country
and encouraging the orderly maintenance and development of the foreign exchange market
in India. The term ‘foreign exchange’ means foreign currency. The following are considered
as foreign currency:

a) deposits, credits and balances payable in any foreign currency;

b) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in
Indian currency but payable in any foreign currency; and
c) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks,
institutions or persons outside India, but payable in Indian currency.

4.1 Salient features of FEMA

The salient features of FEMA are as follows:

• It is aimed at facilitating trade rather than preventing misuse of foreign exchange.

• It clearly defines capital and current account transaction. This has been done in
anticipation of the possibility of introduction of capital account convertibility in the
near future.
• All current account transactions are allowed (subject to reasonable restrictions).
• RBI is empowered to classify the capital account transactions that are to be permitted
and to regulate transfer and issue of foreign securities by a resident in or outside India.
• It allows and regulates the setting up of branches or offices by foreign companies in
India.
• It has simplified all key sections relating to dealings, holding and payments in foreign
exchange and exports.
• FEMA has liberalised all enforcement provisions, and has thus put more trust in the
persons and entities covered under it.

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4.2 Main provisions of FEMA

i) Regulation and management of foreign exchange: FEMA contains provisions and

restrictions for the regulation and management of foreign exchange. It lays down that
all transactions in foreign exchange can be carried out through an authorized person
only. Likewise, no person can make any payment to or for the credit of any person
residing outside India in any manner nor receive any payment by order or on behalf of
any person, resident outside India, except through an authorized person.
ii) Holding or possessing foreign exchange by an Indian resident: The Act stipulates
that acquisition holding/owning/possessing or transferring foreign exchange, or any
immovable property, situated outside India can be done only with the approval of RBI.
iii) Current account transactions: Any person may sell or draw foreign exchange, if such
sale or withdrawal is a transaction vis-a-vis a current account. However, the Centre is
empowered to impose reasonable restrictions on current account transactions. ‘Capital
account transaction’ means a transaction that halters the assets or liabilities, including
contingent liabilities, outside India of persons resident in India or assets and liabilities
in India of persons resident outside India. ‘Current account transaction’ is a transaction
other than capital account transaction. Such transactions include payments due in
connection with foreign trade, remittance for living expenses of parents, spouse and
children living abroad, expenses in connection with foreign travel, etc.
iv) Authorized person: An authorized person is an authorized dealer, money changer, off-
shore banking unit or any other person authorized to deal in foreign exchange or
foreign securities.
v) Appointment of an authorized person: The RBI can appoint a person to be known as
an authorized person to deal in foreign exchange or foreign securities. An order
appointing the authorized person has to be in writing. Such an order is always subject
to the necessary conditions imposed therein.
vi) Revocation of the appointment of an authorized person: The authorization granted
by the RBI can be revoked on the grounds of public interest, or if the authorized person
has failed to comply with the conditions stipulated in the order or if he has contravened
any provisions of the Act, rules and regulation.

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vii) Duties and obligations of an authorized person: The Act stipulates that an
authorized person shall, in all his dealings in foreign exchange or foreign security,
comply with the RBI, directions/orders, and shall not engage in any transactions
involving foreign exchange without proper authorization. Before undertaking any
transaction in foreign exchange on behalf of any person, a declaration and information
have to be taken from that person to the effect that the transaction will not contravene
or evade the Act's provisions. If such information or declaration is not given to the
authorized person, the transaction can be refused. Under such circumstances, the RBI
needs to be notified.
viii) RBI's role in capital account transactions: Though any person may sell or draw
foreign exchange to or from an authorized person for a capital transaction, the RBI in
consultation with the Centre, can specify:
• Any class/classes of capital account transactions which are permissible.
• The limit for foreign exchange admissible for such transactions.
However, the RBI cannot impose any restrictions on the withdrawal of foreign
exchange for payments due on account of loans or depreciation of direct investments,
in the ordinary course of business.
ix) Rights of Indian residents owning immovable property or holding currency
outside India: Indian residents, in terms of the Act, can transfer or invest in foreign
currency, foreign security or any immovable property outside India, if acquired by the
persons when they were residing outside India.
x) Rights of a person resident outside India regarding owning, holding and
transferring immovable property: The Act permits residents outside India to hold,
transfer or invest in Indian currency or any immovable property in India. But such
currency should have been acquired by the person when he was resident in India or
inherited from a person who was resident in India.
xi) Other powers of the RBI as per FEMA: Apart from the powers mentioned above the
RBI also enjoys the powers to prohibit, restrict or regulate the following:
• Transfer or issue of any foreign security by a resident of India and by a person
residing outside India.

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• Transfer or issue of any security or foreign security by any branch, office or agency in
India owned by a person outside India.
• Any borrowing or lending in foreign exchange.
• Any borrowing or lending in rupees, between a resident in India and a person outside
India.
• Deposits between residents in India and residents outside India.
• Export, import or holding of currency or currency notes.
• Transfer of immovable property outside India other than a lease not exceeding five
years, by a person resident in India.
• Acquisition or transfer of immovable property in India, other than a lease by a person
resident outside India.
• Giving guarantee or surety in respect of any debt obligation or other liability incurred
by a person resident in India to a person outside India and vice-versa.

4.3 Power to make rules

Section 46 of FEMA empowers the Central Government, by notification, to make necessary

rules to carry out the provisions of the Act. Such rules may pertain to the following:

• imposition of reasonable restrictions on current account transactions.

• manner in which the contravention may be compounded.
• manner of holding an inquiry by the Adjudicating Authority.
• form of appeal and fee for filing such appeal.
• salary and allowances payable to and other terms and conditions of service of the
Chairperson and other Members of the Appellate Tribunal and the Special Director
(Appeals).
• salaries and allowances and other conditions of service of the officers and employees
of the Appellate Tribunal and the office of the Special Director (Appeals).
• additional matters in respect of which the Appellate Tribunal and the Special Director
(Appeals) may exercise the powers of a civil court.
• authority or person who may authenticate a document and the manner in which it may
be authenticated.

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• any other matter which is required to be or may be prescribed.

4.4 Power to make regulations

Section 47 of FEMA empowers the Reserve Bank of India, by notification, to make regulations
to carry out the provisions of this Act and the rules there under. Such regulations may
provide for permissible classes of capital account transactions, limits of admissibility of
foreign exchange for such transactions, and the prohibition, restriction or regulation of
certain capital account transactions;

• manner and form in which declaration is to be furnished.

• period within which and the manner of repatriation of foreign exchange.
• limit up to which any person may possess foreign currency or foreign coins.
• class of persons and limit up to which a foreign currency account may be held or
operated.
• limit up to which foreign exchange acquired may be exempted.
• limit up to which foreign exchange acquired may be retained.
• any other matter which is required to be or may be specified.

The central government and Reserve Bank have, by various notifications, issued rules and
regulations in order to implement the provisions of the FEMA.

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Self-assessment questions – 3

State whether the following statements are correct or incorrect:

11. The term ‘foreign exchange’ means foreign currency and includes deposits,
credits and balances payable in any foreign currency only.
12. FEMA is aimed at facilitating trade rather than preventing misuse of foreign
exchange.
13. FEMA lays down that all transactions in foreign exchange can be carried out
through an authorized person only.
14. The court appoints a person to be known as an authorized person, to deal in
foreign exchange or foreign securities.
15. FEMA empowers the central government to make necessary rules and the
Reserve Bank of India to make necessary regulations to carry out the provisions
of the Act.

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5. OFFENCES UNDER FEMA

FEMA clearly defines the Acts that can be termed as offences under its purview. It is the duty
of the Directorate of Enforcement to investigate and prevent leakage of foreign exchange
which generally occurs through the following malpractices:

• Remittances of Indians abroad otherwise than through normal banking channels, i.e.,
through compensatory payments.
• Acquisition of foreign currency illegally by person in India.
• Non-repatriation of the proceeds of the exported goods.
• Unauthorized maintenance of accounts in foreign countries.
• Under-invoicing of exports and over-invoicing of imports and any other type of invoice
manipulation.
• Siphoning off of foreign exchange against fictitious and bogus imports.
• Illegal acquisition of foreign exchange through Hawala.
• Secreting of commission abroad.

If any person commits any such offence or contravenes any provision of FEMA, or
contravenes any rule, 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 of India, he shall, upon adjudication, be liable to a penalty up to
thrice the sum involved in such contravention where such amount is quantifiable. In case of
unquantifiable sums he is liable to pay up to two lakh rupees, 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.

In addition to the above-mentioned penalties, an Adjudicating Authority may direct that any
currency, security or any other money or property in respect of which the contravention has
taken place 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,
be brought back into India or be retained outside India in accordance with the directions
made in this behalf. If any person fails to make full payment of the penalty imposed on him

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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.

5.1 Functions of directorate of enforcement

The Directorate of Enforcement has to detect cases of violation and also perform substantial
adjudicatory functions to curb the above-mentioned malpractices. The main functions of the
Directorate are as under:

• To collect and develop intelligence relating to violation of the provisions of FEMA.

• To conduct searches of suspected persons, conveyances and premises for seizing
incriminating materials (including Indian and foreign currencies involved).
• To enquire into and investigate suspected violations of the provisions of FEMA.
• To adjudicate cases of violations of FEMA for levying penalties departmentally and also
for confiscating the amounts involved in contraventions.
• To realize the penalties imposed in departmental adjudication.

5.2 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 may perform the following functions:

• Collection and development of intelligence/information.

• Keeping surveillance over suspects.
• Searches of persons/vehicles by provisions of Income Tax Act, 1961.
• Searches of premises as per provisions of Income Tax Act, 1961.
• Summoning of persons for giving evidence and production of documents as per
provisions of IncomeTax Act, 1961.
• Power to examine persons as per provisions of Income Tax Act,1961.
• Power to call for any information/document as per provisions of Income Tax Act, 1961.
• Power to seize documents, etc. as per provisions of Income Tax Act, 1961.
• Custody of documents as per Income Tax Act, 1961.

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Adjudication and Appeals: Officers of and above the rank of Deputy Director of
Enforcement are authorized to deal with cases of contravention of the provisions of the Act.
These proceedings are quasi-judicial in nature and start with the issuance of show cause
notice. In case the reply to the show cause notice is not found to be satisfactory, further
proceedings are held. The offender is summoned for a personal hearing, in which the noticee
has a further right to present his defense, either in person or through any authorized
representative.

After the completion of these proceedings, the adjudicating authority has to examine and
consider the evidence on record, in its entirety. If the charges are not proved, the noticee is
acquitted, and in the event of charges being found substantiated, such penalty, as is
considered appropriate as per the provisions of FEMA are imposed, besides confiscation of
amounts involved in these contraventions.

Self-assessment questions – 4

16. One of the offences under FEMA is_____________________.

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6. SUMMARY

• Foreign Exchange Management Act, 1999 (FEMA) came into existence as a replacement
for the Foreign Exchange Regulation Act, 1973 (FERA) and came into force on the 1st of
June, 2000.
• FEMA is quite different from FERA in its provisions. FERA was full of complexities
whereas FEMA has been simplified.
• FEMA has a wide scope. It is applicable to the whole of India. The Reserve Bank of India
(RBI) has been granted a lot of power for ensuring the implementations of Foreign
Exchange Management Act (FEMA).
• The main thrust of the Foreign Exchange Management Act was revising and uniting all
the laws that related to foreign exchange, promoting foreign payments and trade in the
country and encouraging the orderly maintenance and development of the foreign
exchange market in India.
• FEMA clearly defines the Acts that can be termed as offences under its purview.

7. GLOSSARY

Forex: foreign exchange

Convertibility: exchange of currency

Contravention: infringement

Mala-fide: ill intentional

Fraudulent: involving fraud

Adjudication: judgment

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8. TERMINAL QUESTIONS

1. Bring out the difference between FERA and FEMA.

2. What are the major provisions of FEMA?
3. Elaborate upon the scope of FEMA.
4. How are cases of contravention of the provisions of FEMA dealt with?

9. ANSWERS

Self Assessment Questions

A B
1 2
2 4
3 5
4 1
5 3

6. Whole of India.
7. FEMA.
8. 182
9. Enforcement Directorate.
10. Offices, agencies and branches
11. Incorrect
12. Correct
13. Correct
14. Incorrect
15. Correct
16. Offences under FEMA are (Any one):
• Remittances of Indians abroad otherwise than through normal banking channels, i.e.
through compensatory payments.
• Acquisition of foreign currency illegally by person in India.

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• Non-repatriation of the proceeds of the exported goods.

• Unauthorised maintenance of accounts in foreign countries.
• Under-invoicing of exports and over-invoicing of imports and any other type of
invoice manipulation.
• Siphoning off of foreign exchange against fictitious and bogus imports.
• Illegal acquisition of foreign exchange through Hawala.
• Secreting of commission abroad.

Terminal Questions:

1. FEMA is quite different from FERA in its provisions. FERA sought to ‘control’ foreign
exchange transactions whereas FEMA seeks to ‘regulate’ and ‘manage’ such
transactions. For more details, refer to section 2.
2. The provisions of FEMA deal with various aspects of foreign exchange management.
For more details, refer to section 4.
3. FEMA enjoys a wide scope. For more details, refer to section 3.
4. FEMA clearly defines the Acts that can be termed as offences under its purview. It is the
duty of the Directorate of Enforcement to investigate and prevent leakage of foreign
exchange. For more details, refer to section 5.

References:

• Bedi, Suresh. (2004). Business Environment. Excel Books, New Delhi.

• Tulsian P.C. (2000). Business Law. Tata Mcgraw-Hill Publishing Company
Ltd. New Delhi.
• Pathak, Akhileshwar. (2007). Legal Aspects of Business. Tata Mcgraw- Hill Publishing
Company Ltd. New Delhi.

Unit 9 : Foreign Exchange Management Act, 1999 23