FEMA, 1999

INTRODUCTION
The Foreign Exchange Management Act of 1999 (FEMA) is an act of the Indian parliament that aims to “consolidate” and amend the law relating to foreign exchange with the goal of facilitating international trade and payments and promoting the orderly development and maintenance of the Indian foreign exchange market. It was passed into law on December 21, 1999, to replace the Foreign Exchange Regulation Act (FEMA). Foreign exchange offences are now considered civil offences under this act.

It covers the entire country, replacing FERA, which had become incompatible with the Indian government’s pre-liberalization policy. It allows for a new foreign exchange management regime that is in line with the WTO’s evolving framework. It also paved the ground for the introduction of the Money Laundering Prevention Act of 2002, which took effect on July 1, 2005. FEMA is a regulatory system that allows the RBI and the central government to enact regulations and rules on foreign exchange in accordance with India’s foreign trade strategy.

SAILENT FEATURES OF FEMA ACT:
i) Individuals, HUFs, businesses, firms, associations of persons, and BOIs are all covered by FEMA.
ii) FEMA applies to a person who is “resident” in India, as opposed to FERA’s citizenship criteria, which implies that whether a person is a citizen of India or not, he or she will be covered under the FEMA for any forex transaction if the states of that person are resident.
iii) A person who has lived in India for more than 182 days is deemed a “resident” under FEMA.
iv) Debit cards, ATM cards, and credit cards are all considered currency under FEMA.
v) FEMA considers violations of the statute to be civil offences.
vi) Only authorised persons can deal in foreign exchange; all of our transactions will be routed via them. Approved persons are nothing more than RBI-authorized dealers who must scrupulously adhere to RBI guidelines in order to maintain their licence.
vii) The RBI has given us permission to purchase force from post offices in the shape of portal/many ordered convenient availability in the event of an emergency.
viii) Any monitory transactions in rupees with Nepal or Bhutan shall be exempt from FEMA because these two nations recognise and accept rupees.
ix) ‘CAPITAL ACCOUNT’ transactions are those that change a person’s asset and liability through buying/selling foreign securities, borrowing and lending loans, purchasing and selling immovable assets, and so on, all of which take place across national borders. It’s vital to realise that there are no restrictions on FX transactions for loan repayment.
x) Capital account transactions are those that are not related to money and are largely personal in nature, such as remittances for living expenses, individual treatment abroad, overseas trips for business, and so on. The explicitly draymen classified current account transactions set out the transactions that are allowed and those that are not allowed.
Those which are prohibited by FEMA.

  • Those that necessitate the presence of a central government official. And those that require RBI approval.
  1. Prohibition current account transaction
    You cannot draw foreign exchange for
    i) No force can be used to make a payment to anyone in Nepal or Bhutan who uses rupees.
    ii) Remitting lottery winnings outside of India, as well as any revenue from horse races, hobbies, and other activities.
    iii) You are not allowed to send money outside of India for the purchase of lottery tickets, forbidden magazine, betting, or other similar activities.
    iv) You cannot use forex to pay for any call back services on a phone call; a call back is when you call and then instantly get a call back that is routed through a company’s telephone services, which has cheaper changes.
  2. Approval of central government needed
    i) Using forex to go on a cultural tour outside of India.
    ii) If the state government or a state-owned enterprise want to advertise in foreign print media (for any purpose other than tourism promotion, with investments of less than USD 10,000), CG clearance is required.
    iii) Prize money remittance, financing of spending activities overseas for purposes other than reporting bodies, if the amount transmitted exceeds USD $1,000,000.
    iv) Payment for transponders hired by 15A and TV networks.
  3. Approval of RBI needed
    i) For infrastructure projects, if the consulting is done outside of India and the remittance for the project exceeds USD 1, 00, 00,000.
    ii) For any other project when the consultancy is obtained outside of India and the remittance exceeds USD 1,000,000.
    iii) RBI approval is required for gift contribution remittances in excess of USD 1,000 per transfer in a single financial year.
    iv) For releases of more than USD 20,000 in a single financial year, RBI permission is required.
    Amounts in excess of USD 1, 00,000 for people travelling overseas for work/emigration; amounts in excess of USD 25,000 for business travel to conferences, etc.
    No clearance is necessary for medical treatment overseas based on a doctor’s estimate of expenses if the doctor’s estimate exceeds USD 1, 00,000.
    The maximum under the liberalised remittance system has been raised to USD 2,50,000 each financial year account transaction or a combination of both, allowing all residents, even minors, to send to that level. The increase took place in 2015.

CASE LAWS
Raj Kumar shivhare v. Union of India on 6 July, 2011
Section 3(C) of the Foreign Exchange Management Act of 1999 was enacted in January 2005. (“The FEMA”). An order dated February 29, 2008, imposed a penalty on the Appellant under Section 13(2) following adjudication. The Appellant filed a complaint with the Appellate Tribunal established under Section 19. By order dated July 17, 2008, the Tribunal dismissed a claim for the penalty to be waived without a pre-deposit. The Appellant then filed a petition with the Delhi High Court under Article 226 of the Constitution.

The Delhi High Court dismissed the Petition in a judgement dated September 24, 2008, ruling that it lacked geographical jurisdiction and that it could not entertain the Petition under Section 35. In a judgement dated April 12, 2010, the Supreme Court declared that an appeal under Section 35 can be filed against any order or decision of the Appellate Tribunal, which should include all of the Tribunal’s decisions or orders. The Supreme Court dismissed the argument that an appeal under Section 35 can only be launched from a Tribunal’s final order or judgement, not from an interlocutory order.

The Supreme Court made the following observation in dismissing the Appellant’s appeal:
While the term of limitation for filing an Appeal before the High Court is sixty days from the date of communication of the Tribunal’s judgement or order, Parliament has expressly stated that the High Court has the authority to excuse a delay of up to sixty days for good reason. Because the FEMA is unique law on the topic, the time limit for filing an appeal with the High Court and the clause in Section 35 on the scope of the High Court’s power to excuse delays will take precedence. Because of the proviso to Section 35, the High Court lacks jurisdiction to provide an extension to the time limit for filing an appeal beyond the time limit set forth in the proviso. However, the question in these proceedings is whether the restrictions of Section 14 of the Limitation Act, 1963 would apply to an appeal to the High Court brought under Section 35 of the FEMA.

CONCLUSION
Only an authorised individual is allowed to deal in foreign exchange or foreign securities, according to FEMA (shares, stocks, bonds etc.). FEMA became necessary to be replaced by an old legislation, FERA, because FERA was strict and FEMA is more liberal and flexible than FERA.

Anyone who wishes to do business in a foreign country or buy foreign securities must first obtain permission from an authorised person. They must also understand the Act in order to avoid penalties, and they must be aware of the limitations.

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