The Foreign exchange Management Act, 1999 (hereinafter referred to as “FEMA” or “the Act”) is an Act meant to govern the laws pertaining to foreign exchange so as to manage and functionally facilitate external trade and payments as regards the foreign exchange market in India. This Act, supra, replaced the Foreign Exchange Regulation Act, 1973 (hereinafter referred to as “FERA”) due to various fallbacks pursuant to the restrictive nature thereof which could not sustain itself in the contemporary, post liberalisation and various efforts of the government to encourage globalisation such as LPG in 1991.
Such tendency of the market skewing towards international standards led to the necessity of FEMA and it’s conception which came into force on 01/06/2000.
FEMA is a set of regulations that empowers the RBI to pass regulations and enables the Government of India (hereinafter referred to as “GoI“) to have the power to make rules relating to foregin exchange in tune with the foreign trade policy of India. This Act applies to the whole of India and the GoI has the authority to impose restrictions or supervise payments made to anyone outside India, receipts from persons outside India, ForEx and foreign security deals. The 2 primary types of account transactions specified herein are capital transactions and current transactions. The definition of a current account transaction as enshrined in Sec 2 (j) of the FEMA is, “other than a capital account transaction”.
The power of the Adjudicating Authority and various conditions as regards such, is mentioned in Sec 16 of FEMA against whose orders an appeal can be sought to the Special Director (Appeals) as in Sec 17 of the Act. Upon further grievance against any order passed by the Adjudicating Authority or the Special Director (Appeals), Sec 18 of the Act enables the Central Government to establish, by notification, establish an Appellate Tribunal to be known as the “Appellate Tribunal for Foreign Exchange”. Ultimately, Sec 35 allows an appeal to the High Court against any decision or order of the Appellate Tribunal with a limitation period of 60 days within which such appeal must be sought unless the Court is satisfied and condones the delay.
Sec 36 of the Act incorporates the establishment of the Directorate of Enforcement commonly known as Enforcement Directorate (hereinafter referred to as “ED”) and the subsequent Sections 37 and 38 of the Act gives the power of search, seizure, etc to the ED and other officers of Enforcement as well as other Officers functioning in the capacity of the ED by Government Order.
In conclusion, juxtaposed to FERA which made offences relating to foreign exchange criminal in nature, FEMA made such offences attract civil liability. It enabled a new foreign exchange management regime and additionally, paved the way for the introduction of the Prevention of Money Laundering Act, 2002. The definition of an Authorised person has been amended; it includes banks, money changers, offshore banking units. The FEMA act has been made in accordance with the Income Tax Act, for the term Resident. The term resident incorporates that person Resident for 182 days in India has been brought in FEMA’s purview.
- The Foreign Exchange Management Act, 1999 bare act web version from Indian Kanoon
- How FEMA replaced FERA: Enterslice
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