Hello everyone, in the previous topic we were talking about Monopolies and Restrictive Trade Practices (MRTP) and the Board of Industrial and Financial Reconstruction (BIFR). Today we are going to talk about FERA and FEMA.

Foreign Exchange Regulation Act (FERA)

FERA stands for Foreign Exchange Regulation Act. It is an act to consolidate and amend the law that regulates certain payments, it deals in foreign exchange and securities, its transactions indirectly affects foreign exchange and the import and export of currency, for the conservation of the foreign exchange resources of the country and the proper utilization thereof in the interests of the economic development of the country.

Some important provisions of this Act

Some of the important provision of the FERA are as follow-

• “Authorized dealer” means a person for the time being authorized under section 6 to deal in foreign exchange.
• “Bearer certificate” means a certificate of title to securities by the delivery of which (with or without endorsement) the title to the securities is transferable.
• “Certificate of title to a security” means any document used in the ordinary course of business as proof of the possession or control of the security, or authorizing or purporting to authorize, either by an endorsement or by delivery, the possessor of the document to transfer or receive the security thereby represented.
• “Coupon” means a coupon representing dividends or interest on security.
• The provisions of F.E.R.A (Amendment) Act, 1993 (hereafter referred to as Act 29 of 1993) came into force on the 8th day of January 1993.
• “Currency” includes all coins, currency notes, banks notes, postal notes, postal orders, money orders, cheques, drafts, traveler’s cheques, letters of credit, bills of exchange, and promissory notes.
• “Foreign currency” means any currency other than Indian currency.
• “Foreign exchange” means foreign currency and includes –

1. All deposits, credits, and balances payable in any foreign currency, and any drafts, traveler’s cheques, letters of credit, and bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency.
2. Any instrument payable, at the option of the draw or holder thereof or any other party thereto, either in Indian currency or in foreign currency or partly in one and partly in the other.

• “Foreign security” means any security created or issued elsewhere than in India, and any security the principal of or interest on which is payable in any foreign currency or elsewhere than in India.
• “Indian currency” means the currency that is expressed or drawn in Indian rupees but does not include special bank notes and special one-rupee notes issued under section 28A of the Reserve Bank of India Act, 1934.

Application of the Act

1. This Act is called the Foreign Exchange Regulation Act, 1973.
2. It extends to the whole of India.
3. It applies also to all citizens of India outside India and to branches and agencies outside India of companies or bodies corporate, registered, or incorporated in India.
4. It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint in this behalf.

Foreign Exchange Management Act (FEMA)

The Foreign Exchange Management Act, 1999 (FEMA), has been enacted as part of the ongoing liberalization process. The Act was implemented on June 1, 2000.

Foreign Exchange Control was first introduced in September 1939 under the Defense of India Rules. The Foreign Exchange Regulation Act was introduced in 1947, which was replaced with the Foreign Exchange Regulation Act in 1973.

They are classified into two categories-

1. Current account transactions – Transactions that alter assets or liabilities outside India of persons who are residents in India.
2. Capital account transactions – Transactions other than current account transactions such as payment for foreign trade, foreign travel expenses, etc.

Some important proisions of this Act

Some of the important provisions of FEMA are as follow-

1. Free transactions on current account subject to reasonable restrictions that may be imposed.
2. RBI controls capital account transactions.
3. Control over the realization of export proceeds.
4. Dealing in foreign exchange through authorized persons like authorized dealers or money changers etc.
5. Appeal provision including Special Director.
6. Directorate of enforcement.
7. Any person can sell or withdraw foreign exchange, without any prior permission from RBI and then can inform RBI later.
8. Enforcement Directorate will be more investigative in nature.
9. FEMA recognized the possibility of Capital Account convertibility.
10. The violation of FEMA is a civil offense.
11. FEMA is more concerned with the management rather than regulations or control.

Scope of FEMA

The scope of FEMA-

• Free transactions on current account subject to reasonable restrictions that may be imposed.
• RBI controls capital account transactions.
• Control over the realization of export proceeds.
• Dealing in foreign exchange through authorized persons like authorized dealers or money changers or offshore banking units.
• Adjudication of Offences.
• Appeal provision including Special Director and Appellate Tribunal.

Differences between FERA and FEMA

The object of the FEMA Bill is to consolidate and amend the law relating to foreign exchange, with the objective of facilitating external trade and payment and promoting the orderly development and maintenance of the foreign exchange market in India.

The primary differences between FERA and FEMA are:

1. The object of FERA was to conserve foreign exchange and to prevent its misuse. The object of FEMA is to facilitate external trade and payments and maintenance of the foreign exchange market in India.
2. Violation of FERA was a criminal offense whereas violation of FEMA is a civil offense.
3. Offences under FERA were not compoundable, while offenses under FEMA are compoundable.
4. Citizenship was a criterion to determine the residential status of a person under FERA, while a stay of more than 182 days in India is the criteria to decide residential status under FEMA.
5. Provision in respect of Basic Travel Quota (BTQ) business travel export commission, gifts, donation, etc., have been considerably enhanced in FEMA.
6. Almost all current account transactions are free, except a few.

So, that is all for today guys see you in our next blog. If you like our article please doesn’t forget to share with others & follow our Instagram page for your daily dose of Motivation.

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Regards

Grooming Urban

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