CAIIB BRBL Module B Unit 3 : Foreign Exchange Management Act, 1999

23/10/2023

Table of Contents

CAIIB Paper 4 BRBL Module B Unit 3 : Foreign Exchange Management Act, 1999 (New Syllabus)

IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 4 (BANKING REGULATIONS AND BUSINESS LAWS) includes an important topic called “Foreign Exchange Management Act, 1999”. Every candidate who are appearing for the CAIIB Certification Examination 2023 must understand each unit included in the syllabus.

In this article, we are going to cover all the necessary details of CAIIB Paper 4 (BRBL) Module B (IMPORTANT ACTS/LAWS & LEGAL ASPECTS OF BANKING OPERATIONS – PART A) Unit 3 : Foreign Exchange Management Act, 1999, Aspirants must go through this article to better understand the topic, Foreign Exchange Management Act, 1999 and practice using our Online Mock Test Series to strengthen their knowledge of Foreign Exchange Management Act, 1999. Unit 3 : Foreign Exchange Management Act, 1999

Introduction

Foreign Exchange Management Act (FEMA) was enacted to replace FERA, effective from June 1, 2000.
The objective was to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
The provisions of the FEMA extends to all over India and also applies to all branches, offices and agencies outside India owned or controlled by a person resident in India.
By maintaining sufficient reserves, India’s foreign exchange policy marked a shift from Import Substitution to Export Promotion.

Important Terms

Authorized person:

It means any authorized money changer or dealer, off shore banking unit or any other person authorized under the FEMA to deal in foreign exchange or securities.

Non-Resident Indian (NRI):

A person resident outside India who is a citizen of India.

Person resident in India:

A person residing in India for more than 182 days during the course of the preceding financial year but does not include:

A person who has gone out of India or who stays outside India, in either case—

For or on taking up employment outside India, or
For carrying on a business or vocation outside India, or
For any other purpose, as would indicate his intention to stay outside India for an uncertain period.

Capital account transaction:

A transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India.

Current account transaction:

A transaction other than a capital account transaction and includes:

Payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business,
Payments due as interest on loans and as net income from investments,
Remittances for living expenses of parents, spouse and children residing abroad, and
Expenses in connection with foreign travel, education and medical care of parents, spouse and children.

‘Foreign currency’

Foreign Currency is defined to mean any currency other than Indian currency. The term ‘foreign exchange’ is much wider than the term foreign currency.

In addition to the foreign currency, it includes the following:

Amounts payable in any foreign currency
Drafts, travellers’ cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency
Drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency.

Repatriate to India’

Means bringing into India the realized foreign exchange and–

The selling of such foreign exchange to an authorized person in India in exchange for rupees, or
The holding of realized amount in an account with an authorized person in India to the extent notified by the Reserve Bank, and includes use of the realized amount for discharge of a debt or liability denominated in foreign exchange.

Regulation And Management Of Foreign Exchange

As per Chapter 2 Section 3 of the statute provided in this Act, rules or regulations made thereunder, or with the general or special permission of the Reserve Bank, no person shall—

Deal in or transfer any foreign exchange or foreign security to any person not being an authorized person
Make any payment to any person resident outside India in any manner
Receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner.
Enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person.

Powers Of RBI With Respect To Authorized Persons

To appoint authorized persons: The said authorized persons are authorized to deal in foreign exchange. The person so appointed shall deal in foreign exchange only as per the Rules, Regulations framed under the Act or as per directions or orders issued by RBI from time to time for this purpose. (Section 10/11)
To inspect the authorized persons: To ensure that the said person so appointed complies with all the rules and regulations so formulated by the RBI from time to time. (Section 12)

Contravention, Penalties, Adjudication and Appeals

Under the FEMA any violation of the provisions of the said Act will attract penal provisions including the right of arrest and detention. In terms of Section 13 which deals with the penalties-

If any person contravenes any provision of this Act, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, 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.

Directorate Of Enforcement

The Central Government establishes a directorate of enforcement with a director and other officers, called officers of enforcement. (Section 36).

Power of Search, Seizure: The director of enforcement and other officers of enforcement, not below the rank of an assistant director can investigate contraventions of the provisions of the Act.
Empowering Other Officers: The Central Government can authorise any customs officer/central excise officer/any police officer/any other officer of the Central Government or a State Government to exercise the powers and discharge the duties of the director of enforcement or any other officer of enforcement.

Special Provisions Relating To Assets Held Outside India

No person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.

As per Section 37A

Upon receipt of any information, if the Authorized Officer prescribed by the Central Government has reason to believe that any foreign exchange, foreign security, or any immovable property, situated outside India, is suspected to have been held in contravention of section 4, he may after recording the reasons in writing, by an order, seize value equivalent, situated within India, of such foreign exchange, foreign security or immovable property.
The order of seizure along with relevant material shall be placed before the Competent Authority (appointed by the Central Government, who shall be an officer not below the rank of Joint Secretary to the Government of India) by the Authorized Officer within a period of thirty days from the date of such seizure.
The Competent Authority shall dispose of the petition within a period of one hundred eighty days from the date of seizure by either confirming or by setting aside such order, after giving an opportunity of being heard to the representatives of the Directorate of Enforcement and the aggrieved person.
Any person aggrieved by any order passed by the Competent Authority may prefer an appeal to the Appellate Tribunal.

State whether the following statements are true or false.

Authorized person is an individual authorised by the RBI to deal in foreign exchange.
A current account transaction alters the assets or liabilities outside India of persons resident in India.
A capital account transaction includes payments due in connection with foreign trade in the ordinary course of business.
Foreign exchange includes traveller’s cheques.
Civil Court has the jurisdiction to entertain any suit or proceeding in respect of any matter under the FEMA.
Any person aggrieved by any order passed by the Competent Authority, in respect of assets held abroad and seized, may prefer an appeal to the High Court.

Download PDF

CAIIB Paper 4 Module B UNIT 3 – Foreign Exchange Management Act, 1999 (Ambitious_Baba)