The business dealings such as investments, trade and commerce, import and export etc., when done with an overseas nation, the arrangements are done in foreign exchange. The foreign exchange was standardized in India under the Foreign Exchange Regulation Act (FERA), 1973. The key purpose behind FERA was management and appropriate application of foreign exchange resources of India. The FERA regularized business transactions abroad by Indian enterprises and foreign groups in India. The FERA penalized the violation of the provisions of the 1973 Act.
The New Economic Reforms introduced in India changed the structure of FERA and it was substituted by Foreign Exchange Management Act (FEMA), 1999. The main purpose of the Act was to modify and unite foreign exchange laws. This is to make possible trade and commerce and to advance growth and safeguard with regard to foreign exchange in the country. The Act introduces a new system of foreign exchange policy which is parallel to the guidelines of World Trade Organization. In 2002, the Parliament enacted Prevention of Laundering Act which is supplementary legislation to FEMA.
The applicability of the Act extends to the Indian Territory as a whole and includes administrative centre and bureau situated abroad possessed and managed by person residing in India. The Act expressly bars any person from dealing with foreign exchange with an unauthorized person; the transactions cannot be made with a person living abroad; payment cannot be received from an unauthorized person in the name of a person living abroad. This can be done only according to the rules under the Act or special consent of the Reserve Bank of India.
The legislation bans purchase, possess, reassign and getting hold of foreign exchange or fixed property sited abroad by a person. In lieu of precincts imposed by Central Government, foreign exchange can be sold by a person to a person permitted by law but only through current account. The Central Government inflicts restriction with the advice of Reserve Bank of India in view of public concern. In any case where the foreign exchange value becomes due, the concerned person can take necessary action to realize and recover such amount.
The Reserve Bank recognizes a person as an authorized person if an application is submitted in this behalf. Considering interest of public such recognition can be withdrawn by Reserve Bank through representation at any time, if the person does not abide by with the conditions imposed. The Reserve bank can give direction or restrict the authorized person with regard to payments of foreign exchange, to make it in conformity with the provision of FEMA. The Reserve bank can also compel the production of certain documents make sure the fulfillment of the Act.
The Act empowers the Reserve Bank to inflict penalty for impertinence to the Act or rules, policies, directions etc. or non fulfillment of stipulations enunciated by the Bank. Where a person do not disburse the penalty such person shall be legally responsible for imprisonment. But the adjudicating authority cannot order arrest of a person unless he appears before the authority on the date prescribed in the notice.
In order to conduct query on the subject of breach of the Act, the Central Government can employ officers to compose an adjudicating authority. The adjudicating authority is considered as having authority of a civil court. The judicial procedures carried out by the authority shall be concluded within one year. In order to hear appeals from adjudicating authority, Special Directors can be appointed by the Central Government. An Appellate Tribunal can be constituted to hear appeals from adjudicating authority as well as from Special Director. All the authorities under the Act are public servants within the meaning of Indian Penal Code. The Act explicitly bars the jurisdiction of civil courts to hear a case regarding foreign exchange. An appeal can also be preferred to High Court by an aggrieved party if there is a substantial question of law. The Central Government and Reserve Bank can makes rules and regulations respectively according to the provisions of the Act.
To conclude, the FEMA specifically prohibits certain Acts unless sanctioned. Unlike FERA, the current legislation is a civil legislation which supports and protects foreign investments. The Act also relaxed many margins imposed on foreign exchange in India.