F E M A

facilitates growth & healthy

development of FOREX market

PTMBA – HR
Group 2
04 Kapil Asrani 14 Melrosa Fernandes

06 Ruchika Chabra 16 Leena Gudhekar

08 Samita Damle 18 Ashlesha Gupte

10 Jigar Derashri 20 Devendra Hattangadi

12 Deepa Dilawari 24 Anushree Kanchan

Foreign Exchange
Regulations
The primary purpose of the foreign exchange market is

•to assist international trade and investment, by allowing

US
businesses to convert one currency to another currency. India

•support speculation, and facilitate the carry trade, in which

Exporter Importer
investors borrow low-yielding currencies and lend (invest

in) high-yielding currencies

$
Bank

Foreign Exchange Market

Forex Market in India
Early Stages: Post-Reform
•
Formative Period:
1947-1977 Period: 1978- 1992 onwards
∆ 1992
∆ ∆

Par Value Basket Peg

4.15 grains of fine gold Market

Determined
 Purpose of FERA
∆ To help RBI in maintaining exchange rate stability.
∆ To conserve precious foreign exchange.
∆ To prevent/regulate foreign business in India
∆

FERA to FEMA
 Foreign Exchange Management Act (FEMA)1999

∆ Extent of FEMA
– applicable to the entire country
– Agencies, branches, and offices, outside India, that are owned by Indian
residents
– dispute that are committed in offices, agencies and branches outside India
that are owned by individuals covered by this act
•

∆ Objectives of FEMA:
– to consolidate and amend the law relating to foreign exchange
– to facilitate external trade and payments
– to promote the orderly development and maintenance of foreign exchange
market in India
•

∆ Implementation of FEMA:
•

•
 Salient features of FEMA
∆ Facilitate trade rather than prevent misuse of foreign
exchange.
∆ Definitions of capital account transaction and current
account transaction
∆ All current account transactions shall be allowed
∆ All key sections simplified
∆ Attitude is of putting trust in the persons covered
•

∆
 FEMA Rules & Policies
∆ Section 2 - clarity on several definitions and terms used in the
context of foreign exchange
∆ Section 3 prohibits dealings in foreign exchange except through
an authorized person
∆ Section 4restrains any person resident in India from acquiring,
holding, owning, possessing or transferring any foreign
exchange, foreign security or any immovable property situated
outside India except as specifically provided in the Act.
∆ Section 6 deals with capital account transactions.
 New terms under FEMA
∆ Person
∆ Person resident in India
– A person who has been residing in India for more than 182 days, in
the last financial year
– Any person or body corporate registered or incorporated in India,
or
– An office, branch or agency in India owned or controlled by a
person resident outside India, or
– An office, branch or agency outside India owned or controlled by a
person resident in India
∆ Person resident outside India
– "CAPITAL ACCOUNT TRANSACTIONS" means 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 Transactions

∆
A Step ahead from FERA To FEMA

Export of Services

Immovable Property in India

Immovable Property outside India

Residential Status

Omission of Criminal Proceedings

Withdrawal of Foreign Exchange

 FERA – FEMA: Similarities

aresumption
and The
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would continue
jurisdiction
continues
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the
toenvisaged
be
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hasthe
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retaine
 FERA – FEMA: Differences

nsisted of FEMA is Presumption

81 sections
much, and was,ofand
simple negative
more intention
consist
complex Mens
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2(b) changes, off shore banking Units etc. (2 ( c )
 Amendments
∆ Automatic Approval for External Commercial Borrowings
– amounts upto US $ 50 Million without taking prior approval of
the Ministry of Finance / RBI, subject to the following
conditions:
– The loan is raised from internationally acceptable and
recognized lenders
– The average maturity of the loan is not less than 3 years
– The loan should be organized through a reputed merchant
banker registered with the regulatory authorities of the host
country.

∆ Amendments relating to Inbound Investments

– Registered Foreign Venture Capital Investors permitted to invest in
Indian Venture Capital Companies
– Foreign Investment prohibited in Print Media
– Prohibition on Overseas Corporate Bodies to make further
investments in Indian Companies under the Portfolio Investment
Scheme
 Amendments contd.
∆ Amendments relating to Outbound Investments
– Rules for direct investments outside India
liberalised
• Indian Companies can now freely invest upto US $
50 Million in a financial year in JV / Wholly Owned
Subsidiaries outside India
• Indian Companies, which have issued ADR/GDR,
can also use 100% of such proceeds for overseas
investments as against the limit of 50% earlier
• Registered Partnership Firms in India are now
permitted to invest upto USD 1 Million in a
financial year
• Employees of Indian Branches / Indian Subsidiaries
 Amendments contd.
∆ Other Amendments
– Endorsement of the foreign exchange drawn on the
passport, has now been made optional.
– An Indian party can make a payment to a foreign
company / entity , which has paid the guarantee amount
on behalf of the Indian party.
– Authorized Dealers have been permitted to grant loans to
Non Residents in India in Indian Rupees for their official /
personal purposes.
– Foreign Nationals resident in India are now permitted to
open foreign currency accounts outside India, without
any approval from the RBI.
– Indian companies are now permitted to payment in Rupees
to its non whole time director, who is a non resident &
who visits India, towards sitting fees, commission etc.
•
 FEMA lead to Forex growth
∆
∆ Better Regulators and Control mechanisms
∆ Certain level of easy trading is available today
∆ Rules and regulations are stricter. Unwanted transactions
and underground trading has reduced
∆ RBI expects equal value service or goods
∆ CSL certificate is required. Trading should be through proper
channel only
Other Reasons
•

∆ Liberalization – no of transactions have increased.

∆ Indian product has better acceptability and Market
increasing
∆ Dollar value decreasing. Same amount of gold for lesser in
Rupees.
∆ Euro going weaker as well 1:1.4 ratio with dollar
∆ Rupee stronger – gold – higher amount; fixed deposit 4%-
 Case Studies

∆ ‘Kites’ the movie – FEMA violation in production

process

∆ Foreigners buying immovable property in India ,

violating the FEMA Act.

∆
 Case Study: Kites

Facts of the Case

∆ production budget of Rs. 60 crore
∆ sold for s. 110 crore in worldwide rights to the Reliance
Group
∆ Film shot in Maldives, Mexico and the US
∆ Spectrum Entertainment hired by Roshan to manage all
outdoor shoots of Kites in the US
∆
Allegations
∆used foreign exchange meant for production work to meet personal
expenses
∆used (junk) film reels from India for the shoot but used fresh
reels bought in the US
∆paid Spectrum Entertainment just $ 4.3 million against pending
bills of $ 5.9 million
 Case Study: Kites

FEMA Provisions
∆ an individual can carry up to $ 10,000 on foreign visits –  $
5000 in cash and the rest in travel cheques
∆ FEMA violations can attract a fine three times the transaction
amount. Primarily there is no imprisonment for violation of
the law. However, if the person cannot pay the penalty, then
he can be arrested.
∆ RBI Contraventions
•

Evaluation
∆The primary trigger for the highlight of this case is the issue of
pending dues between Spectrum Entertainment and Rakesh Roshan’s
production house
∆The first violation mentioned is the more serious offense, and can
invite penalty of upto three times the original amount as
applicable
∆Expenses upon personal budget are also supported by Challans,
receipts etc., but the production house, which is gaining tax
benefits, can easily absorb the expenditure as creative expenses
 Case Study: Kites

Case Study: Kites - Conclusion

∆ The ED might not be able to prove a FEMA

violation under point 1 (purchase of film).
∆ The personal expense, if proved, must only invite
minimal penalty of 3 times the duty evaded.
∆ The matter will not be taken up by the ED without
a proper evaluation of the situation between
the complainant & the Indian production house.
 Case Study: Foreigners buying immovable proper

Facts of the Case

∆ Illegal purchase of land in Goa
∆ depriving locals of their business and means of livelihood
∆ Russians on tourist visa are plying motorcycle taxis,
operating food joints where licences from panchayats
and other authorities stand in the name of locals

Allegations
∆controversial real estate deals by foreigners in Goa could well have
been funded by proceeds from crime and narcotics trade
∆large volumes of money were being illegally routed by several
foreign-run companies from tax havens abroad to purchase properties
in coastal resort villages in the state
∆no IT returns are filed at all
 Case Study: Foreigners buying immovable proper

FEMA Provisions
∆ Who can freely purchase immovable property in India?
∆ A foreign national of non-Indian origin cannot be a second
holder to immovable property purchased by NRI / PIO.
∆ A foreign national of non-Indian origin, resident outside
India cannot purchase any immovable property in India.
•
 Case Study: Foreigners buying immovable proper

Case Study: Conclusion

∆ This was a political issue which was raised with an objective arise
interest in the vote bank more than the legal applicability.
∆ The provisions under FEMA do not allow the foreign national to
own immovable property, hence Taxis and motorbikes do not
fall under a FEMA violation.
∆ The shops are being run by the foreign nationals and the owner on
paper is a PIO/NRI, which can definitely attract litigation – this is
a clear violation
∆ The formation of a Company under Companies Act is being
followed and advised by some of the foreign nationals, so it
falls under completely legal activities.
•
Conclusion
TH A N K Yo U