Monday, 29 April 2019

FOREX INDIVIDUAL

IIBF & NISM Adda

Certificate Examination in

Foreign Exchange Facilities for Individuals

( IIBF & Other Exams)

2019

Compiled by

Srinivas Kante B.Tech, CAIIB

About Certificate Examination in Foreign Exchange Facilities for Individuals

Rules & Syllabus 2018

OBJECTIVE

The objective of the course is to make the branch officials familiar with the FEMA provisions that impact their day to day functioning at the branch level. This exam is being introduced pursuant to the recommendation of a committee of RBI.

ELIGIBILITY

1. Members and Non-Members of the Institute

2. Candidates must have passed the 12th standard examination in any discipline or its equivalent.

SUBJECT OF EXAMINATION

Foreign Exchange Facilities for individuals under FEMA 1999

PASSING CRITERIA:

Minimum marks for pass in the subject is 50 out of 100.

*EXAMINATION FEES : Particulars**	For Members	For Non-Members
First attempt	Rs.1,000/- *	Rs.1,500/- *
Subsequent each attempt	Rs.1,000/- *	Rs.1,500/- *

MEDIUM OF EXAMINATION:

Examination will be conducted in English only.

PATTERN OF EXAMINATION:

(i) Question Paper will contain 120 objective type multiple choice questions for 100 marks.

(ii) The examination will be held in Online Mode only

(iii) There will NOT be negative marking for wrong answers.

DURATION OF EXAMINATION:

The duration of the examination will be of 2 hours.

PERIODICITY AND EXAMINATION CENTRES:

a) Examination will be conducted on pre-announced dates published on IIBF Web Site. Institute conducts examination on half yearly basis, however periodicity of the examination may be changed depending upon the requirement of banking industry.

b) List of Examination centers will be available on the website. (Institute will

STUDY MATERIAL / COURSEWARE

The Institute has developed a courseware to cover the syllabus. The courseware (book) for the subject/s will be available at outlets of publisher/s. Please visit IIBF website www.iibf.org.in under the menu “Exam Related” for details of book/s and address of publisher/s outlets. Candidates are advised to make full use of the courseware. However, as banking and finance fields are dynamic, rules and regulations witness rapid changes. Therefore, the courseware should not be considered as the only source of information while preparing for the examinations. Candidates are advised to go through the updates put on the IIBF website from time to time and go through

Master Circulars / Master Directions issued by RBI and publications of IIBF like IIBF Vision, Bank Quest, etc. All these sources are important from the examination point of view. Candidates are also to visit the websites of organizations like RBI, SEBI, BIS, IRDAI, FEDAI etc. besides going through other books & publications covering the subject / exam concerned etc. Questions based on current developments relating to the subject / exam may also be asked.

Cut-off Date of Guidelines /Important Developments for Examinations

The Institute has a practice of asking questions in each exam about the recent developments / guidelines issued by the regulator(s) in order to test if the candidates keep themselves abreast of the current developments. However, there could be changes in the developments / guidelines from the date the question papers are prepared and the dates of the actual examinations.

In order to address these issues effectively, it has been decided that:

(i) In respect of the examinations to be conducted by the Institute for the period February to July of a calendar year, instructions / guidelines issued by the regulator(s) and important developments in banking and finance up to 31st December will only be considered for the purpose of inclusion in the question papers".

(ii) In respect of the examinations to be conducted by the Institute for the period August to January of a calendar year, instructions / guidelines issued by the regulator(s) and important developments in banking and finance up to 30th June will only be considered for the purpose of inclusion in the question papers.

The table given below further clarifies the situation. Particulars	Cut-off Date of Guidelines / Important
Developments for Examination/s	Developments for Examination/s
For the examinations to be conducted by	31st December 2017
the Institute for the period February 2018
to July 2018
For the examinations to be conducted by	30th June 2018
the Institute for the period August 2018 to
January 2019

SYLLABUS

1) Introduction to FEMA

a) Genesis of FEMAand repeal of FERA

b) Comparison between FEMA 1999 and FERA 1973

c) Important sections of FEMA 1999 and upto date amendments, schedules-I,

II and III

d) Compounding provisions under FEMA and the effect of non-adherence to

FEMA provisions

2) Facilities available to residents under FEMA and the regulations that are applicable to Individuals covering areas such as

a) Meaning and definition of resident in India

b) Foreign travel

c) Outward remittances/advance remittances / inward remittances

d) Refund of inward remittances and importance AML

e) Maintenance of foreign currency accounts

f) Permissions for investments abroad

g) Borrowings in foreign currency

h) Export of gifts and forward contracts

I) Foreign currency TCs purchase and encashment

j) International credit cards

3) Facilities available to and regulations applicable to non-resident individuals

a) Meaning and definition of non-resident Indian and Foreign national

b) Various schemes for non-resident Indians

c) NRE, FCNR and ONR account schemes

d) Deduction of TDS for NRO accounts-tax treaties

e) Tax havens and cautions in handling remittances

f) Borrowing opportunities and investment facilities in India

g) Guarantees by non-residents and deposits other than bank deposits

h) Risk management for non-residents

4) Miscellaneous aspects

a) In and out bound remittances

b) Opening of foreign currency and Rupee accounts in and outside India

c) Guidelines on taxation and TDS

Foreign Exchange Management Act (FEMA)

Main Features of the Foreign Exchange Management Act (FEMA)

The Foreign Exchange Management Act (FEMA) was an act passed in the winter session of Parliament in 1999, which replaced Foreign Exchange Regulation Act. This act seeks to make offences related to foreign exchange civil offences. It extends to the whole of India.

The Foreign Exchange Regulation Act (FERA) of 1973 in India was replaced on June 2000 by the Foreign Exchange Management Act (FERA), which was passed in 1999. The FERA was passed in 1973 at a time when there was acute shortage of foreign exchange in the country.

It had a controversial 27 years stint during which many bosses of the Indian corporate world found themselves at the mercy of the Enforcement Directorate. Moreover, any offence under FERA was a criminal offence liable to imprisonment. But FEMA makes offences relating to foreign civil offences.

FEMA had become the need of the hour to support the pro- liberalisation policies of the Government of India. The objective of the Act is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments for promoting the orderly development and maintenance of foreign exchange market in India.

FEMA extends to the whole of India. It applies to all branches, offices and agencies outside India owned or controlled by a person, who is a resident of India and also to any contravention there under committed outside India by two people whom this Act applies.

The Main Features of the FEMA:

The following are some of the important features of Foreign Exchange Management Act:

i. It is consistent with full current account convertibility and contains provisions for progressive liberalisation of capital account transactions.

ii. It is more transparent in its application as it lays down the areas requiring specific permissions of the Reserve Bank/Government of India on acquisition/holding of foreign exchange.

iii. It classified the foreign exchange transactions in two categories, viz. capital account and current account transactions.

iv. It provides power to the Reserve Bank for specifying, in , consultation with the central government, the classes of capital account transactions and limits to which exchange is admissible for such transactions.

v. It gives full freedom to a person resident in India, who was earlier resident outside India, to hold/own/transfer any foreign security/immovable property situated outside India and acquired when s/he was resident.

vi. This act is a civil law and the contraventions of the Act provide for arrest only in exceptional cases.

vii. FEMA does not apply to Indian citizen’s resident outside India.

Difference between the FERA and FEMA:

4 Main Participants of Foreign Exchange Market

The participants are: 1. Commercial Banks or Market Makers 2. Foreign Exchange Brokers 3. Central Banks or Reserve Bank of India 4. Corporates and Entrepreneurs.

Participant # 1. Commercial Banks or Market Makers:

Commercial banks are normally taking over the position to support the economy of the country by carrying over the foreign currency from one period to another, for meeting the future need of the country. They are also sometime making short sale (agree to sell or actually sell the foreign currency without any real capacity to sell through or borrow the required currency from others) of foreign currency to satisfy the need of firms to make payments.

Later on to bring the position in equilibrium, they quote the rates for buying and selling of foreign currency accordingly. As they are buying the foreign currency from the customer, the rate they quote for buying the foreign currency is technically named as Bid rate. When they sell the foreign currency to customer, the rate they quote is technically known as Ask rate.

Participant # 2. Foreign Exchange Brokers:

ADVERTISEMENTS:

FE brokers do not buy or sell the foreign currency on their own account, as done by market makers. They are working as an intermediary between two parties, to satisfy their respective needs. As they are working as a bridge between buyers and sellers of the foreign currency, they are only earning the fees in the form of brokerage charges.

Participant # 3. Central Banks or Reserve Bank of India:

To protect the financial strength and stability of the country’s balance of payments, internal money supply, interest rates and inflation, RBI intervenes in the foreign exchange markets to protect the disequilibrium in the prices of foreign exchange conversion.

Participant # 4. Corporates and Entrepreneurs:

Corporate are the players in the FE market, to satisfy their need of payment in foreign currency towards imports of goods, commodities and services. On the opposite way, they need to convert foreign currency in home currency on account of export of goods, commodities, and services. The need of conversion also happens on account of transactions in financial markets across the globe, for loan disbursement, repayment of loans, receipt and payment of annual charges, etc.

Provisions of Foreign Exchange Management Act

Provisions of Foreign Exchange Management Act (FEMA) provides free transaction on current account subject to the guidelines by the RBI. Enforcement of Foreign Exchange Management Act (FEMA) is entrusted to a separate directorate, which undertakes investigations on contraventions of the Act.

Provisions of FEMA are grouped under four heads. Important provisions under each of the four heads, having a bearing on promoting economic development through foreign investment with enabling provisions to ensure the curtailing of inflationary trends from such transactions, are outlined below.

Regulation for Current Account Transaction:

Any person can sell or draw foreign exchange to or from an authorised dealer (if such sale or withdrawal is a current account transaction) except for certain prohibited transactions like remittance of lottery winnings, remittance of interest income on funds held in Non-Resident Special Rupee (NRSR) account scheme, etc.

Besides these cases, there are certain other transactions, for which specific RBI approval will be required. For instance, Reserve Bank approval is required for importers availing of Supplier’s Credit beyond 180 days and Buyer’s Credit irrespective of the period of credit.

Authorised dealers are permitted remittance of surplus freight/passage collections by shipping/airline companies or their agents, multimodal transport operators, etc. after verification of documentary evidence in support of the remittance.

Regulations Relating to Capital Account Transactions:

i. Foreign nationals are not allowed to invest in any company or partnership firm or proprietary concern, which is engaged in the business of Chit Fund or in Agricultural or Plantation activates or in Real Estate business (other than development of township, construction of residential/commercial premises, roads or bridges) or construction of farm houses or trading in Transferable Development Rights (TDRs). Listing of permissible classes of Capital account transaction for a person resident in India and also by a person resident outside India has been provided in the regulations.

ii. Detailed rules and regulations are provided on borrowing and lending in Foreign Currency as well as India Rupee by a person resident in India form/to a person resident outside India either on non-repatriation or repatriation basis.

iii. Authorised dealers are now permitted to grant rupee loans to NRIs against security of shares or immovable property in India, subject to certain terms and conditions. Authorised dealers or housing finance institutions approved by National Housing Bank can also grant rupee loans to NRIs for acquisition of residential accommodations subject to certain terms and conditions.

iv. General permission has been granted to Indian company (including Non-Banking Finance Company) registered with Reserve Bank to accept deposits from NRIs on repatriation basis subject to the terms and conditions specified in the schedule.

Indian proprietorship concern/firm or a company (including Non-Banking Finance Company) registered with Reserve Bank can also accept deposits from NRIs on non-repatriation basis subject to the terms and conditions specified in the schedule.

Regulations relating to export of goods and services:

Export proceeds are required to be realised within a period of 6 months from the date of shipment. In the case of exports to a warehouse established abroad with the approval of Reserve Bank, the proceeds have to be realised within 15 months from the date of shipment.

An enabling provision has been made in this regulation to delegate powers to authorised dealers to allow extension of time. Export of goods on elongated credit terms beyond six months requires prior approval of Reserve Bank.

Other Regulations:

i. A person resident in India to whom any foreign exchange is due or has accrued is obligated to take reasonable steps to realise and repatriate to India such foreign exchange unless an exemption has been provided in the Act or regulations made under the general or special permission of Reserve Bank.

ii. Any foreign exchange due or accrued as remuneration for services rendered or in settlement of any lawful obligation or an income on assets held outside India or as inheritance, settlement or gift to a person resident in India should be sold to an authorised person within a period of seven days of its receipt and in all other cases within 90 days of its receipt.

iii. Any person who has drawn exchange for any purpose but has not utilised it for the same or any other purpose permissible under the provisions of the Act should surrender such foreign exchange or un-utilised foreign exchange to an authorised person within a period of 60 days from the date of acquisition.

Where, however, exchange was drawn for travel abroad, the un-utilised exchange in excess of the limit up to which foreign exchange is permitted to be retained, should be surrendered to an authorised person within 90 days from the date of return of the’ traveller to India if unspent exchange is in the form of travellers cheques.

iv. The Reserve Bank has specified the limit for possession and retention of foreign currency by a person resident in India. There is no restriction on possession of foreign coins by any person. Any person resident in India is permitted to retain in aggregate foreign currency not exceeding US$ 2000 or its equivalent in the form of currency notes/bank notes or travellers cheques acquired by him from approved sources.

v. The Reserve Bank has granted general permission to any person to receive any payment:

(a) made in rupees by order or on behalf of a person resident outside India during his stay in India by converting the foreign exchange into rupees by sale to an authorised person;

(b) made by means of a cheque drawn on a bank outside India or a bank draft or travellers cheques issued outside India or made in foreign currency notes directly, provided the cheques, drafts or foreign currency is sold to an authorised person within seven days of its receipt;

vi. Reserve bank has also granted general permission to a person resident in India to make payment in rupees;

(a) for extending hospitality’ to a person resident outside India;

(b) to a person resident outside India for purchase of gold or silver imported by such person in accordance with the provisions of any order issued by Central Government under the Foreign Trade (Development and Regulation) Act, 1992 or under any law or rules or regulations in force.

OVERVIEW OF FOREIGN EXCHANGE MANAGEMENT ACT

BACKGROUND – EVOLUTION OF FOREIGN EXCHANGE REGULATIONS IN INDIA

Exchange regulations have always remained at the centre of Indian economy. Exchange controls

were first introduced in India during the Second World War (1942). Soon after independence, they

were formally reaffirmed in form of the first Foreign Exchange Regulation Act, 1949 (FERA). This was

followed by FERA, 1973. The control framework under FERA was essentially transaction based in

terms of which all transactions in foreign exchange including those between residents to nonresidents

were prohibited unless specifically permitted.

Transformation from control-to-management: FERA to FEMA

The 1970s and 1980s saw the rise of large external sector imbalances on account of persistent

increase in adverse balance of payments situation. There was over dependence on official foreign

aid. It was this balance of payment crisis that triggered the wave of economic liberalization. The

Indian rupee became market determined in 1993. The need was felt to consolidate and amend the

law relating to foreign exchange with the objectives of facilitating external trade and payments and

for promoting the orderly development and maintenance of foreign exchange market in India.

Accordingly, on June 1, 2000, the Foreign Exchange Management Act, 1999 (FEMA) was brought in

force to replace the then existing Foreign Exchange Regulation Act, 1973 (FERA). FEMA has been

enacted with an objective of facilitating external trade and payments and for promoting the orderly

development and maintenance of foreign exchange market tin India. As such it is quite opposed to

FERA which was enacted to regulate or control the foreign exchange. FEMA provided a de jure status

to the shift in policies with regard to the external sector reforms that began in 1990-91.

STRUCTURE OF FEMA

The present framework of exchange controls in India, consist of basic legislation (FEMA, 1999) and

Notifications, Rules and Circulars [known as Authorized Persons Directions – AP (Dir Series)] issued

by RBI. FEMA applies to the whole of India and all branches, offices and agencies outside India which

are owned or controlled by a person resident in India. It also applies to any contraventions

committed outside India by any person to whom FEMA applies.

There are 49 sections under FEMA, of which 9 sections (section 1 to 9) are substantive and the rest

are procedural / administrative provisions as tabulated below:

Section Description

1 Application and Commencement of FEMA

2 Definitions

3 to 9 Provisions relating to Regulations and Management of Foreign Exchange

10 to 12 Provisions relating to Authorized Person

13 to 15 Provisions relating to Contraventions and Penalties

16 to 38 Provisions relating to Adjudication, Appeal and Directorate of Enforcement

39 to 49 Miscellaneous Provisions

Section 46 of FEMA grants power to the Central Government to make rules to carry out the

provisions of FEMA and Section 47 of FEMA grants power to the Reserve Bank of India (RBI) to make

regulations to implement provisions and the rules made under FEMA. Thus RBI is entrusted with the

administration and implementation of FEMA.

CAPITAL ACCOUNT TRANSACTION AND CURRENT ACCOUNT TRANSACTION:

In August 1994 India accepted Article VIII of the Articles of agreement of the International Monetary

Fund and became fully convertible on the current account. Since India is fully convertible on the

current account, all current account transactions (barring a small list of restricted items) are allowed

through the normal banking channels. In case of capital account transactions, only the transactions

which are explicitly enabled under the guidelines are allowed, remaining require specific approvals

under FEMA.

Accordingly it is very important to understand the concept of Capital and Current Account

Transactions to Comprehend FEMA.

A. Capital Account Transaction:

“Capital Account transaction” is defined under section 2(e) of FEMA as ‘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, and includes transactions

referred to in sub-section (3) of section 6.’

Thus any transaction as a result of which the assets or liabilities outside India of a person who is

resident in India and assets or liabilities in India of a person who is resident outside India are

altered i.e. either increased or decreased, is a capital account transaction.

To put it in example, if a person resident in India acquires shares of a foreign company, his/her

overseas assets will increase. Similarly, if the same person borrows from a non resident through

External Commercial Borrowings (ECBs) his/her liability is created outside India. Hence, both the

transactions lead to creation of asset or liability outside India of a person resident in India. Both

the transactions are capital account transactions.

In case of a person resident outside India, if he acquires shares of an Indian company, his/her

asset is created in India and if same person borrows from an institution in India for acquiring

house in India, his/her liability will be created in India. Both these transactions lead to creation

of asset or liability in India of a person resident outside India. Hence, both the transactions are

capital account transactions.

The concept of Capital and Current Account transaction is to be seen from Balance of Payment

point of view. If after the completion of transaction there remains any obligation to either pay

or receive foreign exchange, the transaction would get colour of Capital Account transaction.

For example, import of Plant & Machinery is a current account transaction, as upon import the

machinery is received in India and overseas supplier is say paid within six months from import

and accordingly there is no future obligation on India as a country to honour foreign exchange

obligation. In this example, from accounting perspective, though Plant & Machinery would be

capital goods, but for FEMA it would be a current account transaction.

RBI has been empowered under section 6(2) of FEMA to specify, in consultation with the Central

Government, any class or classes of Capital Account transactions which are permissible [i.e. over

and above the transactions permitted under section 6(3)]. Section 6(3) of FEMA specifies the

classes of capital account transactions which are regulated by RBI. Every transaction listed in this

section is regulated by a corresponding notification/regulation.

FEMA Notification No. 1/2000-RB dated 3-5-2000 contains the list of permissible capital account

transactions as well as list of prohibited capital account transactions.

Prohibited Capital Account Transactions:

General Prohibition:

A person shall not undertake or sell or draw foreign exchange to or from an Authorized person

for any capital account transactions other than those permitted in the Schedules, provided the

transaction is within the limit.

Special Prohibition:

No person resident outside India shall make investment in India, in any form, in any company or

partnership firm or proprietary concern or any entity, whether incorporated or not, which is

engaged or proposes to engage-

· In the business of chit fund, or

· As nidhi company, or

· In agricultural or plantation activities, or

· In real estate business, or construction of farm houses, or

· In trading in Transferable Development Rights (TDRs)

(real estate shall not include development of townships, construction of residential/commercial

premises, roads or bridges).

B. Current Account Transaction:

“Current account transaction” is defined under section 2(j) of FEMA to mean ‘a transaction

other than a capital account transaction and without prejudice to the generality of the foregoing

such transaction includes,-

(i) payments due in connection with foreign trade, other current business, services and shortterm

banking and credit facilities in the ordinary course of business,

(ii) payments due as interest on loans and as net income from investments,

(iii) remittances for living expenses of parent, spouse and children residing abroad, and

(iv) expenses in connection with foreign travel, education and medical care of parents, spouse

and children.’

All Current Account transactions are generally permitted unless specifically prohibited whereas

all Capital Account transactions are generally prohibited unless specifically permitted.

Current Account transactions are divided into 3 schedules in Current Account Transaction rules:

Schedule I – Prohibited Transactions

Schedule II – Transactions requiring prior approval of Government of India

Schedule III – Transactions requiring prior approval of RBI

EXAMPLES TO UNDERSTAND CAPITAL AND CURRENT ACCOUNT TRANSACTIONS:

a. Import of Machinery on hire purchase:

In this transaction the person has created future obligation for making payment to nonresident

and hence has liability towards the non-resident. Therefore the said transaction is a

capital account transaction.

b. Transaction representing creation or acquisition of wealth, shares, loans or immovable

properties:

Since such types of transactions would lead to creation of assets in or outside India by

person resident outside or in India, as the case may be, the same are in nature of capital

account transactions.

c. Remittances out of winnings from lottery:

This comes under Prohibited list (Schedule I) of the Current account transaction. Hence

although the same is in nature of current account such transactions are prohibited.

However, an entity engaged in lottery business, imports any software or machinery to be

utilized in lottery business in India, the same is a permissible transaction. Import of software

or machinery will not result in violation of FEMA regulations in relation to current account

transactions.

But any type of technical collaboration for lottery business including licensing for franchise,

trademark, brand name, management contract or any contract for payment of royalty as

such for such collaboration is prohibited under both current account transaction rules and

also under FDI Policy. Hence, such transactions are not permissible.

d. Options premium payable under NASDAQ:

Options premium is the price paid by a person to buy an option contract, whether it is a call

or put. So option premium is paid to acquire only specified rights for a contract. Under

option contract there is no future obligation in addition to option premium paid at the time

of entering into contract so it does not result into creation of any contingent liability and

hence is a current account transaction. Whereas future contract would be a capital account

transaction. Option contract may result into creation of contingent asset, and such

contingent asset is not covered in the definition of Capital Account transaction.

e. Opening a branch outside India:

Opening a branch outside India is a current account transaction as it does not result into

alteration of any assets and liabilities overseas, since overseas branch would be regarded as

Resident of India. If however, such overseas branch proposes to acquire immovable

property (say office premises) outside India, such acquisition would be regarded as Capital

Account Transaction.

Opening a branch outside India is a permissible current account transaction and regulated

by Notification No. 10/2000-RB dated 3-5-2000 dealing with Foreign Currency accounts by a

person resident in India.

OTHER IMPORTANT SECTIONS – SEC 6(4) AND SEC 6(5):

Section 6(4):

A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or

any immovable property situated outside India if such currency, security or property was acquired,

held or owned by such person when he was resident outside India or inherited from a person who

was resident outside India.

However, there was no clarity on the type of transactions that would be covered under section 6(4).

Hence, RBI with a view to resolve the doubts, vide its A. P. (DIR Series) Circular No. 90 dated January

9, 2014 clarified that the following transactions shall be covered under Section 6(4) of FEMA, 1999:

a. Foreign currency accounts opened and maintained by such a person when he was resident

outside India.

b. Income earned through employment or business or vocation outside India taken up or

commenced, or from investments made, or from gift or inheritance received while such a person

was resident outside India.

c. Foreign exchange including any income arising there from, and conversion or replacement or

accrual to the same, held outside India acquired by way of inheritance from a person resident

outside India.

d. A person resident in India may freely utilize all their eligible assets abroad as well as income on

such assets or sale proceeds thereof received after their return to India for making any

payments or to make any fresh investments abroad without prior approval of RBI

Thus, section 6(4) gives liberty to a person resident in India to keep with him any foreign currency or

foreign security or immovable property which he might have acquired when he was resident outside

India, without any compliance and reporting under FEMA.

Section 6(5):

A person resident outside India may hold, own, transfer or invest in Indian currency, security or any

immovable property situated in India if such currency, security or property was acquired, held or

owned by such person when he was resident in India or inherited from a person who was resident in

India.

This section allows a person resident outside India to keep with him any currency, security or

immovable property which he might have acquired when he was resident in India. In case if the

person liquidates his investment owned by him in India, he can keep the funds in his NRO account.

RBI vide Notification 13 (Remittance of assets) allows to remit the balances of sales proceeds of

assets held by NRI subject to the limit of USD 1 million per financial year.

THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999

ACT NO. 42 OF 1999 [29th December, 1999.]

An Act 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.

BE it enacted by Parliament in the Fiftieth Year of the Republic of India as follows:-

• PRELIMINARY

Short title, extent, application and commencement.

• This Act may be called the Foreign Exchange Management Act, 1999.

• It extends to the whole of India.

• It shall also apply to all branches, offices and agencies outside India owned or

controlled by a person resident in India and also to any contravention

thereunder committed outs ide India by any person to whom this Act applies .

• It shall come into force on such date as the Central Government may, by

notification in the Official Gazette, appoint: Provided that different dates may

be appointed for different provisions of this Act and any reference in any such

provision to the commencement of this Act shall be construed as a reference to

the coming into force of that provision.

Definitions

• Definitions.-In this Act, unless the context otherwise requires,- (a)

"Adjudicating Authority" means an officer authorized under sub-section (1) of

section 16

• "Appellate Tribunal" means the Appellate Tribunal for Foreign Exchange

established under section 18;

• "authorized person" means an authorized dealer, money changer, off-shore

banking unit or any other person for the time being authorized under subsection

(1) of section 10 to deal in foreign exchange or foreign securities;

• "Bench" means a Bench of the Appellate Tribunal;

• "capital account transaction" 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, and

includes t ansactions referred to in sub-section (3) of section 6;

• "Chairperson" means the Chairperson of the Appellate Tribunal;

• "chartered accountant" shall have the meaning assigned to it in clause (b) of

sub-section (1) of section 2 of the Chartered Accounts Act, 1949 (38 of 1949);

• "currency" includes all currency notes, postal notes, postal orders, money

orders, cheques, drafts, travelers cheques, letters of credit, bills of exchange

and promissory notes, credit cards or such other similar instruments, as may be

notified by the Reserve Bank;

• "currency notes" means and includes cash in the form of coins and bank notes;

• "current account transaction" means a transaction other than a capital account

transaction and without prejudice to the generality of the foregoing such

transaction includes,-

o payments due in connection with foreign trade, other current business,

services, and short-term banking and credit facilities in the ordinary

course of business,

o payments due as interest on loans and as net income from investments,

o remittances for living expenses of parents, spouse and children residing

abroad, and

o expenses in connection with foreign travel, education and medical care

of parents, spouse and children;

• "Director of Enforcement" means the Director of Enforcement appointed

under sub-section (1) of section 36;

o "export", with its grammatical variations and cognate expressions,

meanso

the taking out of India to a place outside India any goods,

o provision of services from India to any person outside India;

• "foreign currency" means any currency other than Indian currency;

• "foreign exchange" means foreign currency and includes,-

o deposits, credits and balances payable in any foreign currency

o drafts, travelers cheques, letters of credit or bills of exchange,

expressed or drawn in Indian currency but payable in any foreign

currency,

o drafts, travelers cheques, letters of credit or bills of exchange drawn by

banks, institutions or persons outside India, but payable in Indian

currency;

• "foreign security" means any security, in the form of shares, stocks, bonds,

debentures or any other instrument denominated or expressed in foreign

currency and includes securities expressed in foreign currency, but where

redemption or any form of re urn such as interest or dividends is payable in

Indian currency;

• "import", with its grammatical variations and cognate expressions, means

bringing into India any goods or services;

• "Indian currency" means currency which 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 (2 of 1934);

• "legal practitioner" shall have the meaning assigned to it in clause (i) of subsection

(1) of section 2 of the Advocates Act, 1961 (25 of 1961);

• "Member" means a Member of the Appellate Tribunal and includes the

Chairperson thereof;

• "notify" means to notify in the Official Gazette and the expression

"notification" shall be construed accordingly;

• "person" includeso

an individual,

o a Hindu undivided family,

o a company,

o a firm,

o an association of persons or a body of individuals, whether

incorporated or not,

o every artificial juridical person, not falling within any of the preceding

sub-clauses, and

o any agency, office or branch owned or controlled by such person;

• "person resident in India" means- (i) a person residing in India for more than

one hundred and eighty-two days during the course of the preceding financial

year but does not includeo

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 outside India a business or vocation outside

India, or

� for any other purpose, in such circumstances as would indicate

his intention to stay outside India for an uncertain period;

o a person who has come to or stays in India, in either case, otherwise

than-

� for or on taking up employment in India, or

� for carrying on in India a business or vocation in India, or

o (i) for any other purpose, in such circumstances as would indicate his

intention to stay in India for an uncertain period;

� any person or body corporate registered or incorporated in

India

� an office, branch or agency in India owned or controlled by a

person resident outside India,

� an office, branch or agency outside India owned or controlled

by a person resident in India;

• "person resident outside India" means a person who is not resident in India;

• "prescribed" means prescribed by rules made under this Act;

• "repatriate to India" means bringing into India the realized foreign exchange

ando

the selling of such foreign exchange to an authorized person in India in

exchange for rupees, or

o 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 and the expression "repatriation" shall be construed

accordingly;

• "Reserve Bank" means the Reserve Bank of India constituted under subsection

(1) of section 3 of the Reserve Bank of India Act, 1934 (2 of 1934);

o "security" means shares, stocks, bonds and debentures, Government

securities as defined in the Public Debt Act, 1944 (18 of 1944), savings

certificates to which the Government Savings Certificates Act, 1959

(46 of 1959) applies, deposit receipts in espect of deposits of securities

and units of the Unit Trust of India established under sub-section (1) of

section 3 of the Unit Trust of India Act, 1963 (52 of 1963) or of any

mutual fund and includes certificates of title to securities, but does not

in lude bills of exchange or promissory notes other than Government

promissory notes or any other instruments which may be notified by

the Reserve Bank as security for the purposes of this Act;

o "service" means service of any description which is made available to

potential users and includes the provision of facilities in connection

with banking, financing, insurance, medical assistance, legal

assistance, chit fund, real estate, transport, processing, supply of

electrical or other energy, boarding or lodging or both, entertainment,

amusement or the purveying of news or other information, but does not

include the rendering of any service free of charge or under a contract

of personal servic ;

o "Special Director (Appeals)" means an officer appointed under section

18;

o "specify" means to specify by regulations made under this Act and the

expression "specified" shall be construed accordingly;

o "transfer" includes sale, purchase, exchange, mortgage, pledge, gift,

loan or any other form of transfer of right, title, possession or lien.

CHAP

REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE

CHAPTER II-REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE

Dealing in foreign exchange, etc.

Dealing in foreign exchange, etc.-Save as otherwise 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 or for the credit of 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. Explanation.-For

the purpose of this clause, where any person in, or resident in, India receives

any payment by order or on behalf of any person resident outside India

through any other person (including an authorized person) without a

corresponding inwa d remittance from any place outside India, then, such

person shall be deemed to have received such payment otherwise than through

an authorized person;

• 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. Explanation.-For the purpose of this clause,

"financial transaction" means making any payment to, or for the credit of any

person, or receiving any payment for, by order or on behalf of any person, or

drawing, issuing or negotiating any bill of exchange r promissory note, or

transferring any security or acknowledging any debt.

Holding of foreign exchange, etc.

Holding of foreign exchange, etc.-Save as otherwise provided in this Act, no person

resident in India shall acquire, hold, own, possess or transfer any foreign exchange,

foreign security or any immovable property situated outside India.

Current account transactions.

Current account transactions.-Any person may sell or draw foreign exchange to or

from an authorized person if such sale or drawal is a current account transaction:

Provided that the Central Government may, in public interest and in consultation with

the Reserve Bank, impose such reasonable restrictions for current account

transactions as may be prescribed

Capital account transactions.

• Capital account transactions. -(1) Subject to the provisions of sub-section (2),

any person may sell or draw foreign exchange to or from an authorized person

for a capital account transaction.

• The Reserve Bank may, in consultation with the Central Government, specifyo

any class or classes of capital account transactions which are

permissible;

o the limit up to which foreign exchange shall be admissible for such

transactions: Provided that the Reserve Bank shall not impose any

restriction on the drawal of foreign exchange for payments due on

account of amortization of loans or for depreciation of direct

investments in the ordinary courts of business.

• Without prejudice to the generality of the provisions of sub-section (2), the

Reserve Bank may, by regulations, prohibit, restrict or regulate the followingo

transfer or issue of any foreign security by a person resident in India;

o transfer or issue of any security by a person resident outside India;

o transfer or issue of any security or foreign security by any branch,

office or agency in India of a person resident outside India;

o any borrowing or lending in rupees in whatever form or by whatever

name called;

o any borrowing or lending in rupees in whatever form or by whatever

name called between a person resident in India and a person resident

outside India;

o deposits between persons resident in India and persons resident outside

India;

o export, import or holding of currency or currency notes;

o transfer of immovable property outside India, other than a lease not

exceeding five years, by a person resident in India;

o acquisition or transfer of immovable property in India, other than a

lease not exceeding five years, by a person resident outside India;

o giving of a guarantee or surety in respect of any debt, obligation or

other liability incurred-

� by a person resident in India and owed to a person resident

outside India; or

� by a person resident outside India.

• A person resident in India may hold, own, transfer or invest in foreign

currency, foreign security or any immovable property situated outside India if

such currency, security or property was acquired, held or owned by such

person when he was resident outside India or inherited from a person who was

resident outside India.

• A person resident outside India may hold, own, transfer or invest in Indian

currency, security or any immovable property situated in India if such

currency, security or property was acquired, held or owned by such person

when he was resident in India or inherited from a person who was resident in

India.

• A person resident outside India may hold, own, transfer or invest in Indian

currency, security or any immovable property situated in India if such

currency, security or property was acquired, held or owned by such person

when he was resident in India or inherited from a person who was resident in

India.

Export of goods and services.

• Every exporter of goods shallo

furnish to the Reserve Bank or to such other authority a declaration in

such form and in such manner as may be specified, containing true and

correct material particulars, including the amount representing the full

export value or, if the full export value of the goods is not ascertainable

at the time of export, the value which the exporter, having regard to the

prevailing market conditions, expects to receive on the sale of the

goods in a market outside India;

o furnish to the Reserve Bank such other information as may be required

by the Reserve Bank for the purpose of ensuring the realization of the

export proceeds by such exporter.

• The Reserve Bank may, for he purpose of ensuring that the full export value of

the goods or such reduced value of the goods as the Reserve Bank determines,

having regard to the prevailing market conditions, is received without any

delay, direct any e porter to comply with such requirements as it deems fit.

• Every exporter of services shall furnish to the Reserve Bank or to such other

authorities a declaration in such form and in such manner as may be specified,

containing the true and correct material particulars in relation to payment for

such services

Realisation and repatriation of foreign exchange.

Realisation and repatriation of foreign exchange.-Save as otherwise provided in this

Act, where any amount of foreign exchange is due or has accrued to any person

resident in India, such person shall take all reasonable steps to realize and repatriate to

India such foreign exchange within such period and in such manner as may be

specified by the Reserve Bank.

Exemption from realization and repatriation in certain cases.

Exemption from realization and repatriation in certain cases. -The provisions of

sections 4 and 8 shall not apply to the following, namely:-

• possession of foreign currency or foreign coins by any person up to such limit

as the Reserve Bank may specify;

• foreign currency account held or operated by such person or class of persons

and the limit up to which the Reserve Bank may specify;

• foreign exchange acquired or received before the 8th day of July, 1947 or any

income arising or accruing thereon which is he ld outside India by any person

in pursuance of a general or spec ial permission granted by the Reserve Bank;

• foreign exchange held by a person resident in India up to su ch limit as the

Reserve Bank may specify, if such foreign exchan ge was acquired by way of

gift or inheritance from a person refe rred to in clause (c), including any

income arising therefrom;

• foreign exchange acquired from employment, business, trade, vocation,

services, honorarium, gifts, inheritance or any other legitimate means up to

such limit as the Reserve Bank may specif y; and

• such other receipts in foreign exchange as the Reserve Bank may specify.

CHAP

AUTHORISED PERSON

CHAPTER III- AUTHORISED PERSON

Authorised person.

• The Reserve Bank may, on an application made to it in this behalf, authorize

any person to be known as authorized person to deal in foreign exchange or in

foreign securities, as an authorized dealer, money changer or off-shore anking

unit or in any other manner as it deems fit.

• An authorization under this section shall be in writing and shall be subject to

the conditions laid down therein.

• An authorization granted under sub-section (1) may be revoked by the Reserve

Bank at any time if the Reserve Bank is satisfied thato

it is in public interest so to do; or

o the authorized person has failed to comply with the condition subject

to which the authorization was granted or has contravened any of the

provisions of the Act or any rule, regulation, notification, direction or

order made thereunder:

� Provided that no such authorization shall be revoked on any

ground referred to in clause (b) unless the authorized person

has been given a reasonable opportunity of making a

representation in the matter.

• An authorized person shall, in all his dealings in foreign exchange or foreign

security, comply with such general or special directions or orders as the

Reserve Bank may, from time to time, think fit to give, and, except with the

previous permission f the Reserve Bank, an authorized person shall not engage

in any transaction involving any foreign exchange or foreign security which is

not in conformity with the terms of his authorization under this section.

• An authorized person shall, before undertaking any transaction in foreign

exchange on behalf of any person, require that person to make such

declaration and to give such information as will reasonably satisfy him that the

transaction will not involve and is not designed for the purpose of any

contravention or evasion of the provisions of this Act or of any rule,

regulation, notification, direction or order made thereunder, and where the said

person refuses to comply with any such requirement or make only

unsatisfactory compliance therewith, the authorized person shall refuse in

writing to undertake the transaction and shall, if he has reason to believe that

any such contravention or evasion as aforesaid is contemplated by the person,

report the mat er to the Reserve Bank.

• Any person, other than an authorized person, who has acquired or purchased

foreign exchange for any purpose mentioned in the declaration made by him to

authorized person under sub-section (5) does not use it for such purpose or

does not surrender it o authorized person within the specified period or uses

the foreign exchange so acquired or purchased for any other purpose for which

purchase or acquisition or foreign exchange is not permissible under the

provisions of the Act or the rules or regulatio s or direction or order made

thereunder shall be deemed to have committed contravention of the provisions

of the Act for the purpose of this section.

Reserve Bank's powers to issue directions to authorized person.

• Reverve Bank's powers to issue directions to authorized person.-(1) The

Reserve Bank may, for the purpose of securing compliance with the provisions

of this Act and of any rules, regulations, notifications or directions made

thereunder, give to the a thorized persons any direction in regard to making of

payment or the doing or desist from doing any act relating to foreign exchange

or foreign security.

• The Reserve Bank may, for the purpose of ensuring the compliance with the

provisions of this Act or of any rule, regulation, notification, direction or order

made thereunder, direct any authorized person to furnish such information, in

such manner, a it deems fit.

• Where any authorized person contravenes any direction given by the Reserve

Bank under this Act or fails to file any return as directed by the Reserve Bank,

the Reserve Bank may, after giving person a penalty which may extend to ten

thousand rupees and in the case of continuing contravention with an additional

penalty which may extend to two thousand rupees for every day during which

such contravention continues. reasonable opportunity of being heard, impose

on the author sed

Power of Reserve Bank to inspect authorised person.

• The Reserve Bank may, at any time, cause an inspection to be made, by any

officer of the Reserve Bank specially authorised in writing by the Reserve

Bank in this behalf, of the business of any a thorised person as may appear to

it to be necessary or expedient for the purpose ofo

verifying the correctness of any statement, information or particulars

furnished to the Reserve Bank;

o obtaining any information or particulars which such authorised person

has failed to furnish on being called upon to do so;

o securing compliance with the provisions of this Act or of any rules,

regulations, directions or orders made thereunder.

• It shall be the duty of every authorised person, and where such person is a

company or a firm, every director, partner or other officer of such company or

firm, as the case may be, to produce to any officer making an inspection under

sub-section (1), such books, accounts and other documents in his custody or

power and to furnish any statement or information relating to the affairs of

such person, company or firm as the said officer may require within such time

and in such manner as the said officer m y direct.

CONTRAVENTION AND PENALTIES

CHAPTER IV-CONTRAVENTION AND PENALTIES

Penalties

• If any person contravenes any provision of this Act, or contravenes any rule,

regulation, notification, direction or order issued in exercise of the powers

under this Act, or contravenes any condition subject to which an authorization

s issued by the Reserve Bank, 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 contrav ntion is a continying one, further penalty

which may extend to five thousand rupees for every day after the first day

during which the contravention continues.

• Any Adjudicating Authority adjudging any contravention under sub-section

(1), may, if he thinks fit in addition to any penalty which he may impose for

such contravention direct that any currency, security or any other money or

property in respect of hich the contravention has taken place shall be

confiscated to the Central Government and further direct that the foreign

exchange holdings, if any, of the persons committing the contraventions or

any part thereof, shall be brought back into India or sha l be retained outside

India in accordance with the directions made in this behalf. Explanation.-For

the purposes of this sub-section, "property" in respect of which contravention

has taken place, shall includeo

deposits in a bank, where the said property is converted into such

deposits;

o Indian currency, where the said property is converted into that

currency; and

o any other property which has resulted out of the conversion of that

property.

Enforcement of te orders of Adjudicating Authority.

• Subject to the provisions of sub-section (2) of section 19, if any person fails to

make full payment of the penalty imposed on him under section 13 within a

period of ninety days from the date n which the notice for payment of such

penalty is served on him, he shall be liable to civil imprisonment under this

section.

• No order for the arrest and detention in civil prison of a defaulter shall be

made unless the Adjudication Authority has issued and served a notice upon

the defaulter calling upon him to appear before him on the date specified in the

notice and to sh w cause why he should not be committed to the civil prison,

and unless the Adjudicating Authority, for reasons in writing, is satisfiedo

that the defaulter, with the object or effect of obstructing the recovery

of penalty, has after the issue of notice by the Adjudicating Authority,

dishonestly transferred, concealed, or removed any part of his property,

o that the defaulter has, or has had since the issuing of notice by the

Adjudicating Authority, the means to pay the arrears or some

substantial part thereof and refuses or neglects or has refused or

neglected to pay the same.

• Notwithstanding anything contained in sub-section (1), a warrant for the arrest

of the defaulter may be issued by the Adjudicating Authority if the

Adjudicating Authority is satisfied, by affidavit or otherwise, that with the

object or effect of dela ing the execution of the certificate the defaulter is

likely to abscond or leave the local limits of the jurisdiction of the

Adjudicating Authority.

• Where appearance is not made pursuant to a notice issued and served under

sub-section (1), the Adjudicating Authority may issue a warrant for the arrest

of the defaulter.

• A warrant of arrest issued by the Adjudicating Authority under sub-section (3)

or sub-section (4) may also be executed by any other Adjudicating Authority

within whose jurisdiction the defaulter may for the time being be found.

• Every person arrested in pursuance of a warrant of arrest under this section

shall be brought before the Adjudicating Authority issuing the warrant as soon

as practicable and in any event within twenty-four hours of his arrest

(exclusive of the time equired for the journey): Provided that, if the defaulter

pays the amount entered in the warrant of arrest as due and the costs of the

arrest to the officer arresting him, such officer shall at once release him.

Explanation.-For the purposes of this sub-section, where the defaulter is a

Hindu undivided family, the karta thereof shall be deemed to be the defaulter.

• When a defaulter appears before the Adjudicating Authority pursuant to a

notice to show cause or is brought before the Adjudicating Authority under

this section, the Adjudicating Authority shall give the defaulter an opportunity

showing cause why he hould not be committed to the civil prison.

• Pending the conclusion of the inquiry, the Adjudicating Authority may, in his

discretion, order the defaulter to be detained in the custody of such officer as

the Adjudicating Authority may think fit or release him on his furnishing the

security to t e satisfaction of the Adjudicating Authority for his appearance as

and when required.

• Upon the conclusion of the inquiry, the Adjudicating authority may make an

order for the detention of the defaulter in the civil prison and shall in that

event cause him to be arrested if he is not already under arrest: Provide that in

order to give a defaulter an opportunity of satisfying the arrears, the

Adjudicating Authority may, before making the order of detention, leave the

defaulter in the custody of the officer arresting him or of any other officer for

a specif ed period not exceeding fifteen days, or release him on his furnishing

security to the satisfaction of the Adjudicating Authority for his appearance at

the expiration of the specified period if the arrears are not satisfied.

• When the Adjudicating Authority does not make an order of detention under

sub-section (9), he shall, if the defaulter is under arrest, direct his release.

• Every person detained in the civil prison in execution of the certificate may be

so detained,-

o where the certificate is for a demand of an amount exceeding rupees

one crore, up to three years, and

o in any other case, up to six months: Provided that he shall be released

from such detention on the amount mentioned in the warrant for his

detention being paid to the officer-in-charge of the civil prison.

• A defaulter released from detention under this section shall not, merely by

reason of his release, be discharged from his liability for the arrears, but he

shall not be liable to be arrested under the certificate in execution of which he

was detaine in the civil prison.

• A detention order may be executed at any place in India in the manner

provided for the execution of warrant of arrest under the Code of Criminal

Procedure, 1973 (2 of 1974).

Power to compound contravention.

• Any contravention under section 13 may, on an application made by the

person committing such contravention, be compounded within one hundred

and eighty days from the date of receipt of application by the Director f

Enforcement or such other officers of the Directorate of Enforcement and

officers of the Reserve Bank as may be authorised in this behalf by the Central

Government in such manner as may be prescribed.

• Where a contravention has been compounded under sub-section (1), no

proceeding or further proceeding, as the case may be, shall be initiated or

continued, as the case may be, against the person committing such

contravention under that section, in re pect of the contravention so

compounded.

ADJUDICATION AND APPEAL

CHAPTER V- ADJUDICATION AND APPEAL

Appointment of Adjudicating Authority.

• For the purpose of adjudication under section 13, the Central Government

may, by an order published in the Official Gazette, appoint as many officers of

the Central Government as it may think fit, as the Adj dicating Authorities for

holding an inquiry in the manner prescribed after giving the person alleged to

have committed contravention under section 13, against whom a complaint

has been made under sub-section (3) (hereinafter in this section referred to a

the said person) a reasonable opportunity of being heard for the purpose of

imposing any penalty: Provided that where the Adjudicating Authority is of

opinion that the said person is likely to abscond or is likely to evade in any

manner, the payment of penalty, if levied, it may direct the said person to

furnish a bond or guarantee for such amount an subject to such conditions as it

may deem fit.

• The Central Government shall, while appointing the Adjudicating Authorities

under sub-section (1), also specify in the order published in the Official

Gazette, their respective jurisdictions.

• No Adjudicating Authority shall hold an enquiry under sub-section (1) except

upon a complaint in writing made by any officer authorised by a general or

special order by the Central Government.

• The said person may appear either in person or take the assistance of a legal

practitioner or a chartered accountant of his choice for presenting his case

before the Adjudicating Authority.

• Every Adjudicating Authority shall have the same powers of a civil court

which are conferred on the Appellate Tribunal under sub-section (2) of section

28 ando

all proceedings before it shall be deemed to be judicial proceedings

within the meaning of sections 193 and 228 of the Indian Penal Code

(45 of 1860);

o shall be deemed to be a civil court for the purposes of sections 345 and

346 of the Code of Criminal Procedure, 1973 (2 of 1974).

• Every Adjudicating Authority shall deal with the complaint under sub-section

(2) as expeditiously as possible and endeavor shall be made to dispose of the

complaint finally within one year from the date of receipt of the complaint:

Provided that where the complaint cannot be disposed of within the said

period, the Adjudicating Authority shall record periodically the reasons in

writing for not disposing of the complaint within the said period.

Appeal to Special Director (Appeals).

• The Central Government shall, by notification, appoint one or more Special

Directors (Appeals) to hear appeals against the orders of the Adjudicating

Authorities under this section and shall also specify in t e said notification the

matter and places in relation to which the Special Director (Appeals) may

exercise jurisdiction.

• Any person aggrieved by an order made by the Adjudicating Authority, being

an Assistant Director of Enforcement or a Deputy Director of Enforcement,

may prefer an appeal to the Special Director (Appeals).

• Every appeal under sub-section (1) shall be filed within forty-five days from

the date on which the copy of the order made by the Adjudicating Authority is

received by the aggrieved person and it shall be in such form, verified in such

manner and be ccompanied by such fee as may be prescribed: Provided that

the Special Director (Appeals) may entertain an appeal after the expiry of the

said period of forty-five days, if he is satisfied that there was sufficient cause

for not filing it within that period.

• On receipt of an appeal under sub-section (1), the Special Director (Appeals)

may after giving the parties to the appeal an opportunity of being heard, pass

such order thereon as he thinks fit, confirming, modifying or setting aside the

order appeale against.

• The Special Director (Appeals) shall send a copy of every order made by him

to the parties to appeal and to the concerned Adjudicating Authority.

• The Special Director (Appeals) shall have the same powers of a civil court

which are conferred on the Appellate Tribunal under sub-section (2) of section

28 ando

all proceedings before him shall be deemed to be judicial proceedings

within the meaning of sections 193 and 228 of the Indian Penal Code

(45 of 1860);

o shall be deemed to be a civil court for the purposes of sections 345 and

346 of the Code of Criminal Procedure, 1973 (2 of 1974).

Establishment of Appellate Tribunal.

Establishment of Appellate Tribunal.-The Central Government shall, by notification,

establish an Appellate Tribunal to be known as the Appellate Tribunal for Foreign

Exchange to hear appeals against the orders of the Adjudicating Authorities and the

pecial Director (Appeals) under this Act.

Appeal to Appellate Tribunal.

• Save as provided in sub-section (2), the Central Government or any person

aggrieved by an order made by an Adjudicating Authority, other than those

referred to in sub-section (1) of section 17, or the Special Directo (Appeals),

may prefer an appeal to the Appellate Tribunal: Provided that any person

appealing against the order of the Adjudicating Authority or the Special

Director (Appeals) levying any penalty, shall while filing the appeal, deposit

the amount of such penalty with such authority as may be notified by the Cent

al Government:

Provided further that where in any particular case, the Appellate Tribunal is of

the opinion that the deposit of such penalty would cause undue hardship to

such person, the Appellate Tribunal may dispense with such deposit subject to

such conditions as i may deem fit to impose so as to safeguard the realisation

of penalty.

• Every appeal under sub-section (1) shall be filed within a period of forty-five

days from the date on which a copy of the order made by the Adjudicating

Authority or the Special Director (Appeals) is received by the aggrieved

person or by the Central Government and it shall be in such form, verified in

such manner and be accompanied by such fee as may be prescribed : Provided

that the Appellate Tribunal may entertain an appeal after the expiry of the said

period of forty-five days if it is satisfied that there was sufficient cause for not

filing it within that period.

• On receipt of an appeal under sub-section (1), the Appellate Tribunal may,

after giving the parties to the appeal an opportunity of being heard, pass such

orders thereon as it thinks fit, confirming, modifying or setting aside the order

appealed agai st.

• The Appellate Tribunal shall send a copy of every order made by it to the

parties to the appeal and to the concerned Adjudicating Authority or the

Special Director (Appeals), as the case may be.

• The appeal filed before the Appellate Tribunal under sub-section (1) shall be

dealt with by it as expeditiously as possible and endeavour shall be made by it

to dispose of the appeal finally within one hundred and eighty days from the

date of receipt of the appeal: Provided that where any appeal could not be

disposed of within the said period of one hundred and eighty days, the

Appellate Tribunal shall record its reasons in writing for not disposing off the

appeal within the said period.

• The Appellate Tribunal may, for the purpose of examining the legality,

propriety or correctness of any order made by the Adjudicating Authority

under section 16 in relation to any proceeding, on its own motion or otherwise,

call for the records of su h proceedings and make such order in the case as it

thinks fit.

Composition of Appellate Tribunal.

• The Appellate Tribunal shall consist of a Chairperson and such number of

Members as the Central Government may deem fit.

• Subject to the provisions of this Act,-]

o the jurisdiction of the Appellate Tribunal may be exercised by Benches

thereof;

o a Bench may be constituted by the Chairperson with one or more

Members as the Chairperson may deem fit;

o the Benches of the Appellate Tribunal shall ordinarily sit at New Delhi

and at such other places as the Central Government may, in

consultation with the Chairperson, notify;

o the Central Government shall notify the areas in relation to which each

Bench of the Appellate Tribunal may exercise jurisdiction

• Notwithstanding anything contained in sub-section (2), the Chairperson may

transfer a Member from one Bench to another Bench.

• If at any stage of the hearing of any case or matter it appears to the

Chairperson or a Member that the case or matter is of such a nature that it

ought to be heard by a Bench consisting of two Members, the case or matter

may be transferred by the Ch irperson or, as the case may be, referred to him

for transfer, to such Bench as the Chairperson may deem fit.

Qualifications for appointment of Chairperson, Member andSpecial Director

(Appeals).

• A person shall not be qualified for appointment as the Chairperson or a

Member unless heo

in the case of Chairperson, is or has been, or is qualified to be, a Judge

of a High Court; and

o in the case of a Member, is or has been, or is qualified to be, a District

Judge.

• A person shall not be qualified for appointment as a Special Director

(Appeals) unless heo

has been a member of the Indian Legal Service and has held a post in

Grade I of that Service; or

o has been a member of the Indian Revenue Service and has held a post

equivalent to a Joint Secretary to the Government of India.

Term of Office.

The Chairperson and every other Member shall hold office as such for a term of five

years from the date on which he enters upon his office: Provided that no Chairperson

or other Member shall hold office as such after he has attained,-

• in the case of the Chairperson, the age of sixty-five years;

• in the case of any other Member, the age of sixty-two years.

Term and Conditions of service.

The salary and allowances payable to and the other terms and conditions of service of

the Chairperson, other Members and the Special Director (Appeals) shall be such as

may be prescribed:

Provided that neither the salary and allowances nor the other terms and conditions of

service of the Chairperson or a Member shall be varied to his disadvantage after

appointment.

Vacancies.

-If, for reason other than temporary absence, any vacancy occurs in the office of the

Chairperson or a Member, the Central Government shall appoint another person in

accordance with the provisions of this Act to fill the vacancy and the pro eedings may

be continued before the Appellate Tribunal from the stage at which the vacancy is

filled.

Resignation and removal.

• The Chairperson or a Member may, by notice in writing under his hand

addressed to the Central Government, resign his office:Provided that the

Chairperson or a Member shall, unless he is permitted by the Central

Government to relinquish his office sooner, continue to hold office until the

expiry of three months from the date of receipt of such notice or until a person

duly app inted as his successor enters upon his office or until the expiry of

term of office, whichever is the earliest.

• The Chairperson or a Member shall not be removed from his office except by

an order by the Central Government on the ground of proved misbehaviour or

incapacity after an inquiry made by such person as the President may appoint

for this purpose in whi h the Chairperson or a Member concerned has been

informed of the charges against him and given a reasonable opportunity of

being heard in respect of such charges.

Member to act as Chairperson in certain circumstances.

• In the event of the occurrence of any vacancy in the office of the Chairperson

by reason of his death, resignation or otherwise, the senior-most Member shall

act as the Chairperson until the ate on which a new Chairperson, appointed in

accordance with the provisions of this Act to fill such vacancy, enters upon his

office.

• When the Chairperson is unable to discharge his functions owing to absence,

illness or any other cause, the senior-most Member shall discharge the

functions of the Chairperson until the date on which the Chairperson resumes

his duties.

Staff of Appellate Tribunal and Special Director (Appeals).

• The Central Government shall provide the Appellate Tribunal and the Special

Director (Appeals) with such officers and employees as it may deem fit.

• The officers and employees of the Appellate Tribunal and office of the Special

Director (Appeals) shall discharge their functions under the general

superintendence of the Chairperson and the Special Director (Appeals), as the

case may be.

• The salaries and allowances and other conditions of service of the officers and

employees of the Appellate Tribunal and office of the Special Director

(Appeals) shall be such as may be prescribed.

Procedure and powers of Appellate Tribunal and Special Director(Appeals).

• The Appellate Tribunal and the Special Director (Appeals) shall not be bound

by the procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908),

but shall be guid d by the principles of natural justice and, subject to the other

provisions of this Act, the Appellate Tribunal and the Special Director

(Appeals) shall have powers to regulate its own procedure.

• The Appellate Tribunal and the Special Director (Appeals) shall have, for the

purposes of discharging its functions under this Act, the same powers as are

vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908)

while trying a suit in respect of the following matters, namely:-

o summoning and enforcing the attendance of any person and examining

him on oath;

o requiring the discovery and production of documents;

o receiving evidence on affidavits;

o subject to the provisions of sections 123 and 124 of the Indian

Evidence Act, 1872 (1 of 1872), requisitioning any public record or

document or copy of such record or document from any office;

o issuing commissions for the examination of witnesses or documents;

o reviewing its decisions;

o dismissing a representation of default or deciding it ex parte;

o setting aside any order of dismissal of any representation for default or

any order passed by it ex parte; and

o any other matter which may be prescribed by the Central Government.

• An order made by the Appellate Tribunal or the Special Director (Appeals)

under this Act shall be executable by the Appellate Tribunal or the Special

Director (Appeals) as a decree of civil court and, for this purpose, the

Appellate Tribunal and the pecial Director (Appeals) shall have all the powers

of a civil court.

• Notwithstanding anything contained in sub-section (3), the Appellate Tribunal

or the Special Director (Appeals) may transmit any order made by it to a civil

court having local jurisdiction and such civil court shall execute the order as if

it were a ecree made by that court.

• All proceedings before the Appellate Tribunal and the Special Director

(Appeals) shall be deemed to be judicial proceedings within the meaning of

sections 193 and 228 of the Indian Penal Code (45 of 1860) and the Appellate

Tribunal shall be deemed to be a civil court for the purposes of sections 345

and 346 of the Code of Criminal Procedure, 1973 (2 of 1974).

Distribution of business amongst Benches.

Distribution of business amongst Benches.-Where Benches are constituted, the

Chairperson may, from time to time, by notification, make provisions as to the

distribution of the business of the Appellate Tribunal amongst the Benches and also

provide fo the matters which may be dealt with by each Bench.

Power of Chairperson to transfer cases.

Power of Chairperson to transfer cases.-On the application of any of the parties and

after notice to the parties, and after hearing such of them as he may desire to be heard,

or on his own motion without such notice, the Chairperson may transfer any ase

pending before one Bench, for disposal, to any other Bench.

Decision to be by majority.

Decision to be by majority.-If the Members of a Bench consisting of two Members

differ in opinion on any point, they shall state the point or points on which they differ,

and make a reference to the Chairperson who shall either hear the point or poi ts

himself or refer the case for hearing on such point or points by one or more of the

other Members of the Appellate Tribunal and such point or points shall be decided

according to the opinion of the majority of the Members of the Appellate Tribunal

who have heard the case, including those who first heard it.

Right of appellant to take assistance of legal practitioner orchartered accountant and

of Government, to appoint presentingofficers.

Right of appellant to take assistance of legal practitioner or chartered accountant and

of Government, to appoint presenting officers.-

• A person preferring an appeal to the Appellate Tribunal or the Special Director

(Appeals) under this Act may ei her appear in person or take the assistance of

a legal practitioner or a chartered accountant of his choice to present his case

before the Appellate Tribunal or the Special Director (Appeals), as the case

may be.

• The Central Government may authorise one or more legal practitioners or

chartered accountants or any of its officers to act as presenting officers and

every person so authorised may present the case with respect to any appeal

before the Appellate Tri unal or the Special Director (Appeals), as the case

may be.

Members, etc., to be public servants.

Members, etc., to be public servants.-The Chairperson, Members and other officers

and employees of the Appellate Tribunal, the Special Director (Appeals) and the

Ajudicating Authority shall be deemed to be public servants within the meaning of

secti n 21 of the Indian Penal Code (45 of 1860).

Civil court not to have jurisdiction.

Civil court not to have jurisdiction.-No civil court shall have jurisdiction to entertain

any suit or proceeding in respect of any matter which an Adjudicating Authority or

the Appellate der this Act to determine and no injunction shall be granted by any

court or other authority in respect of any action taken or to be taken in pursuance of

any power conferred by or under this Act. Tribunal or the Special Director (Appeals)

is empowered by or u

Appeal to High Court.

Appeal to High Court.-Any person aggrieved by any decision or order of the

Appellate Tribunal may file an appeal to the High Court within sixty days from the

date of communication of the decision or order of the Appellate Tribunal to him on

any quest on of law arising out of such order:

Provided that the High Court may, if it is satisfied that the appellant was prevented by

sufficient cause from filing the appeal within the said period, allow it to be filed

within a further period not exceeding sixty days.

Explanation.-In this section "High Court" means-

• the High Court within the jurisdiction of which the aggrieved party ordinarily

resides or carries on business or personally works for gain; and

• where the Central Government is the aggrieved party, the High Court within

the jurisdiction of which the respondent, or in a case where there are more

than one respondent, any of the respondents, ordinarily resides or carries on

business or personall works for gain.

DIRECTORATE OF ENFORCEMENT

CHAPTER VI-DIRECTORATE OF ENFORCMENT

Directorate of Enforcement.

• The Central Government shall establish a Directorate of Enforcement with a

Director and such other officers or class of officers as it thinks fit, who shall

be called officers of Enforcement, for the purposes of this A t.

• Without prejudice to the provisions of sub-section (1), the Central

Government may authorise the Director of Enforcement or an Additional

Director of Enforcement or a Special Director of Enforcement or a Deputy

Director of Enforcement to appoint offi ers of Enforcement below the rank of

an Assistant Director of Enforcement.

• Subject to such conditions and limitations as the Central Government may

impose, an officer of Enforcement may exercise the powers and discharge the

duties conferred or imposed on him under this Act.

Power of search, seizure, etc.

• The Director of Enforcement and other officers of Enforcement, not below the

rank of an Assistant Director, shall take up for investigation the contravention

referred to in section 13.

• Without prejudice to the provisions of sub-section (1), the Central

Government may also, by notification, authorise any officer or class of

officers in the Central Government, State Government or the Reserve Bank,

not below the rank of an Under Secre ary to the Government of India to

investigate any contravention referred to in section 13.

• The officers referred to in sub-section (1) shall exercise the like powers which

are conferred on income-tax authorities under the Income-tax Act, 1961 (43 of

1961) and shall exercise such powers, subject to such limitations laid down

under that A t.

Empowering other officers.

• The Central Government may, by order and subject to such conditions and

limitations as it thinks fit to impose, authorise any officer of customs or any

central excise officer or any police officer or any other officer o the Central

Government or a State Government to exercise such of the powers and

discharge such of the duties of the Director of Enforcement or any other

officer of Enforcement under this Act as may be stated in the order.

• The officers referred to in sub-section (1) shall exercise the like powers which

are conferred on the income-tax authorities under the Income-tax Act, 1961

(43 of 1961), subject to such conditions and limitations as the Central

Government may impose.

MISCELLANEOUS

CHAPTER VII-MISCELLANEOUS

Presumption as to documents in certain cases.

Presumption as to documents in certain cases.-Where any document-

• is produced or furnished by any person or has been seized from the custody or

control of any person, in either case, under this Act or under any other law; or

• has been received from any place outside India (duly authenticated by such

authority or person and in such manner as may be prescribed) in the course of

investigation of any contravention under this Act alleged to have been

committed by any person, and such document is tendered in any proceeding

under this Act in evidence against him, or against him and any other person

who is proceeded against jointly with him, the court or the Adjudicating

Authority, as the case may be, shallo

presume, unless the contrary is proved, that the signature and every

other part of such document which purports to be in the handwriting of

any particular person or which the court may reasonably assume to

have been signed by, or to be in the handwri ing of, any particular

person, is in that person's handwriting, and in the case of a document

executed or attested, that it was executed or attested by the person by

whom it purports to have been so executed or attested;

o admit the document in evidence notwithstanding that it is not duly

stamped, if such document is otherwise admissible in evidence;

o in a case falling under clause (i), also presume, unless the contrary is

proved, the truth of the contents of such document.

Suspension of operation of this Act.

• If the Central Government is satisfied that circumstances have arisen rendering

it necessary that any permission granted or restriction imposed by this Act

should cease to be granted or imposed, or if it consi ers necessary or expedient

so to do in public interest, the Central Government may, by notification,

suspend or relax to such extent either indefinitely or for such period as may be

notified, the operation of all or any of the provisions of this Act.

• Where the operation of any provision of this Act has under sub-section (1)

been suspended or relaxed indefinitely, such suspension or relaxation may, at

any time while this Act remains in force, be removed by the Central

Government by notification.

• Every notification issued under this section shall be laid, as soon as may be

after it is issued, before each House of Parliament, while it is in session, for a

total period of thirty days which may be comprised in one session or in two or

more succe sive sessions, and if, before the expiry of the session immediately

following the session or the successive sessions aforesaid, both Houses agree

in making any modification in the notification or both Houses agree that the

notification should not be issu d, the notification shall thereafter have effect

only in such modified form or be of no effect, as the case may be; so,

however, that any such modification or annulment shall be without prejudice

to the validity of anything previously done under that not fication.

Power of Central Government to give directions.

Power of Central Government to give directions.-For the purposes of this Act, the

Central Government may, from time to time, give to the Reserve Bank such general or

special directions as it thinks fit, and the Reserve Bank shall, in the discharge of its

functions under this Act, comply with any such directions.

Contravention by companies.

• Where a person committing a contravention of any of the provisions of this

Act or of any rule, direction or order made thereunder is a company, every

person who, at the time the contravention was committed, was in char e of,

and was responsible to, the company for the conduct of the business of the

company as well as the company, shall be deemed to be guilty of the

contravention and shall be liable to be proceeded against and punished

accordingly: Provided that nothing contained in this sub-section shall render

any such person liable to punishment if he proves that the contravention took

place without his knowledge or that he exercised due diligence to prevent such

contravention.

• Notwithstanding anything contained in sub-section (1), where a contravention

of any of the provisions of this Act or of any rule, direction or order made

thereunder has been committed by a company and it is proved that the

contravention has taken pla e with the consent or connivance of, or is

attributable to any neglect on the part of, any director, manager, secretary or

other officer of the company, such director, manager, secretary or other officer

shall also be deemed to be guilty of the contraven ion and shall be liable to be

proceeded against and punished accordingly.Explanation.-For the purposes of

this section-(i) "company" means any body corporate and includes a firm or

other association of individuals; and

(ii) "director", in relation to a firm, means a partner in the firm.

Death or insolvency in certain cases.

Death or insolvency in certain cases.-Any right, obligation, liability, proceeding or

appeal arising in relation to the provisions of section 13 shall not abate by reason of

death or insolvency of the person liable under that section and upon such de th or

insolvency such rights and obligations shall devolve on the legal representative of

such person or the official receiver or the official assignee, as the case may be:

Provided that a legal representative of the deceased shall be liable only to the extent

of the inheritance or estate of the deceased.

Bar of legal proceedings.

Bar of legal proceedings.-No suit, prosecution or other legal proceeding shall lie

against the Central Government or the Reserve Bank or any officer of that

Government or of the Reserve Bank or any other person exercising any power or

discharging any functions or performing any duties under this Act, for anything in

good faith done or intended to be done under this Act or any rule, regulation,

notification, direction or order made thereunder.

Removal of difficulties.

• If any difficulty arises in giving effect to the provisions of this Act, the Central

Government may, by order, do anything not inconsistent with the provisions

of this Act for the purpose of removing the difficulty: Provided that no such

order shall be made under this section after the expiry of two years from the

commencement of this Act.

• Every order made under this section shall be laid, as soon as may be after it is

made, before each House of Parliament.

Power to make rules.

The Central Government may, by notification, make rules to carry out the provisions

of this Act. (2) Without prejudice to the generality of the foregoing power, such rules

may provide for,-

• the imposition of reasonable restrictions on current account transactions under

section 5;

• the manner in which the contravention may be compounded under sub-section

(1) of section 15;

• the manner of holding an inquiry by the Adjudicating Authority under subsection

(1) of section 16;

• the form of appeal and fee for filing such appeal under sections 17 and 19;

• the salary and allowances payable to and the other terms and conditions of

service of the Chairperson and other Members of the Appellate Tribunal and

the Special Director (Appeals) under section 23;

• the salaries and allowances and other conditions of service of the officers and

employees of the Appellate Tribunal and the office of the Special Director

(Appeals) under sub-section (3) of section 27;

• the additional matters in respect of which the Appellate Tribunal and the

Special Director (Appeals) may exercise the powers of a civil court under

clause (i) of sub-section (2) of section 28;

• the authority or person and the manner in which any document may be

authenticated under clause (ii) of section 39; and

• any other matter which is required to be, or may be, prescribed.

Power to make regulations.

• The Reserve Bank may, by notification, make regulations to carry out the

provisions of this Act and the rules made thereunder.

• Without prejudice to the generality of the foregoing power, such regulations

may provide for,-

o the permissible classes of capital account transactions, the limits of

admissibility of foreign exchange for such transactions, and the

prohibition, restriction or regulation of certain capital account

transactions under section 6;

o the manner and the form in which the declaration is to be furnished

under clause (a) of sub-section (1) of section 7;

o the period within which and the manner of repatriation of foreign

exchange under section 8;

o the limit up to which any person may possess foreign currency or

foreign coins under clause (a) of section 9;

o the class of persons and the limit up to which foreign currency account

may be held or operated under clause (b) of section 9;

o the limit up to which foreign exchange acquired may be exempted

under clause (d) of section 9;

o the limit up to which foreign exchange acquired may be retained under

clause (e) of section 9;

o any other matter which is required to be, or may be, specified.

Rules and regualations to be laid before Parliament.

Every rule and regulation made under this Act shall be laid, as soon as may be after it

is made, before each House of Parliament, while it is in session for a total period of

thirty days which may b comprised in one session or in two or more successive

sessions, and if, before the expiry of the session immediately following the session or

the successive sessions aforesaid, both Houses agree in making any modification in

the rule or regulation, or b th Houses agree that the rule or regulation should not be

made, the rule or regulation shall thereafter have effect only in such modified form or

be of no effect, as the case may be; so, however, that any such modification or

annulment shall be without p ejudice to the validity of anything previously done under

that rule or regulation.

Repeal and saving.

• The Foreign Exchange Regulation Act, 1973 (46 of 1973) is hereby repealed

and the Appellate Board constituted under sub-section (1) of section 52 of the

said Act (hereinafter referred to as the repealed Act) shall stand dissolv d.

• On the dissolution of the said Appellate Board, the person appointed as

Chairman of the Appellate Board and every other person appointed as

Member and holding office as such immediately before such date shall vacate

their respective offices and no su h Chairman or other person shall be entitled

to claim any compensation for the premature termination of the term of his

office or of any contract of service.

• Notwithstanding anything contained in any other law for the time being in

force, no court shall take cognizance of an offence under the repealed Act and

no adjudicating officer shall take notice of any contravention under section 51

of the repealed A t after the expiry of a period of two years from the date of

the commencement of this Act.

• Subject to the provisions of sub-section (3) all offences committed under the

repealed Act shall continue to be governed by the provisions of the repealed

Act as if that Act had not been repealed.

• Notwithstanding such repeal,-

o anything done or any action taken or purported to have been done or

taken including any rule, notification, inspection, order or notice made

or issued or any appointment, confirmation or declaration made or any

licence, permission, authorization or e emption granted or any

document or instrument executed or any direction given under the Act

hereby repealed shall, in so far as it is not inconsistent with the

provisions of this Act, be deemed to have been done or taken under the

corresponding provision of this Act;

o any appeal preferred to the Appellate Board under sub-section (2) of

section 52 of the repealed Act but not disposed of before the

commencement of this Act shall stand transferred to and shall be

disposed of by the Appellate Tribunal constituted unde this Act;

o every appeal from any decision or order of the Appellate Board under

sub-section (3) or sub-section (4) of section 52 of the repealed Act

shall, if not filed before the commencement of this Act, be filed before

the High Court within a period of sixty days of such commencement

:Provided that the High Court may entertain such appeal after the

expiry of the said period of sixty days if it is satisfied that the appellant

was prevented by sufficient cause from filing the appeal within the said

period.

• Save as otherwise provided in sub-section (3), the mention of particular

matters in sub-sections (2), (4) and (5) shall not be held to prejudice or affect

the general application of section 6 of the General Clauses Act, 1897 (10 of

1897) with regard to the effect of repeal.

Foreign Exchange

It includes all Currency, deposits, Credits and Balances payable in Foreign

currency. It also includes Drafts/TCs, LCs and Bills of Exchange payable in

Foreign currency. In nut shell, all claims payable abroad is Foreign

Exchange.

On the other hand, Foreign Currency is narrow term which includes hard

currency say Pounds, Dollars etc.

Forex Market It comprises of individuals and entities including banks across the globe

without geographical boundaries. Forex market is dynamic and it operates

round the clock. Exchange rate of major currencies change after about

every 4 seconds. It opens from Monday to Friday except in Middle east

countries where it is closed on Friday and opens on Saturday and Sunday.

Exchange Rate mechanism

When settlement of funds and exchange

of currency takes place_________

TOD rate or Cash Rate Same day (it is also called ready rate)

TOM Rate Next working day

Spot Rate 2nd working day (48 hours)

Forward Rate After few days/months

· If Next day or 2nd day is holiday in either of the two countries, the

settlement will take place on next day. For example Spot deal is

stuck on 23rd Dec. 25th is Christmas Day and 26th is Sunday. Under

such circumstances, value date will be 27th i.e. Monday.

· There are two types of rates- Fixed and Floating. Floating rates are

determined by market forces of Demand and Supply. India

switched to Floating exchange rates regime in 1993.

Buy and Sell

Maxim

Buy Low Sell High (Direct Quotations)

Buy rate is also called Bid Rate and Sell Rate is called Offer Rate.

Buy High Sell Low (Indirect Quotations)

· When Local Currency is fixed, bank will like to have more foreign

currency while buying and give less foreign currency while selling.

Forward Rates

(Premium is

always added and

Discount is

always deducted

from Spot Rate to

arrive at Forward

Rate)

It is required when currency is exchanged after few months/days.

Buy Transactions :

Spot Rate (+ ) premium OR ( - ) Discount

( Lower premium is added OR Higher discount is deducted )

Sale Transactions:

Spot Rate (+ )Higher premium OR (-) Lower discount

(So that currency may become cheaper while buying and dearer while

selling

In India, Forward Contracts are available for Maximum period

of 12 Months

EXCHANGE CONTROL REGULATIONS

Exchange control was first introduced in India on Sept 3, 1939. Subsequently it was brought under Foreign

Exchange Regulation Act, 1973. At present it is regulated through FEMA 1999.

The objectives of ECR are

a conservation of foreign exchange;

b proper accounting of foreign exchange receipts and payments;

c stabilizing the external value of the rupee;

d to prevent flight of scarce capital by control over remittances abroad and supervision of accounts of nonresidents,

so that the balance of payments deficit does not occur or does'not worsen;

e to check smuggling;

f to fulfil IMF obligations .

LIBERALISED REMITTANCE SCHEME (LRS) FOR RESIDENT INDIVIDUALS

RBI introduced LRS on Feb 04, 2004. Major changes were made by RBI in LRS w.e.f. 01.06.2015 (based

on Govt. notification 15.05.15).

Eligibility: All resident individuals including minors and non-individuals are eligible.

· Remittances under the facility can be consolidated in respect of family members subject to individual family

members complying with the terms and conditions.

· It is mandatory to have PAN number to make remittances.

Forex can be purchased from authorised person which indude AD Category-1 Banks, AD Category-2 and

Full Fledged Money Changers.

Capital Accounts transactions Remittances up to USD 250,000 per financial year can be allowed for

permissible capital account transactions as under: I) opening of foreign currency account abroad; ii)

purchase of property abroad;

ill) making investments abroad;

iv) setting up Wholly owned subsidiaries and Joint Ventures abroad;

v) loans including in Indian Rupees to Non-resident Indians relatives as defined in Companies Act, 2013.

Current account transactions • : All facilities (Including private/business visits) for remittances have been

subsumed under overall limit of USD 250,000/FY.

Facilities for Individuals

1. Individuals can avail of forex facility for the following purposes within the limit of USD 250000. Additional

remittance shall require prior approval of RBI.

1. Private visits to a country (except Nepal & Bhutan)

2. Gift or donation.

3. Going abroad for employment or immigration.

4. Maintenance of close relatives abroad

5. Travel for business, or attending a conference or specialized training or for meeting medical expenses, or

check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up.

7. Expenses for medical treatment abroad

B. Studies abroad

9. Any other current account transaction

Exception : For immigration,medical treatment and studies abroad, the individualmay avail of exchange facility in

excess of LRS limit if required by a country of emigration,medical institute offering treatment or the university,

respectively.

Facilities for persons other than individual The following remittances shall require RBI approval:

(i) Donations beyond 1%of forex earnings in previous 3 FY or USD 5000000, whichever is less, for:

a) creation of Chairs in reputed educational institutes,

b) contribution to funds (not being an investment fund) promoted by educational institutes; and

c) technical institution/body/ association in the field of activity of the donor Company.

(ii) Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding

USD 25,000 or 5%of inward remittance whichever ismore.

(iii) Remittances exceeding USD 10000000 per project for any consultancy services for infrastructure projects and

USD 1,000,000 per project, for other consultancy services procured fromoutside India.

(iv) Remittances exceeding 5%of investment brought into India or USD 100,000 whichever is higher, by an entity in

India by way of reimbursement of pre-incorporation expenses.

Mode of remittance: The Scheme can be used for outward remittance in the formof 'a DD either in the resident

individual's own name or in the name of beneficiary with whomhe intends putting through the permissible transactions

at the time of private visit abroad, can be effected, against self declaration of the remitter in the format prescribed.

Loan facility : Banks should not extend any kind of credit facilities to resident individuals to facilitate remittances under

the Scheme.

Remittances not available under the scheme:

i. Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery/sweep stakes,

tickets, prescribedmagazines etc.) or itemrestricted under Schedule II of FEMA (Current A/c Transactions) Rules,

2000.

ii. Remittancesmade to Bhutan,Nepal,Mauritius or Pakistan.

iii. Remittancesmade to countries identified by the Financial Action Task Force (FATF) as "non co-operative

countries and territories" as available on FATF website (viz Cook Islands, Egypt, Guatemala, Indonesia, Myanmar,

Nauru, Nigeria, Philippines and Ukraine) or as notified by RBI.

iv. Remittances to individuals and entities identified as posing significant risk of committing acts of terrorismas advised

separately by RBI to the banks.

Reporting of the transactions: The remittancesmade will be reported in the R-Return in the normal course. The

ADsmay also prepare and keep on record dummy FormA2, in respect of remittances exceeding USD 5000.

With effect from01.07.13, the banks are required to upload the data inOnline Return Filing System(OAFS) on a

monthly basis, by 5th of the followingmonth to which it relates.Where there is no information, 'nil' figure is to be

uploaded.

Rules related to release / remittance of foreign exchange to residents

ADbanks can release forex to residents in India as per Rules framed u/s Sec 5 of FEMA. Forex cannot be released for

Schedule I transactions. For Schedule II transactions,Govt. permission is required. For Schedule III transactions, forex

can be released up to specified limit byADbanks. Beyond that limit, approval of RBI is required.

Ceilings on release of amount by ADs without RBI approval are given above, under LRS.

Nepal & Bhutan - Forex for any kind of travel to or for any transactionwith persons resident inNepal andBhutan cannot

be released. Any amount of Indian currency can be used.Highest denomination of currency note can beRs.100.

Up to Rs.25000, any denomination is allowed.

Form of foreign currency: 1. Coins, currency notes and traveller's cheques. Currency notes/coins can be up to US$

3000. The balance can be traveller's cheque or banker's draft.

2. For Iraq and Libya currency notes and coins can be obtained up toUS$ 5000 or its equivalent.

3. For Iran, Russian Federation, and other Republics of Commonwealth of Independent Countries, no ceiling.

Mode of purchase: In cash up toRs.50,000/-.Above this, payment byway of a crossed cheque/banker's cheque/pay

order/demand draft / debit card / credit card only.

Surrender of unused forex: Currency notes and travellers' cheques within 180 days of return.

Retention of unused forex : US$2,000 or its equivalent. There is no restriction on residents for holding foreign

currency coins.

Use of International Credit Card (ICC): Use of the ICCs / ATMs/ Debit Cards can be made for personal

payments and for travel abroad for various purposes, only up to specified limits.

Export / Import of Indian currency by Residents or non-residents : Up to Rs. 25000 each to or from

any country other than Nepal or Bhutan (Pakistan & Bangladesh Rs.10000).

Import of Foreign exchange from abroad: Any amount subject to declaration on CDF.

Mandatory CDF : Where total amount exceeds US$ 10,000 (or its equivalent) and/or value of foreign

currency notes exceeds US$ 5,000, declaration should be made to the Customs Authorities through

Currency Declaration Form (CDF), on arrival in India.

Application for purchase of FC : Form A2. It is not required up to $ 25000. A2 to be preserved by banks for one

year for verification by Auditors. endorsement on Passport : It is not mandatory for Authorised Dealers to

endorse the amount of foreign exchange sold for travel abroad on the passport of the traveller. However, if

requested by the traveller, AD may record under its stamp, date and signature, details of foreign exchange sold

for travel

Inward Remittance

1. Any person foreigner or Indian coming to India can bring any amount of foreign exchange in India.

2. If foreign currency being brought ismore than US$ 5000 or foreign currency and traveler cheque ismore than

US $ 10,000, then the person bringing forex shouldmake declaration before Customs on the Currency Declaration

form. If it is not submitted to Customs, then it can be submitted to Authorised Dealer while surrendering foreign

exchange.

3. Unspent Foreign exchange should be surrendered within 180 days of arrival in India whether it is

foreign currency or foreign traveler cheque.

4. A resident individual can retain up to US $ 2000. There is no limit on coins.

5. Indian rupees can be brought up to Rs 25000.

6. Full fledgedMoney Changers (FFMCs) are permitted to encash foreign currency andmake cash payment only

up to USD 3000 or its equivalent. Amount exceeding USD 3000 or its equivalent has to be paid by way of demand

draft or bankers' cheque. RBI has allowed banks to credit proceeds of demand drafts / bankers' cheques issued

against encashment of foreign currency to the NRE account of the NRI account holder where the instruments

issued to the NRE account holder are supported by encashment certificate issued by AD Category—I / Category

—II.

7. Exchange regulations are not applicable in case of remittance to or from Nepal and Bhutan. Therefore, forex

can neither be taken to nor brought from Nepal and Bhutan. Indian rupees can be taken to Nepal and Bhutan in

the denomination of Rs 100 or below.

Non Residents and their Accounts

Who is Resident Indian? Who is Non- Resident

A person who resides in India for more than 182 days during preceding

financial year is Resident Indian. A person who is not resident is Non-

Resident.

Who is NRI? A person who is citizen of India but resides outside India owing to:

· Employment, Business, vocation-------indicating indefinite period of

stay outside.

· Work abroad on assignment with Foreign Govt., UNO, and IMF etc.

· Deputation officially.

· Study abroad.

PIO - Persons of Indian Origin

PIO is a person who is citizen of any other country, but he at any time:

· Held Indian Passport

· He or his grand-parents or grand grand parents were Indian citizens

by virtue of constitution of India or under Indian Citizenship Act.

· The person is spouse of Indian Citizen.

Resident: As per section 2(v) of the FEMA 1999, a person is called resident in India if he stays in India formore than

182 days during the preceding financial year except those who have gone out of India for taking up employment

outside India or for carrying on a business or vocation 'outside India or for any other purpose indicating his intention

to stay abroad for indefinite period.

Non Resident: Person resident outside Indiameans a person who is not resident in India.

NRI has been defined in Income Tax Act.

RBI definition of NRI: However, as per RBI guidelines, a non resident Indian can be a person of Indian

Nationality or a person of Indian Origin.

Person of Indian Nationality (PIN): A Person of Indian Nationality is one who holds an Indian passport at

the time of opening the account.

Person of IndianOrigin: A Person of IndianOrigin is one who is presently not a national of Pakistan or Bangladesh

and : (a) who at anytime held an Indian passport; or (b) he himself, either-of his parents or any of his grand parents

was a citizen of India by virtue of Constitution of India or the Citizenship Act,1955 ; or (c) the person is a spouse of

Person of Indian Nationality / Origin.

Overseas Corporate Bodies are those in which at least 60% shareholding is of NRI. OCBs are not

allowed to open NRI accounts.

Students who go abroad for studies have also been given the facility of opening NRI accounts.

Non resident accounts are of 3 types (a) Non Resident ordinary (b) Non Resident (External) (c) Foreign

Currency Non Resident (Bank) account. Salient features of these accounts are as under

Non Resident Ordinary account:

1. Type of account: Saving, Current, FD and RD

2. Credit: can be local income as well as remittance from abroad.

3. Currency of deposit Indian Rupees

4. Period of Deposit and interest rate : Fixed deposit can be opened for 7 days to 10 years and interest

rate as applicable to domestic deposits

5. Joint account allowed with residents as well non residents (NRO is the only account which can be

opened jointly with residents)

6. Interest income is taxable and tax will be deducted at source irrespective of type of account and amount of

interest. The rate of tax on interest on deposits out of foreign remittance is 20%and on deposits from local income

is 30%. Surcharge and education cess will be extra.

7. Power of Attorney is allowed to residents formaking local payments. Power of Attorney can undertake all

focal payments in rupees including payments for eligible investments subject to compliance with relevant regulations

made by the Reserve Bank; and Remittance outside India of current income in India of the nonresident individual

account holder, net of applicable taxes. The resident Power of Attorney holder is not permitted to repatriate outside

India funds held in the account other than to the non-resident individual account holder nor tomake payment by way

of gift to a resident on behalf of the non-resident account holder or transfer funds fromthe account to another NRO

account.

8. Repatriation is allowed as per following details: (i) Remittance outside India of current income like rent, dividend,

pension, interest, etc. in India of the account holder. (ii) Remittance up to USD onemillion, per financial year (April-

March), for all bonafide purposes, to the satisfaction of the authorised dealer bank. (iii) sale proceeds of immovable

property up to US $ 10 lakh per financial year without waiting for 10 year period.

Non-Resident accounts can be opened:

· By any person resident outside India (other than a person resident

in Nepal and Bhutan) can open NRO account, maintain it for 6M

and can convert it into foreign currency after completion of stay

provided no local funds are credited to the account.

· Deposit may be held jointly with residents

· Currency of Deposit is Indian Rupees

· Not Repatriable except for the following in the account - 1) Current

income 2) Up-to USD 1 Million per financial year.

· Type of Deposit may be Savings, Current, Recurring, Fixed Deposit.

· Existing accounts of residents are converted to NRO category

consequent upon their becoming NRIs.

· TDS called withholding Tax is applicable at 30% + Service Tax

+Education Cess.

· Prior permission of RBI is required to open NRO account of

Pakistani national. However permission is not required

Non Resident (External) and ForeignCurrencyNon Resident (Bank) account

There are certain common features in these accounts like

1. Credits: Only amount received from abroad can be credited to these accounts.

2. Joint account is allowed only with Non residents and not allowed with residents.

3. Power of attorney is allowed to residents. He can make local payments. POA can remit money abroad if

permitted by Power of Attorney.

4. Maximum loan against NRE and FCNR(B) is allowed up to Rs 100 lakh.

5. Interest income is free of Income tax and therefore tax is not deducted at source

6. Repatriation: Entire balance including interest can be repatriated abroad.

The other features are:

· Deposits are held in Indian currency.

· The Principal and Interest both can be repatriated.

· Account holder bears the risk of fluctuations in currency rates.

· Account will be opened with proceeds from abroad.

· Funds originating in India cannot be deposited.

· Interest rates Have since been deregulated by RBI..

· No lien is permitted to be marked against SB deposits.

· Joint account with Indians can be opened as Former or Survivor.

· Cheque book and IBS allowed.

· Nomination in favor of NRI/Resident Indian allowed.

· Interest Income is exempt from Income Tax, Gift Tax or Wealth Tax.

· TOD allowed up to Rs. 50000/- for maximum 2 weeks.

· Account can be operated in India through mandate also.

· Loans against FDR to 3rd parties allowed provided NRI is personally

present for documentation.

FCNR- B accounts

FCNRB accounts can also be opened by NRIs. The conditions of NRE

deposits as explained above are also applicable on FCNR-B deposits with

the following additional features:

· Only FD 1-5 years tenure can be opened.

· The amount is kept in Foreign Currency and repaid in the Foreign

Currency.

· 6 currencies i.e. GBP, USD, Euro, JPY, CAD. AUD are eligible

currencies for opening the account.

· No exchange risk for the customer. The bank bears the risk.

· Interest on the basis of 360 days in a year

· Half yearly intervals of 180 days

· Interest exemptions from I.T.

· Operating by P/A not permitted.

· The amount of Principle and Interest is freely repatriable

· Interest Rate on 1-3 years FD is LIBOR + 200 bps and that of 3-5

years FD is LIBOR + 400 bps.(Previously, it was LIBOR + 300 bps)

Rupee Loans against NRE/FCNRB FDRs

Demand Loan or Overdraft is allowed against FDR. There is no maximum

limitof loan against pledge of FDR (Which was100 lac earlier). The loan

can be availed for :

· Personal purpose.

· Investment.

· Purchase of property.

The loan can be repaid :

· From proceeds of abroad

· From NRE/FCNR account

· From local resources through NRO account.

Resident Accounts Operation Either or Survivor with non- resident

It has been decided that AD banks may include an NRI close relative

(relatives as defined in Section 6 of the Companies Act, 1956) in existing /

new resident bank accounts as joint holder with the resident account holder

on “Either or Survivor” basis subject to the following conditions:

· Such account will be treated as resident bank account

· Cheques, instruments, remittances, cash, card belonging to the NRI

close relative shall not be eligible for credit to this account

· The NRI close relative shall operate such account only for and on

behalf of the resident for domestic payment

Where due to any eventuality, the non-resident account holder becomes

the survivor, it shall be categorized as NRO account

Investments by NRIs in India

NRIs are allowed to invest in India on Repatriation basis as well as on Non-

Repatriation basis. NRI can purchase Equity Shares, Preference shares

and Convertible Debentures in Indian companies subject to conditions

under following categories:

1. Foreign Direct Investments.

2. Portfolio Investment

3. Purchase and Sale of Shares on Non-Repatriation basis.

4. Purchase of other securities of Indian Companies.

5. Exchange Traded Derivatives.

Besides above, NRIs are permitted to invest in:

· Units of UTI and Mutual Funds

· Company Deposits – Minimum 3 years‟ period.

· Share in Proprietorship firm/partnership firm provided the firm is not

engaged in Agriculture and Plantation activity or Property business.

· Acquiring of Immovable property not being Agriculture, Plantation or

Farm House.

NRI can acquire IP by way of :

· Purchase out of funds received in India

· By way of gift from resident in India or outside India.

· By way of Inheritance from a person resident outside India.

The Income from the property or sale proceeds of the property can be

repatriated outside India up to monetary limit of USD1 Million per financial

year provided all the applicable taxes are paid.

NRIs can invest in Govt. securities, treasury bills on non- repatriation

basis. However, NRI cannot invest in Small saving Schemes including

PPF.

Loans to NRIs NRI can avail the following loans:

1. Rupee Loans in India

- Up to up to any limit subject to prescribed margin.

- For personal purpose, contribution to Capital in Indian

Companies or for acquisition of property.

- Repayment of loan will be either from inward remittances or

from local resources through NRO accounts.

2. Foreign Currency Loans in India

- Against security of funds in FCNR-B deposits.

- Maturity of loan should not exceed due date of deposits.

- Repayment from Fresh remittances or from maturity proceeds of

deposits.

3. Loans to 3rd Parties provided

- There is no direct or indirect consideration for NRE depositor

agreeing to pledge his FD.

- Margin, rate of Interest and Purpose of loan shall be as per RBI

guidelines.

- The loan will be utilized for personal purpose or business

purpose and not for re-lending or carrying out

Agriculture/Plantation/Real estate activities.

- Loan documents will be executed personally by the depositor

and Power of attorney is not allowed.

4. Housing Loans to NRIs : HL can be sanctioned to NRIs subject to

following conditions:

- Quantum of loan, Margin and period of Repayment shall be

same as applicable to Indian resident.

- The loan shall not be credited to NRE/FCNR account of the

customer.

- EM of IP is must and lien on assets.

- Repayment from remittance abroad or by debit to NRE/FCNR

account or from rental income derived from property.

Portfolio Investment Scheme for NRIs

RBI has permitted NRIs to invest in PIS subject to following conditions:

· Investment on repatriation as well as non-repatriation basis.

· Purchase/Sale of shares and debentures

· Through Regd. Brokers

· Amount is routed through designated branch.

· Only delivery based transactions

· Investment on Repatriation basis can be made out of inward

remittances or out of NRE/FCNR deposits.

· Investment on Non-Repatriation basis can be made out of NRO

deposits besides NRE/FCNR deposits.

Ceiling PER Investor

5% of paid up capital of Indian Company or 5% of Value of each issue of

convertible debentures.

Ceiling PER Investor Company

10% of paid up capital of Indian Company or 10% of Value of each issue of

convertible debentures.

RBI controls Foreign Exchange

RBI is empowered to

· Control and regulate Foreign Exchange Reserves

· Supervise Foreign Exchange dealings

· Maintain external value of Rupee

FERA was replaced by FEMA in the year 1999.

FEMA provisions

The important FEMA guidelines with regard to Foreign exchange are as

under:

1. No drawl of exchange for Nepal and Bhutan

2. If Rupee equivalent exceeds Rs. 50000/-, payment by way of

crossed Cheque.

3. During visit abroad, one can carry foreign currency notes up to USD

3000 or equivalent. For Libya and Iraq, the limit is USD5000 and the

entire amount for Iran and Russian states.

4. Indian citizens can retain and possess foreign currency up to USD

2000 or its equivalent.

5. Unspent currency must be surrendered within a period of 180 days

after arrival in India.

Basic Travel Quota (BTQ)

Purpose of Visit Up to USD or equivalent

Personal/Tourism 10000 per financial year

Business Purpose 25000 per visit

Seminars/conferences 25000 per visit

Employment/Immigration 100000

Studies 100000 per academic year

Medical 100000

Donations/Gifts 5000 per donor per year

Consultancy services 100000 per project

Debit Credit/Credit Card As per BTQ as above

*AD can release Foreign Exchange 60 days ahead of journey

LRS (Liberalized Remittance Scheme)

The scheme is meant for Resident Indians individuals. They can freely

remit up USD 125000 per financial year in respect of any current or capital

account transaction without prior approval of RBI. The precondition is that

the remitter should have been a customer of the bank for the last 1 year.

PAN is mandatory.

Not Applicable

· The scheme is not applicable for remittance to Nepal, Bhutan, Pak,

Mauritius or other counties identified by FATF.

· The scheme is not meant for remittance by Corporate.

Latest Guidelines

· The scheme should not be used for making remittances for any

prohibited or illegal activities such as margin trading, lottery etc., as

hitherto.

· Resident individuals have now been allowed to set up Joint

Ventures (JV) / Wholly Owned Subsidiaries (WOS) outside India for

bonafide business activities outside India within the limit of USD

125000

· The limit for gift in Rupees by Resident Individuals to NRI close

relatives and loans in Rupees by resident individuals to NRI close

relatives shall accordingly stand modified to USD 1,25,000 per

financial year.

RBI has clarified that Scheme can now be used for acquisition of IP

outside India.

Import and Export of Indian Rupees

Any person resident in India

a) May take outside India (other than Nepal and Bhutan) currency

notes up to Rs. 25000/- or

b) May bring into India (from country other than Nepal and Bhutan)

currency notes up to Rs. 25000/-

Any person Resident Outside India (Not being citizen of Pak and

Bangladesh)

a) May take outside India currency up to Rs. 25000/-

b) May bring into India currency notes up to 25000/-

(Previously, the limit was Rs. 10000/-)

Any amount can be taken out while going to Nepal and Bhutan in any

denomination. (Prev. Notes up to 100 denomination were allowed)

Restrictions · Customer is required to furnish PAN No. for cash remittance beyond

25000/-.

· If rupee equivalent is 50000/- and above, the entire payment has to

be made by way of crossed cheque or DD.

RETURNS TO BE SUBMITTED TO RBI

Following important returns are submitted to RBI

R- Returns Forex Operations (Fortnightly)

BAL statement Balance in Nostro/Vostro account

STAT 5 Transactions in FCNR B accounts

(Fortnightly)

STAT 8 Transactions in NRE/NRO accounts

(Fortnightly

LRS Statement UP to USD 200000 (monthly)

Trade Credit Statement Buyers‟ and Suppliers‟ Credit

XOS O/S Overdue Export bills (6M overdue)

BEF Import Remittance effected but Bill of Entry

not submitted for >3M.

ETX Form Seeking relaxation from RBI after expiry of

12M when export proceeds are not received.

„

RFC accounts Resident Foreign Currency account is opened by Indian residents who

were earlier NRIs and Forex is received by them from their overseas dues:

· The accounts can be opened as SB/CA/FD type.

· Proceeds are received from overseas.

· Out of Monetary benefits accruing abroad

· The funds are freely repatriable.

· Minimum amount is USD 5000.

RFC- D accounts Resident Foreign Currency (Domestic) accounts are opened:

· By Indian residents who visit abroad: and

· Bring with them Foreign Exchange;

· As honorarium, gift etc.

· Unspent smoney can also be deposited.

· These are CA nature accounts and no interest is paid.

Exchange Earners Foreign Currency

Exchange Earners Foreign Currency accounts can be opened by exporters.

100% export proceeds can be credited in the account which does not earn

interest but this amount is repatriable outside India for imports (Current

Account transactions).

1. Who can open: The account can be opened by any resident. This account will be opened by exporters.

2. Type of account: Non interest bearing current account (up to 31.10.08 FD account was also allowed)

3. Credits: 100%of foreign exchange earnings can be credited to this account.

4. Repatriation is allowed for permissible current account transaction and permissible

capital account transaction.

5. Packing credit can be adjusted out of such funds.

· Account holder : Exporters of goods and services, resident in India

· Source of funds: Up to 100% of forex earnings can be kept in the account. But amount to be converted in rupees, latest by last

day of next month.

· Use of funds: Balance can be transferred to NRE/FCNR account on change of status from resident to non-resident. Funds can be

used for adjustment of pre-shipment loans.

· Loan: No loan can be allowed against the balances in such account.

· Type of account: Current account, single or joint (FORMER or SURVIVOR) with close resident relatives.

· Interest : No Interest is payable LIBERALISED

FEDAI – Foreign Exchange Dealers Association of India

Foreign Exchange association of India is a non-profit body established in

1958 by RBI. All public sector banks, Private Banks, Foreign Banks and

Cooperative banks are its members. The functions of FEDAI are:

· Forming uniform rules

· Providing training to bankers; and

· Providing guidance and information from time to time.

The important rules are:

1. Export TransactionsForex liability must be crystallized into Indian

rupees on 30th day after expiry of NTP at TT selling rate(Notional

Transit Period) in case of Sight bills and on 30th day after notional

due date in case of Usance bills. The rule has since been relaxed

and bank can frame its own rule for nos. of days for

crystallization.

2. Concessional rate of interest is applied up to Notional due date or

up to value date of realization of export dues (whichever is earlier)

3. Import Transactions: For retirement of Import bills whether under LC

or otherwise, Bill selling rate or Contracted selling rate

whichever is higher, will be applied.

· DP Bills (sight) are retired after crystallization on 10th day

after receipt.

· DA Bills are retired (crystallized) on Due Date.

4. All Foreign Currency bills under LC, if not retired on receipt, shall be

crystallized into Rupee liability on 10th day after date of receipt of

documents atBill Selling Rate or contracted rate whichever is

higher.

Normal Transit Period is:

- 25 days for export bills,

- 3 days for Rupee bills drawn under LC and payable locally

- 7 days for rupee bills drawn under LC and payable at other centers

- 20 days for Rupee bills not drawn under LC.

- For exports to Iraq, normal transit period is 60 days.

Compensation on Delayed payment:

All Foreign Inward remittances up to Rs.1.00 lac should be converted into

Indian Rupees immediately

The proceeds of any Inward remittance should be credited to the account

within 10 days and advice of receipt is to be sent within 3 days, failing

which, compensation @2% above SB rate will be paid to the beneficiary.

Forward Contracts

· Exchange contracts will be for definite amount and period.

· Contracts must state first and last date of contracts e.g. from 1-31

Jan or from 17th Jan to 16th Feb.

· For contracts up to 1 month, option period for delivery may be

specified.

· In case of extension of contract, previous contract will be cancelled

at TT Buying rate or TT selling rate as the case may be.

· Overdue contracts are liable to be cancelled on 7th working day

after maturity date if no instructions are received. The contracts

must state first and last date of the contract.

· Banks are now free to fix their own rates of commission and margin

etc.

AP may be imposed penalty up to 3 times of contravention amount. If

amount is not quantifiable, up to 2.00 lac and up to 5000/- per day is

imposed, if the contravention continues.

ECBs – External Commercial Borrowings

External Commercial Borrowings are medium and long term loans as

permitted by RBI for the purpose of :

· Fresh investments

· Expansion of existing facilities

· Trade Credit (Buyers‟ Credit and Sellers‟ Credit) for 3 years or

more.

Automatic Rout

· ECB for investment in Real Estate sector , Industrial sector and

Infrastructure do not require RBI approval

· It can be availed by Companies registered under Indian Company

Act.

· Funds to be raised from Internationally recognized sources such as

banks, Capital markets etc.

· Maximum amount per transaction is USD 20 million with minimum

average maturity of 3 years

· Maximum amount per transaction is USD 750 million with

minimum average maturity of 5 years

All in cost ceiling is :

ECB up to 5 years : 6M LIBOR+350 bps.

ECBs above 5 years: 6M LIBOR+500 bps.

Approval Route

Under this route, funds are borrowed after seeking approval from RBI.

· The ECBs not falling under Automatic route are covered under

Approval Route.

· Under this route, Issuance of guarantees and Standby LC are not

allowed.

· Funds are to be raised from recognized lenders with similar caps of

all-in-cost ceiling.

ADRs –American Depository Receipts

American Depository Receipts are Receipts or Certificates issued by US

Bank representing specified number of shares of non-US Companies.

Defined as under:

· These are issued in capital market of USA alone.

· These represent securities of companies of other countries.

· These securities are traded in US market.

· The US Bank is depository in this case.

· ADR is the evidence of ownership of the underlying shares.

Unsponsored ADRs

It is the arrangement initiated by US brokers. US Depository banks create

such ADRs. The depository has to Register ADRs with SEC (Security

Exchange Commission).

Sponsored ADRs

Issuing Company initiates the process. It promotes the company‟s ADRs in

the USA. It chooses single Depository bank. Registration with SEC is not

compulsory. However, unregistered ADRs are not listed in US exchanges.

GDRs – Global Depository Receipts

Global Depository Receipt is a Dollar denominated instrument with

following features:

1. Traded in Stock exchanges of Europe.

2. Represents shares of other countries.

3. Depository bank in Europe acquires these shares and issues

“Receipts” to investors.

4. GDRs do-not carry voting rights.

5. Dividend is paid in local currency and there is no exchange risk for

the issuing company.

6. Issuing Co. collects proceeds in foreign currency which can be used

locally for meeting Foreign exchange requirements of Import.

7. GDRS are normally listed on “Luxembourg Exchange “ and traded

in OTC market London and private placement in USA.

8. It can be converted in underlying shares.

IDRs – Indian Deposits Receipts

Indian Depository Receipts are traded in local exchanges and represent

security of Overseas Companies.

CDF (Currency Declaration Form)

CDF is required to be submitted by the person on his arrival to India at the

Airport to the custom Authorities in the following cases:

1. If aggregate of Foreign Exchange including foreign currency/TCs

exceeds USD 10000 or its equivalent.

2. If aggregate value of currency notes (cash portion) exceeds USD

5000 or its equivalent.

Form A1 and

Form A2

Form A1 is meant for remittance abroad to settle imports obligations. It is

not required if value of imports is up to USD 5000.

Form A2 is meant for remittance abroad on account of any purpose other

than Imports. It is not required if remittance is up to USD 25000.

LIBOR Rate London Interbank Offering rate is the rate fixed at 11 am (London time) at

which top 16 banks in London offer to lend funds in interbank markets.

Interest Subvention on Export

Credit

RBI vide notification no. DBOD.Dir.BC.No.43/04.02.001/2013-14 dated

26.08.2013 has informed that Government has decided to increase the rate of

interest subvention on the existing sectors from the present 2% to 3% with

effect from August 1, 2013 on the same terms and conditions.

3. Accordingly, the interest rate chargeable to the exporters will be

reduced as per Base Rate system in the existing sectors eligible for export

credit subvention by the amount of subvention available, subject to a floor rate

of 7%. It should be ensured that the benefit of 3% interest subvention is

passed on completely to the eligible exporters.

Foreign Currency Borrowingsby ADs from

Overseas

It has been decided to liberalize this facility further. Accordingly, AD Category

- I banks may henceforth borrow funds from their Head Office, overseas

branches and correspondents and overdrafts in Nostro accounts up to a limit

of 100 per cent of their unimpaired Tier I capital as at the close of the

previous quarter or USD 10 million (or its equivalent), whichever is higher,

as against the existing limit of 50 per cent (excluding borrowings for financing

of export credit in foreign currency and capital instruments).

Trade Credit –

Revised RBI

guidelines

Banks may approve availing of trade credit not exceeding USD 20 million up

to a maximum period of five years (from the date of shipment) for companies

in the infrastructure sector, subject to certain terms and conditions stipulated

therein.

On a review, it has been decided to allow companies in all sectors to avail of

trade credit not exceeding USD 20 million up to a maximum period of five

years for import of capital goods as classified by Director General of

Foreign Trade (DGFT).

Crystallization

of Inoperative

Foreign Currency Deposits

RBI has advised that AD will crystallize i.e. convert foreign currency deposit

(with fixed maturity date) into INR, if remains in-operative for 3 years from

date of maturity.

If a deposit account has not been operated for 10 years, the amount will be

transferred to DEAF.

ELECTRONIC MODES OF TRANSMISSION / PAYMENT

SWIFT: SWIFT stands for Society for Worldwide Inter-bank Financial Telecommunication. It provides secured

telecommunication of financial messages amongst banks and financial institutions, throughout the world. Authentication

of messages is done through bilateral key exchange. The cost of sending message is only 1/4th of the conventional talex

system.

CHIPS: CHIPS stands for "Clearing House Inter-bank payment system'. It is a major payment system in USA, being used by major

banks. It is operative in New York only.

Fedwire: This is a payment system operated by Federal Reserve Bank of US operated all over USA.

ABA number: It is the no. allotted by Federal Reserve of USA to banks participating in Fedwire, to identify the senders and

receivers of payment.

CHAPS: CHAPS, the Clearing House Automated Payments System is British equivalent to CHIPS, handling receipts and payments in

London. It is used by a large no. of banks in UK.

Target: It stands for Trans-European Automated Real-time Gross Settlement Express Transfer system in EURO payment system

comprising 15 national RTGS systems working in Europe.

RTGS-plus: RTGS plus is German hybrid clearing systems and operating as an European oriented RTGS and payment system.

EBA-EURO-1: It is a netting system with focus on cross border Euro payments.

RTGS in India: RBI implemented RTGS in India. It functions on line. Banks maintain a pool account with RBI for inflow and

outflow of funds through RTGS. Minimum amount is Rs.2 lac for RTGS.

NEFT in India: It is an electronic funds transfer system which functions on a batch basis. There are no amount ceilings.

Money Transfer Service Scheme (MTSS) : The Reserve Bank has issued Master Directions relating to Money Transfer Service

Scheme (MTSS), which is a quick and easy way of transferring personal remittances from abroad to beneficiaries in India.

MTSS can be used for inward personal remittances into India, such as, remittances towards family maintenance and remittances

favouring foreign tourists visiting India and not for outward remittance from India.

The system envisages a tie-up between reputed money transfer companies abroad known as Overseas Principals and agents in

India known as Indian Agents who would disburse funds to beneficiaries in India at ongoing exchange rates. The Indian Agents can

in turn also appoint sub-agents to expand their network. The Indian Agent is not allowed to remit any amount to the Overseas Principal. Under MTSS, the remitters and the beneficiaries are individuals only.

The Reserve Bank of India may accord necessary permission (authorisation) to any person to act as an Indian Agent under the

Money Transfer Service Scheme. No person can handle the business of cross-border money transfer to India in any capacity unless

specifically permitted to do so by the RBI.

To become MTSS agent, min net owned funds Rs.50 lac. MTSS cap USD 2500 for individual remittance. Max remittances 30

received by an individual in India in a calendar year. Min NW of overseas principal USD 01 million, as per latest balance sheet.

Update from RBI

1. Introduction

1.1 Money Transfer Service Scheme (MTSS) is a quick and easy way of transferring personal remittances from abroad to beneficiaries in India. Only inward personal remittances into India such as remittances towards family maintenance and remittances favouring foreign tourists visiting India are permissible. No outward remittance from India is permissible under MTSS. The system envisages a tie-up between reputed money transfer companies abroad known as Overseas Principals and agents in India known as Indian Agents who would disburse funds to beneficiaries in India at ongoing exchange rates. The Indian Agents can in turn also appoint sub-agents to expand their network. The Indian Agent is not allowed to remit any amount to the Overseas Principal. Under MTSS the remitters and the beneficiaries are individuals only. This document covers the details regarding the entry norms, authorization, renewal and various operating instructions pertaining to the entities involved in this scheme.

1.2 Statutory Basis

In terms of the powers granted under Section 10(1) of the Foreign Exchange Management Act (FEMA), 1999, the Reserve Bank of India may accord necessary permission (authorization) to any person to act as an Indian Agent under the Money Transfer Service Scheme. No person can handle the business of cross-border money transfer to India in any capacity unless specifically permitted to do so by the Reserve Bank.

2. Definitions

2.1 ‘Authorised Dealer’ (AD) means a person authorised as an authorised dealer under sub-section (1) of section 10 of FEMA.

2.2 ‘Authorised Dealer (AD) Category II’ means (i) Upgraded FFMCs; (ii) Select RRBs; (iii) Select UCBs; and (iv)Other entities.

2.3 ‘Full Fledged Money Changer (FFMC)’ is an authorized money changer authorised to purchase foreign exchange from non-residents visiting India and residents, and to sell foreign exchange for private and business travel purposes only.

2.4 ‘Overseas Principal’ are reputed money transfer companies abroad entering into tie up with agents in India known as Indian agents who would disburse funds to beneficiaries in India at ongoing exchange rates.

3. Guidelines for Indian Agents

3.1 Entry Norms

(i) The applicant to become an Indian Agent should be an Authorised Dealer Category-I bank or an Authorised Dealer Category-II or a Full Fledged Money Changer (FFMC), or a Scheduled Commercial Bank or the Department of Posts.

(ii) The applicant should have minimum Net Owned Funds of Rs.50 lakh.

Note:- (i) Owned Funds :- (Paid-up Equity Capital + Free reserves + Credit balance in Profit & Loss A/c) minus (Accumulated balance of loss, Deferred revenue expenditure and Other intangible assets)

(ii) Net Owned Funds:- Owned funds minus the amount of investments in shares of its subsidiaries, companies in the same group, all (other) non-banking financial companies as also the book value of debentures, bonds, outstanding loans and advances made to and deposits with its subsidiaries and companies in the same group in excess of 10 per cent of the Owned funds.

3.2 Procedure for making Applications to the Reserve Bank

Application for necessary permission to act as an Indian Agent may be made to the respective regional office of the Foreign Exchange Department of the Reserve Bank of India, under whose jurisdiction the registered office of the applicant falls and should be accompanied by the documents pertaining to its proposed Overseas Principal, as detailed below:

a) A declaration to the effect that no proceedings have been initiated by / are pending with the Directorate of Enforcement (DoE) / Directorate of Revenue Intelligence (DRI) or any other law enforcing authorities, against the applicant or its directors and that no criminal cases are initiated / pending against the applicant or its directors.

b) A declaration to the effect that proper policy framework on Know Your Customer (KYC) norms/ Anti-Money Laundering (AML) standards/ Combating the Financing of Terrorism (CFT), in accordance with the guidelines issued by

Reserve Bank of India, Department of Banking Regulation, Central Office as referred to in their latest

‘Master Direction – Know Your Customer (KYC) Direction, 2016’ and other instructions in this regard so far and from time to time in future, mutatis mutandis, applicable to Indian agents and their Sub-agents in place on obtaining permission (authorization) of the Reserve Bank and before commencement of money transfer operations.

c) Name and address of the Overseas Principal with whom the MTSS will be conducted.

d) Full details of the operation of the scheme by the Overseas Principal.

e) List of branches in India and their addresses where MTSS will be conducted by the applicant.

f) Estimated volume of business per month/year under the scheme.

g) Audited Balance Sheet and Profit and Loss Account for the last two financial years of the applicant, if available or a copy of the latest audited accounts, with a certificate from Statutory Auditors regarding the position of the Net Owned Funds as on the date of application.

h) Memorandum and Articles of Association of the applicant where either a provision exists for taking up money transfer business or an appropriate amendment thereto has been filed with the Company Law Board.

i) Confidential Report from at least two of the applicant's bankers in sealed cover.

j) Details of sister/ associated concerns of the applicant functioning in the financial sector.

k) A certified copy of the board resolution for undertaking money transfer business by the applicant.

l) A letter from the proposed Overseas Principal, agreeing to enter into tie up with the applicant and also to provide necessary collateral.

3.3 Collateral requirement

Collateral equivalent to 3 days' average drawings or USD 50,000, whichever is higher, may be kept by the Overseas Principal in favour of the Indian Agent with a designated bank in India. The minimum amount of USD 50,000 shall be kept as a foreign currency deposit while the balance amount may be kept in the form of a Bank

Guarantee. The adequacy of collateral should be reviewed by Indian Agents at quarterly intervals on the basis of remittances received during the past three months.

3.4 Other conditions

a. Only cross-border personal remittances, such as, remittances towards family maintenance and remittances favouring foreign tourists visiting India shall be allowed under this arrangement. Donations/ contributions to charitable institutions/t rusts, trade related remittances, remittance towards purchase of property, investments or credit to NRE Accounts shall not be made through this arrangement.

b. A cap of USD 2500 has been placed on individual remittance under the scheme. Amounts up to Rs.50,000/- may be paid in cash to a beneficiary in India. Any amount exceeding this limit shall be paid by means of account payee cheque/ demand draft/ payment order, etc., or credited directly to the beneficiary's bank account only. However, in exceptional circumstances, where the beneficiary is a foreign tourist, higher amounts may be disbursed in cash. Full details of such transactions should be kept on record for scrutiny by the auditors/ inspectors.

c. Only 30 remittances can be received by a single individual beneficiary under the scheme during a calendar year.

3.5 Criteria for RBI decisions

(i) The Indian Agents need to have strength and efficiency to function profitably in a highly competitive environment. As a number of Indian Agents are already functioning, permission (authorization) will be issued on a very selective basis to those who meet the above requirements, have necessary outreach and who are likely to conform to the best international and domestic standards of customer service and efficiency.

(ii) The Indian Agent should commence its money transfer operations under the scheme within a period of six months from the date of issuance of permission (authorization) and inform the regional office concerned of the Foreign Exchange Department of the Reserve Bank.

4. Guidelines for Overseas Principals

Indian Agents entering into arrangements with Money Transfer Operators overseas, known as Overseas Principals, may note that Overseas Principals with adequate volume of business, track record and outreach will only be considered under the scheme. Further, since the primary objective of permitting the business of money transfer business in the country is to facilitate cheaper and more efficient means of receipt of remittances, operators with limited outreach in terms of branch network in the country and localized operations overseas will not be entertained.

Applicant Indian Agents should submit the following documents/ comply with the following requirements, in respect of their Overseas Principals:

a) The Overseas Principal should obtain necessary authorisation from the Department of Payment and Settlement Systems, Reserve Bank of India under the provisions of the Payment and Settlement Systems Act (PSS Act), 2007 to commence/ operate a payment system. Prior to such authorization, the Reserve Bank will verify the background and antecedents of the Overseas Principal with the help of Govt. of India,

b) The Overseas Principal should be a registered entity, licenced by the Central Bank / Government or financial regulatory authority of the country concerned for carrying on Money Transfer Activities. The country of registration of the Overseas Principal should be AML compliant.

c) The minimum net-worth of Overseas Principals should be at least USD 1 million as per the latest audited balance sheet, which should be maintained at all times. However, the Reserve Bank may consider relaxing the minimum Net Worth criterion in case of Overseas Principals incorporated in FATF member countries and are supervised by the concerned Central Bank/ Government or financial regulatory authority.

d) The Overseas Principal should be well established in the money transfer business with a track record of operations in well regulated markets.

e) The arrangement with Overseas Principal should result in considerably increasing access to formal money transfer facilities at both ends.

f) The Overseas Principal should be registered with the overseas trade / Industry bodies.

g) The Overseas Principal should have a good rating from one of the international credit rating agencies.

h) The Overseas Principal should submit confidential reports from at least two of its bankers.

i) The Overseas Principal should submit a report certified by independent Chartered Accountants, regarding steps taken to comply with anti-money laundering norms in the home/ host country.

j) The Overseas Principals will be fully responsible for the activities of their Agents and Sub Agents in India.

k) Proper records of remitters as also beneficiaries pertaining to all pay-outs in India are to be maintained by the Overseas Principals. All records must be made accessible on demand to the Reserve Bank or other agencies of the Government of India, viz., Ministry of Finance, Ministry of Home Affairs, FIU-IND, etc. Full details of the remitters and the beneficiaries should be provided by the Overseas Principals, if called for.

5. Guidelines for appointment of Sub Agents by Indian Agents

5.1 The Scheme

Under the Scheme, Indian Agents can enter into Sub Agency agreements with entities, fulfilling certain conditions, for the purpose of undertaking money transfer business.

5.2 Sub Agents

A Sub Agent should have a place of business, and whose bonafides are acceptable to the Indian Agent. Indian Agents are free to decide on the tenor of the arrangement as also the commission or fee through mutual agreement with the Sub Agent. The audit and on-site inspection of premises and records of the Sub Agents by the Indian Agent to be conducted at least once in a month and in a year respectively.

5.3 Procedure for Submission of information in respect of Sub Agents by Indian Agents.

Indian Agents should submit on a quarterly basis necessary information in the prescribed format in soft copy form pertaining to their Sub Agents appointed during a quarter within 15 days from the end of the quarter, to the respective regional offices of the Foreign Exchange Department of the Reserve Bank under whose jurisdiction the registered office of the Indian Agent falls for onward submission to the Ministry of Home Affairs (MHA), Govt. of India (GoI) through the Ministry of Finance (MoF), Govt. of India (GoI). In case of any objection by the MHA, the Sub Agency arrangement concerned should be terminated immediately.

Indian Agents should also furnish certificates that the Sub Agents appointed by them comply with the eligibility norms and also they have done due diligence, wherever applicable, in respect of their Sub Agents.

5.4 Due Diligence of Sub Agents

The Indian Agents and the Overseas Principals should undertake the following minimum checks while conducting due diligence of the Sub Agents, other than AD Category-I, AD Category-II, Scheduled Commercial Banks, Full Fledged Money Changers and the Department of Posts:

• Existing business activities of the Sub Agent/ its position in area

• Shop & Establishment/ other applicable municipal certification in favour of the Sub Agent

• Verification of physical existence of location of the Sub Agent

• Conduct certificate of the Sub Agent from the local police authorities (certified copy of Memorandum and Articles of Association and Certificate of Incorporation in respect of incorporated entities).

Note: Although obtaining of conduct certificate of the Sub Agent from the local police authorities is non-mandatory for the Indian Agents, the Indian Agents must take due care to avoid appointing individuals/ entities as Sub Agents who have cases / proceedings initiated / pending against them by any law enforcing agencies.

• Declaration regarding past criminal cases, cases initiated/ pending against the Sub Agent and/or its directors/ partners by any law enforcing agency, if any

• PAN Card of the Sub Agents and its directors/ partners

• Photographs of the directors/ partners and the key persons of the Sub Agent

The above checks should be done on a regular basis, at least once in a year. The Indian Agents should obtain from the Sub Agents proper documentary evidence confirming the location of the Sub Agents in addition to personal visits to the site. The Indian Agents should discontinue agreements with Sub Agents who do not meet the criteria laid down above within three months from the date of this circular.

5.5 Selection of Centers

The Indian Agents are free to select centers for operationalizing the Scheme. However, this may be advised to the Reserve Bank.

5.6 Training

The Indian Agents would be expected to impart training to the Sub Agents as regards operations and maintenance of records.

5.7 Reporting, Audit and Inspection

The Indian Agents would be expected to put in place adequate arrangements for reporting of transactions by the Sub Agents to the Indian Agents (on a regular basis) in a simple format to be prescribed by them, say at monthly intervals.

Regular spot audits of all locations of Sub Agents, at least on a monthly basis, should be conducted by Indian Agents. Such audits should involve a dedicated team and 'mystery customer' (Individuals acting as potential customers to experience and measure the extent up to which people and process perform as they should) concept should be used to test the compliance carried out by Sub Agents. As mentioned above, a system of inspection of the books of the Sub Agents should be put in place. The purpose of such inspection, which should be done at least once a year, would be to ensure that the money transfer business is being carried out by the Sub Agents in conformity with the terms of agreement/prevailing RBI guidelines and that necessary records are being maintained by the Sub Agents.

Note:- The Indian Agents are fully responsible for the activities of their Sub Agents. While the Indian Agents will be encouraged to act as self-regulated entities, the onus of ensuring the conduct of activities of the Sub Agents in the prescribed manner will lie solely on the Indian Agents concerned and Reserve Bank of India can in no way be held responsible for the activities of the Sub Agents.

Agents.

Each Indian Agent would be required to conduct due diligence before appointing a Sub Agent and any irregularity observed could render the Indian Agent’s permission liable for cancellation.

6. Guidelines for renewal of permission (authorization) of existing Indian Agents

(i) Necessary permission to Indian Agents will be issued initially for a period of one year, which may be renewed for one to three years at a time on the basis of fulfilment of all conditions and other directions/ instructions issued by the Reserve Bank from time to time.

(ii) The applicant should be an Authorised Dealer Category-I bank or an Authorised Dealer Category-II or a Full Fledged Money Changer (FFMC).

(iii) The Indian Agent should have minimum Net Owned Funds of Rs.50 lakh.

(iv) Application for renewal of permission should be submitted to the Regional Office concerned of the Foreign Exchange Department of the Reserve Bank under whose jurisdiction the registered office of the Indian Agent falls along-with the documents pertaining to the Overseas Principal as detailed above and the following documents:

a) A declaration to the effect that no proceedings have been initiated by/ are pending with the Directorate of Enforcement (DoE)/ Directorate of Revenue Intelligence (DRI) or any other law enforcing authorities, against the Indian Agent or its directors and that no criminal cases are initiated/ pending against the Indian Agent or its directors.

b) A write up on the KYC/ AML/ CFT, risk management and internal control policy framework, put in place by the Indian Agent.

c) Audited Balance Sheet and Profit and Loss Account for the last two financial years of the Indian Agent, if available or a copy of the latest audited accounts, with a certificate from statutory auditors regarding the position of the Net Owned Funds as on the date of application.

d) Confidential Reports from at least two of the bankers of the Indian Agent in sealed cover.

e) Details of sister/ associated concerns of the Indian Agent functioning in the financial sector.

f) A certified copy of the board resolution for renewal of permission.

Note :- An application for the renewal of permission under MTSS shall be made not later than one month, or such other period as the Reserve Bank may prescribe, before the expiry of the permission. Where an entity submits an application for the renewal of its MTSS permission, the permission shall continue in force until the date on which the permission is renewed or the application for renewal of permission is rejected, as the case may be. No application for renewal of MTSS permission shall be made after the expiry of the permission.

7. Inspection of Indian Agents

Inspections of the Indian Agents may be conducted by the Reserve Bank under the provisions of Section 12(1) of the FEMA, 1999.

8. KYC/ AML/ CFT Guidelines for the Indian Agents

(i) Detailed instructions on Know Your Customer (KYC) norms/ Anti-Money Laundering (AML) standards/ Combating the Financing of Terrorism (CFT) for Indian Agents under MTSS in respect of cross-border inward remittance activities, in the context of the FATF Recommendations on Anti Money Laundering standards and on Combating the Financing of Terrorism issued by Reserve Bank of India, Department of Banking Regulation, Central Office as referred to in their latest ‘Master Direction – Know Your Customer (KYC) Direction, 2016’ and other instructions in this regard issued in the regard from time to time in future, shall, mutatis mutandis, be applicable to all Authorised Persons (APs), who are Indian agents under MTSS and to their Sub-agents.

(ii) To facilitate receipt of foreign inward remittances directly into bank account of the beneficiary, the foreign inward remittances received under MTSS can be transferred to the KYC compliant beneficiary bank account through electronic mode, such as NEFT, IMPS etc. Foreign inward remittances received by the bank acting as Indian Agent under MTSS (termed as ‘Partner Bank’), may also be electronically credited directly to the account of the beneficiary, held with a bank other than the Indian Agent Bank (termed as ‘Recipient Bank’), subject to the following conditions:

a) The Recipient Bank will credit the amount transferred by the Partner bank only to KYC compliant bank accounts.

b) In respect of the bank accounts which are not KYC compliant, the Recipient Bank shall carry out KYC/ Customer Due Diligence (CDD) of the recipient before the remittance to such account is credited or allowed to be withdrawn.

c) The Partner Bank shall appropriately mark the direct-to-account remittances to indicate to the Recipient Bank that it is a foreign inward remittance.

d) The Partner Bank shall ensure that accurate originator information and necessary beneficiary information is included in the electronic message while transferring the fund to the Recipient Bank. This information should be available in the remittance message throughout the payment chain i.e. the overseas principal, the Partner Bank and the Recipient Bank. The Partner Bank should add an appropriate alert in the electronic message indicating that this is a foreign inward remittance and should not be credited to KYC non-compliant account or NRE/ NRO accounts.

e) The identification and other documents of the recipient shall be maintained by the Recipient Bank as per the provisions of Prevention of Money Laundering (Maintenance of Records) Rules, 2005. All other requirements under KYC/ AML/ CFT guidelines issued by the Reserve Bank of India for MTSS from time to time shall be adhered to by the Partner Bank.

f) The Recipient Bank may seek additional information from the Partner Bank and shall report suspicious transactions to the FIU-IND with details of the Partner Bank through which they received the remittances.

9. General Instructions

All Overseas Principals are required to submit their annual audited balance sheet along with a certificate on Net Worth from their Statutory Auditors to the concerned Regional Office of the Foreign Exchange Department and the Department of Payment and Settlement Systems of the Reserve Bank. Similarly, all Indian Agents are required to submit their annual audited balance sheet along with a certificate from their Statutory Auditors on Net Owned Funds to the regional offices concerned of the Foreign Exchange Department of the Reserve Bank. As the Overseas Principals and the Indian Agents are expected to maintain minimum Net Worth and Net Owned Funds respectively on an ongoing basis, they are required to bring it to the notice of the Reserve Bank immediately along with a detailed plan of restoring the Net Worth/ Net Owned Funds to the minimum required level, if there is any reduction in their Net Worth/ Net Owned Funds below the minimum level.

10. Standard Operating Procedure (SOP) during elections

The SOP given as ‘Annex’ for non-bank APs is to be followed by all non-bank APs who are Indian Agents under MTSS and they are also required to bring the contents of the SOP to the notice of their Sub-Agents/ constituents concerned.

Standard Operating Procedure (SOP) for non-bank money changers during elections

The movement of foreign exchange can take place between Authorised Dealer Category I (AD Cat. I), Authorised Dealer Category II (AD Cat. II), Full Fledged Money Changers (FFMC), their offices/branches, their customers and their franchisees.

On a request received from the Election Commission of India the following Standard Operating Practice (SOP) for movement of cash (foreign exchange), during elections is being notified:

A. Physical Movement-

1. All movement of Indian currency or foreign exchange should be effected by the person(s) authorised, who should carry the supporting documents while moving the cash. The movement should be on the basis of requisition made by the receiver and to the address of the destination.

2. If the cash is being moved from the office/branch of the AP, it should leave the place only after it has been recorded in the books of accounts of the AP.

3. Similarly, if the destination point of movement of the currency is the office/branch of the AP, it should be recorded in the books of accounts of the AP, on the same day or on the date of receipt.

4. Transfer of foreign currency between branches of the same AP should be accounted as stock transfer and not as sale so that double counting is avoided.

B. In the case of doorstep forex service by FFMCs / Authorised Dealers Category II to their regular customers, inter-alia, the processing and accounting of the transaction should take place in the office of the AP and the transaction should be supported by necessary documents for value received. The delivery of the forex should be done by authorised officials of the AP only.

C. As far as possible movement of Indian Currency should be made through banking channels (viz. cheque, demand draft, NEFT, RTGS, IMPS etc.) only. The transactions between authorized dealers and FFMCs should be settled by way of account payee crossed cheques / demand drafts/ and in no circumstances the settlement of Indian Currency should be made in cash. The cash (INR) collected by the AP or its franchisee should be deposited to a bank branch on the same day or next day.

D. The cancellation of any move for transportation of cash should be properly documented.

E. The movement of cash should be in sync with the documents.

F. The upper limit for movement of cash in INR would be Rs.10,00,000/- and in Foreign Currency equivalent of USD 1,00,000 except the transactions where the imported foreign currency is being transported to the offices/ branch of the AP.

Updates from RBI For Remittance of assets

1. Introduction

The Regulations for remittance outside India of assets in India by a person, whether resident in India or not, are laid down in the Notification No. FEMA 13/2000-RB dated May 3, 2000, as amended from time to time.

2. Definitions

Some key terms used in the regulations are given below:

2.1 'Remittance of assets' means remittance outside India of funds in a deposit with a bank/ firm/ company, provident fund balance or superannuation benefits, amount of claim or maturity proceeds of insurance policy, sale proceeds of shares, securities, immovable property or any other asset held in India in accordance with the provisions of the Foreign Exchange Management Act, 1999 (FEMA) or rules/ regulations made under FEMA.

2.2 ‘Non-Resident Indian’ (NRI) means a person resident outside India who is a citizen of India.

2.3 3A ‘Person of Indian Origin (PIO)’ is a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, satisfying the following conditions:

a) Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or

b) Who belonged to a territory that became part of India after the 15th day of August, 1947; or

c) Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); or

d) Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in clause (a) or (b) or (c)

Explanation: PIO will include an ‘Overseas Citizen of India’ cardholder within the meaning of Section 7(A) of the Citizenship Act, 1955. 2

2.4 ‘Authorised Dealer’ (AD) means a person authorised as an authorised dealer under subsection (1) of section 10 of the Act.

2.5 'Expatriate staff' is a person whose provident/ superannuation/ pension fund is maintained outside India by his principal employer outside India.

2.6 ‘Not permanently resident' is a person resident in India for employment of a specified duration or for a specific job/ assignment, the duration of which is not more than three years.

3. Remittance of assets permitted under the regulations

3.1 Remittances by individuals not being NRIs/ PIOs

ADs may allow remittance of assets by a foreign national where:

(i) the person has retired from employment in India;

(ii) the person has inherited from a person referred to in section 6(5) of the Act;

(iii) the person is a non-resident widow/4widower and has inherited assets from her/his deceased spouse who was an Indian national resident in India.

4 Inserted vide FEM (Remittance of Assets), Regulations 2016 dated April 1, 2016 and A.P.(DIR Series) Circular No. 64/2015-16 [(1)/13(R)] dated 28.04.2016.

The remittance should not exceed USD one million per financial year. This limit, however, will not cover sale proceeds of assets held on repatriation basis. In case the remittance is made in more than one instalment, the remittance of all instalments should be made through the same AD on submission of documentary evidence.

(iv) the remittance is in respect of balances held in a bank account by a foreign student who has completed his/ her studies, provided such balance represents proceeds of remittances received from abroad through normal banking channels or rupee proceeds of foreign exchange brought by such person and sold to an authorised dealer or out of stipend/ scholarship received from the Government or any organisation in India.

These facilities are not available for citizens of Nepal or Bhutan or a PIO.

3.2 Remittances by NRIs/ PIOs

ADs may allow NRIs/ PIOs, on submission of documentary evidence, to remit up to USD one million, per financial year:

(i) out of balances in their non-resident (ordinary) (NRO) accounts/ sale proceeds of assets/ assets acquired in India by way of inheritance/ legacy;

(ii) in respect of assets acquired under a deed of settlement made by either of his/ her parents or a relative as defined in Companies Act, 2013. The settlement should take effect on the death of the settler;

(iii) in case settlement is done without retaining any life interest in the property i.e. during the lifetime of the owner/ parent, it would tantamount to regular transfer by way of gift and the remittance of sale proceeds of such property would be guided by the extant instructions on remittance of balance in the NRO account;

In case the remittance is made in more than one instalment, the remittance of all instalments should be made through the same AD. 5 Where the remittance is to be made from the balances held in the NRO account, the Authorised Dealer should obtain an undertaking from the account holder stating that “the said remittance is sought to be made out of the remitter’s balances held in the account arising from his/ her legitimate receivables in India and not by borrowing from any other person or a transfer from any other NRO account and if such is found to be the case, the account holder will render himself/ herself liable for penal action under FEMA.”

5 Inserted vide FEM (Remittance of Assets) Regulations, 2016 dated April 1, 2016 and A.P.(DIR Series) Circular No. 64/2015-16 [(1)/13(R)] dated 28.04.2016.

3.3 Remittances by companies/ entities

3.3.1 ADs may allow remittances by Indian companies under liquidation on directions issued by a Court in India/ orders issued by official liquidator in case of voluntary winding up on submission of:

(a) Auditor's certificate confirming that all liabilities in India have been either fully paid or adequately provided for.

(b) Auditor's certificate to the effect that the winding up is in accordance with the provisions of the Companies Act, 1956.

(c) In case of winding up otherwise than by a court, an auditor's certificate to the effect that there are no legal proceedings pending in any court in India against the applicant or the company under liquidation and there is no legal impediment in permitting the remittance.

3.3.2 ADs may also allow Indian entities to remit their contribution towards the provident fund/ superannuation/ pension fund in respect of their expatriate staff resident but “not permanently resident” in India. 4

3.4 Remittances/ winding up proceeds of branch/ office

ADs may permit remittance of assets on closure or remittance of winding up proceeds of branch office/ liaison office (other than project office) on submission of the following documents:

(i) A copy of the Reserve Bank's permission for establishing the branch/ office in India.

(ii) Auditor’s certificate:

(a) indicating the manner in which the remittable amount has been arrived and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets;

(b) confirming that all liabilities in India including arrears of gratuity and other benefits to the employees etc., of the branch/ office have been either fully met or adequately provided for;

(c) confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India;

(d) confirming that the branch/office has complied with all regulatory requirements stipulated by the Reserve Bank of India from time to time regarding functioning of such offices in India;

(iii) a confirmation from the applicant that no legal proceedings are pending in any Court in India and there is no legal impediment to the remittance; and

(iv) a report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the office in India.

4. Remittance of assets requiring RBI approval

4.1 Prior approval of the Reserve Bank is necessary for remittance of assets where:

a) Remittance is in excess of USD 1,000,000 (US Dollar One million only) per financial year (i) on account of legacy, bequest or inheritance to a citizen of foreign state, resident outside India; (ii) by NRIs/ PIOs out of the balances held in NRO accounts/ sale proceeds of assets/ the assets acquired by way of inheritance/ legacy.

b) Hardship will be caused to a person if remittance from India is not made to such a person.

4.2 Remittance of funds from the sale of assets in India held by a person, whether resident in or outside India, not covered under the directions stipulated above will require approval of the Reserve Bank.

5. Income-tax clearance

The remittances are subject to payment of applicable taxes in India. Reserve Bank of India will not issue any instructions under FEMA clarifying tax issues. It shall be mandatory on the part of Authorised Dealers to comply with the requirement of tax laws, as applicable.

Master Direction - Liberalised Remittance Scheme (LRS)

A. Liberalised Remittance Scheme (LRS) of USD 2,50,000 for resident individuals

i) Under the Liberalised Remittance Scheme, Authorised Dealers may freely allow remittances by resident individuals up to USD 2,50,000 per Financial Year (April-March) for any permitted current or capital account transaction or a combination of both. The Scheme is not available to corporates, partnership firms, HUF, Trusts, etc.

ii) The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions. During the period from February 4, 2004 till date, the LRS limit has been revised as under:

(Amount in USD³)

Date	Feb 4,	Dec 20,	May 8,	Sep 26,	Aug 14,	Jun 3,	May 26,
	2004	2006	2007	2007	2013	2014	2015

LRS
limit	25,000	50,000	1,00,000	2,00,000	75,000	1,25,000	2,50,000
(USD)

1 comment:

Unknown30 April 2019 at 14:12
Is this sufficient Nd how to cover this in short span of time
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IIBF & NISM Adda

Monday, 29 April 2019

FOREX INDIVIDUAL

4 Main Participants of Foreign Exchange Market

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IIBF Certificate Exams(Adda)

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