Foreign Exchange Management Act (FEMA)

Context

• The Enforcement Directorate carried out searches at the three premises of BYJU under the provisions of the Foreign Exchange Management Act (FEMA).
• Foreign Exchange refers to the trading of one currency over another. The market that facilitates the foreign exchange is called the Foreign Exchange Market or Forex for short.
• The rate of Foreign Exchange is determined by the market, a value which is known as the exchange rate.

Foreign Exchange Regulation Act 1973 Its main purpose was to regulate the foreign exchanges so as to maintain a satisfactory account of the foreign reserves in the country. FERA was related to restricting and regulating foreign exchange while FEMA was enacted to manage the foreign exchanges. Everything was restricted unless permitted.

 

About Foreign Exchange Management Act

• The Parliament enacted the Foreign Exchange Management Act, 1999 to replace the Foreign Exchange Regulation Act, 1973.
• The legal framework for the administration of foreign exchange transactions in India is provided by the Foreign Exchange Management Act, 1999.
• Under the FEMA, which came into force with effect from 1st June 2000, all transactions involving foreign exchange have been classified either as capital or current account transactions.
  • Current Account: All transactions undertaken by a resident that do not alter his / her assets or liabilities, including contingent liabilities, outside India are current account transactions.
    • In terms of Section 5 of the FEMA, persons resident in India are free to buy or sell foreign exchange for any current account transaction except for those transactions for which drawal of foreign exchange has been prohibited by Central Government.
  • Capital Account: It includes those transactions which are undertaken by a resident of India such that his/her assets or liabilities outside India are altered (either increased or decreased). Ex- investment in foreign securities, acquisition of immovable property outside India etc.
• The Central government has established the Directorate of Enforcement with the Director and other officers, for the purpose of taking up investigations of cases under the said Act.

 

Liberalised Remittance Scheme (LRS) by RBI Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.

 

Key Provisions of FEMA

• It extends to the whole of India and also applies to all branches, offices, and agencies outside India owned or controlled by a person resident in India and also to any contravention thereunder committed outside India by any person to whom this Act applies.
• The statutory power under this Act empowers the RBI as well as the Central Government to frame and pass regulations and rules from time to time, which are consistent with the foreign trade policy of the country.
• The Act provides for a legislative and regulatory framework, for inbound and outbound investments, and facilitates trade and business opportunities between Indian and other countries.
• It lays down provisions for current account and capital account transactions.
• The RBI is the regulatory body and plays a controlling role in the management of foreign exchange.
• The Act also makes provisions for enforcement, penalties, adjudication, and appeal.

 

Enforcement Directorate

• Established in 1956, mandated with investigation of offences of money laundering and violations of foreign exchange laws.
• It functions under the Department of Revenue of the Ministry of Finance.
• Recruitment of the officers is done directly and by drawing officers from other investigation agencies.

 

What are the Statutory Functions of ED?

• COFEPOSA: Under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA), this Directorate is empowered to sponsor cases of preventive detention with regard to contraventions of FEMA.
• Foreign Exchange Management Act, 1999 (FEMA):  ED has been given the responsibility to conduct investigation into suspected contraventions of foreign exchange laws and regulations, to adjudicate and impose penalties on those adjudged to have contravened the law.
• Prevention of Money Laundering Act, 2002 (PMLA): The ED has been entrusted with the responsibility of executing the provisions of PMLA by conducting investigation to trace the assets derived from proceeds of crime, to provisionally attach the property and to ensure prosecution of the offenders and confiscation of the property by the Special court.
• Fugitive Economic Offenders Act, 2018 (FEOA): Recently, with the increase in the number of cases relating to economic offenders taking shelter in foreign countries, the Government of India introduced the Fugitive Economic Offenders Act, 2018 (FEOA) and ED is entrusted with its enforcement.