Notes on Foreign Exchange Management Act, 1999

 Foreign Exchange Management Act, 1999

Introduction 

India adopted reforms in all sectors from 1991 in the name of Liberalisation, Privatisation and Globalization.  
Earlier Foreign Exchange Regulation Act 1973 was in force 
But it was not adequate in the changed scenario, so that act was repealed by the new act. 
The act was passed on 2nd December 1999 and came into force with effect from 1st June, 2000. 
This Act applies to the whole of India. 

Objectives  

• To facilitate external trade and payments. 

• To promote orderly development and maintenance of foreign exchange market in India. 

• To restrict current account transactions by the centre in consultation with the RBI. 

• To allow foreign exchange and flow only for transactions that are permitted on capital account. 

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Silent features  

• Dealings in foreign exchange. (Sec.3) 

• Holding of foreign exchange. (Sec.4) 

• Current account transactions. (Sec.5) 

• Capital account transactions. (Sec.6) 

• Export of goods and services. (Sec.7) 

• Realisation and repatriation of foreign exchange. (Sec.8) 

• Exemption from realisation and repatriation in certain cases. (Sec.9) 

Definitions  

Authorised Person [Sec.2(c)]. Means 

• An authorised dealer, or 

• Money changer, off-shore banking unit, or 

• Any other person for the time being authorised under Sec. 10(1) to deal in foreign exchange for foreign securities 

• Sec.10 to Sec.12. 

Currency [Sec. 2(h)] includes all 

• Currency notes  

• Postal notes  

• Postal orders  

• Money orders  

• Cheques 

• Drafts 

• Travellers’ cheques 

• Letter of credit  

• Bills of exchange and promissory notes, and 

• Credit cards 

Currency notes [Sec. 2(i)] means and includes cash in the form of coins and bank notes 

Foreign Currency [Sec. 2(m)]. It means any currency other than Indian currency. 

Foreign Exchange [Sec. 2(n)]. It means foreign currency and includes 

• Deposits, credits and balances payable in any foreign currency,  

• Drafts, travellers’ cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency,  

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

Foreign Security [Sec. 2(o)]. Means any security, in the form of shares, stocks, bonds, debentures or any other instruments denominated or expressed in foreign currency.  

It also includes securities expressed in foreign currency, where redemption or any form of return such as interest or dividend is payable in Indian currency. 

Contravention of.... 

• Any provision of this Act, or 

• Any rule, regulations, notification, direction or order issued in exercise of the powers under this Act, or 

• Any condition subject to which an authorisation is issued by Reserve Bank. 

Penalties  

• Where the amount is quantifiable, the penalty can be up to thrice the sum involved in the contravention.  

• Where the amount is not quantifiable, the penalty may be up to Rupees Two Lakhs. 

• Where contravention is a continuing one, further penalty which may extend to Rupees Five thousand may be levied for every day after the first day during which the contravention continues.  

• The penalty shall be levied upon adjudication.