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. 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 required from time to time. SECTION 5 deals with current account transactionAny person may sell or draw foreign exchange to or from an authorized person if such sale or drawl is a current account transaction. The definition section 2(j), is inclusive and any expenditure which is not a capital account transaction will be current account transaction. It includes: payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business. payments due as interest on loans and as net income from investments. remittances for living expenses of parents, spouse and children residing abroad, expenses in connection with foreign travel, education and medical care of parents, spouse and children.Current Account Transactions Few Examples Payment for imports of goods Remittance of interest on investment made and funds borrowed from abroad after tax deductions Remittance of Dividend if the investment was allowed without any condition.

Capital Account TransactionsSection 2(e) defines, 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 transactions like: Changes in Assets/ Liabilities Transfer/ issue of security Borrowing/ Lending Export, import or holding of currency or currency notes Giving guaranteeCapital Account Transaction are deemed to be prohibited unless permitted and Current Account Transactions are deemed to be permitted unless prohibited SECTION 6 - deals with capital account transactions.This section allows a person to draw or sell foreign exchange from or to an authorized person for a capital account transaction.The Act has empowered theReserve Bank of India (RBI)to specify, in consultation with the Central Government, the permissible capital account transactions and the limits upto which foreign exchange may be drawn for these such transactions. But it 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 course of business.Accordingly, the RBI has issued notifications governing capital account transaction. TheFEMA Notification No. 1/2000 dated 3-5-2000contains the list of permissible capital account transactions as well as list of prohibited capital account transactions.The permitted capital account transactions have been classified into two categories:-Capital account transactions by persons resident in India includes,1. Investment in foreign securities;1. Foreign currency loans raised in India and abroad;1. Acquisition and transfer of immovable property outside India;1. Guarantees issued in favour of a person resident outside India;1. Export, import and holding of currency or currency notes;1. Loans and overdrafts (borrowings) from a person resident outside India;1. Maintenance of foreign currency accounts in India and outside India;1. Taking out the insurance policy from an insurance company outside India;1. Remittance outside India of capital assets of a person resident in India;Capital account transactions by non- residents includes,1. Investment in India such as (i) issue of security by a body corporate or an entity in India and investment therein by a non-resident and (ii) investment by way of contribution to the capital of a firm or a proprietary concern or an association of persons in India;1. Acquisition and transfer of immovable property in India;1. Guarantee in favour of, or on behalf of, a person resident in India;1. Import and export of currency/currency notes into/from India;1. Deposits between a person resident in India and a person resident outside India;There are generally two types of prohibitions on 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 transaction. This prohibition is subjected to the conditions specified by Reserve Bank in itscirculars andnotifications. For example,Reserve Bank of Indiahas issued anAP (DIR) Circular, wherein a resident individual can draw from an authorized person foreign exchange up to US$ 25,000 per calendar year for a capital account transaction specified inSchedule Ito the Notification.Special Prohibition:-A non resident person shall not 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:- (i) in the business of chit fund, or (ii) as Nidhi Company, or (iii) in agricultural or plantation activities or (iv) in real estate business, or construction of farm houses or (v) in trading in Transferable Development Rights (TDRs).A person resident in india:A person who has been residing in India for more than 182 days, in the last financial year. This means if a person has to be assessed, as to whether he is person resident in India, for any offence committed in August 2001, then he should be residing in India for more than 182 days during April 2000 to March 2001.Section 2(v) - person resident in India means a person residing in india more than 182 days during the course of the preceding financial year but does not include-A person who has gone out of india or who stays out side india, in either cases (a) for or on taking up employment outside india or (b) for carrying onoutside india any business or vocation outside india or (c) for any other purpose in such circumstances as would indicate his intention to stay outside for a uncertain period.-Any person or body corporate registered or incorporated in India, or -An office, branch or agency in India owned or controlled by a person resident outside India, -An office, branch or agency outside India owned or controlled by a person resident in India.Contravention and compounding of contravention:Contravention is a breach of the provisions of the Foreign Exchange Management Act (FEMA), 1999 and rules/ regulations/ notification/ orders/ directions/ circulars issued there under. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal. The Reserve Bank is empowered to compound any contraventions as defined under section 13(1)of FEMA, 1999 except the contravention under section 3(a)(2)ibid, for a specified sum after offering an opportunity of personal hearing to the contravener. It is a voluntary process in which an individual or a corporate seeks compounding of an admitted contravention. It provides comfort to any person who contravenes any provisions of FEMA, 1999 [except section 3(a) of the Act] by minimizing transaction costs. Willful,malafideand fraudulent transactions are, however, viewed seriously, which will not be compounded by the Reserve Bank.3(a)deal in or transfer any foreign exchange or foreign security to any person not being an authorized person;Penalties for the contravention of any of the provisions of the Act.The objective ofForeign Exchange Management Act, 1999is to facilitate external trade and payments and maintenance of foreign exchange in India. It should be noted that FEMA is not a revenue law. Compounding of offences is allowed in this Act. Thecompoundingof the contravention under FEMA was implemented bythe ReserveBank of India (RBI). Contravention of FEMA is considered as civil offence.ContraventionContravention is a breach of the provisions of theForeign Exchange Management Act, 1999 and rules/ regulations/ notification/ orders/ directions/ circulars issued there under. The contraventions, prima facie, involving money laundering, national and security concerns involving serious infringement of the regulatory framework, etc., are sensitive contraventions.Penalties.-(section 13)(1) Contravention of any of the sections in the Act, he shall be adjudicated and be liable to penalty.If the amount is quantifiable then the penalty will be thrice the sum involved in the contravention. Where the amount cannot be quantifed the penality may be imposed up to two lakh rupeesIf the contravention continues every day then Rs.5000/- for every day during which contravention continues.(2)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 which 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 shall 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 include-(a)deposits in a bank, where the said property is converted into such deposits;(b) Indian currency, where the said property is converted into that currency; and(c)any other property which has resulted out of the conversion of that property.Adjudicating authority in addition to penalty confiscate the currency, security or any other money or property in respect of which the contravention has taken place.The foreign exchange holdings, if any, shall be brought back into India or retained outside IndiaThe property to be confiscated can be in his possession or from someone who is holding on his behalf:Bank deposits : if he has converted the money to depositsAny forex that has to be brought back to India or retained outsideAny other property that was purchased out of the forex.Procedure for repatriation and realization of foreign exchange.Realization and Repatriation of Foreign Exchange When any amount of foreign exchange is due or has accrued to any person shall take all reasonable steps torealize and repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve bank.Procedure: Filling civil suit against foreign buyer. Writing letter to foreign buyer demanding for export process. Writing letters to their own banker and also to the foreign bank to which the recovery has to be made. On expiry of 6 months exporter should write to the RBI for extension of time. Getting information from embassy. Contravention does not apply when RBI gives permission to right of the debt Exporter should prove that he had taken all reasonable steps to receive or recover export process. If he feels it. Mere bolt statement that necessary steps were taken to realize the process documentary evidence should support it.Authorized person under FEMA:The objectives ofFEMAare: (i) To facilitate external trade and payments; and (ii) To promote the orderly development and maintenance of foreign exchange market. The Act has assigned an important role to theReserve Bank of India (RBI)in the administration of FEMA. The rules, regulations and norms pertaining to several sections of the Act are laid down by the Reserve Bank of India, in consultation with the Central Government.AuthorizedPersonAn "AuthorizedPerson" under FEMA, is a person who isauthorizedby Reserve Bank to deal in Foreign Exchange.For being registered as an "AuthorizedPerson",necessary applicationalong withrelevant documents hasto be furnished to Reserve Bank.An "AuthorizedPerson" is also, not given a free hand to deal in foreign Exchange. He has to furnish details and information, to Reserve Bank from time to time as may be required by it.SECTIONS 10 and 12 - deals with duties and liabilities of the Authorized persons. Section 2(c) of Foreign Exchange Management Act,1999 Authorized person means authorized dealer, money changer, off shore banking unit or any other person for the time being authorized to deal in foreign exchange or foreign securities.Section 10(1)- An application should be made to the RBI, RBI can authorize any person to be known as authorized person to deal in forex or foreign security as an authorized dealer, money changer or off-shore banking unit or in any other manner as it deem fit.Authorized Dealer Means a person authorized as an authorized dealer under sub-section (1) of section 10 of the Act, and includes a person carrying on business as a factor and authorized as such under the said section 10.FEMApermits only authorized person to deal in foreign exchange or foreign security. The Act thus prohibits any person who:- 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; 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 is resident in India which acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.Duties of an authorized person:To comply with RBI directionsNot to engage in un authorized transactionsEnsure compliance of FEMA provisionsTo produce books, accounts etcPowers of an authorized person:To deal in or transfer any foreign exchangeReceive payments by orderTo open NRO, NRE, FCNR, NRNR, NRSR accountsTo sell or purchase foreign exchange for current account transactionsTo sell or purchase foreign exchange for permissible capital account transactionsPowers of RBI:Verifying the correctness of any statements, information or particularObtaining information which such authorized person has failed to furnishSecuring compliance with the provisions of Act.Penalties for contravention by authorized person:Where an authorized person contravenes any direction given by RBI under this Act shall be penalized.The penalty shall not exceed 10,000. Where any contravention is continuing one further penalty not exceeding Rs 2000 per day may be levied.Before levying any penalty the RBI shall give reasonable opportunity for being heard to the authorized person.

Describe the role of SEBISecurities and Exchange Board of India (SEBI) is an apex body for overall development and regulation of the securities market. It was set up on April 12, 1988. SEBI was set up as a non-statutory body. Later on it became a statutory body under the Securities Exchange Board of India Act, 1992. The Act entrusted SEBI with comprehensive powers over practically all the aspects of capital market operations.Role of SEBIi)To protect the interests of investors through proper education and guidance as regards their investment in securities. For this, SEBI has made rules and regulation to be followed by the financial intermediaries such as brokers, etc. SEBI looks after the complaints received from investors for fair settlement.ii) To regulate and control the business on stock exchanges and other security markets. For this, SEBI keeps supervision on brokers. Registration of brokers and sub-brokers is made compulsory and they are expected to follow certain rules and regulations.iii) To make registration and to regulate the functioning of intermediaries such as stock brokers, sub-brokers, share transfer agents, merchant bankers and other intermediaries operating on the securities market.iv) To promote self-regulatory organization of intermediaries. SEBI is given wide statutory powers. However, self-regulation is better than external regulation. Here, the role of SEBI is to encourage intermediaries to form their professional associations and control undesirable activities of their members.v) To regulate mergers, takeovers and acquisitions of companies in order to protect the interest of investors.vi) To prohibit fraudulent and unfair practices of intermediaries operating on securities markets. SEBI is not for interfering in the normal working of these intermediaries.vii) To conduct inspection, inquiries & audits of stock exchanges, intermediaries and self-regulating organizations and to take suitable remedial measures wherever necessary.viii) To restrict insider trading activity through suitable measures for avoiding undesirable activities of brokers and securities scams.ix) To register and regulate the working of mutual funds including UTI (Unit Trust of India). SEBI has made rules and regulations to be followed by mutual funds.

Penalties under SEBI Act 1992Introduction Securities Exchange Board of India (SEBI) was set up in 1988 to regulate the functions of securities market. SEBI promotes orderly and healthy development in the stock market but initially SEBI was not able to exercise complete control over the stock market transactions. It was left as a watch dog to observe the activities but was found ineffective in regulating and controlling them. As a result in May 1992, SEBI was granted legal status. SEBI is a body corporate having a separate legal existence and perpetual succession.Reasons for establishment of SEBI:

With the growth in the dealings of stock markets, lot of malpractices also started in stock markets such as price rigging, unofficial premium on new issue, and delay in delivery of shares, violation of rules and regulations of stock exchange and listing requirements. Due to these malpractices the customers started losing confidence and faith in the stock exchange. So government of India decided to set up an agency or regulatory body known as Securities Exchange Board of India (SEBI).Penalties under SEBI Act, 1992Section 15A: Penalty for failure to furnish information, return, etc. If any person, who is required under this Act or any rules or regulations made thereunder,(a) to furnish any document, return or report to the Board(b) to file any return or furnish any information, books or other documents within the time specified therefore in regulation(c) to maintain books of accounts or records, if he fails to furnish the same, he shall be liable to a penalty of 1lakh rupees for each day during which such failure continues or 1 crore rupees, whichever is less.

In, Subhash A. Gandhi v .Securities and Exchange Board of India SEBI imposed penalty of Rs. 10,000 on appellant for a delay in submitting information's in prescribed format as prescribed. Held since appellant had complied with part of requirements and had exceeded limit only by .03 per cent, this was a case for taking a lenient view and consequently, penalty could be reduced to Rs. 1,000.

Section 15B: Penalty for failure to by any person to enter into agreement with clientsIf any person, who is registered as an intermediary and is required under this Act or any rules or regulations made thereunder, to enter into an agreement with his clients, fails to enter into such agreement, , he shall be liable to a penalty of 1lakh rupees for each day during which such failure continues or 1 crore rupees, whichever is less.Section 15C: Penalty for failure to redress investors grievances: If any listed company or any person who is registered as an intermediary, after having been called upon by the Board in writing, to redress the grievances of investors, fails to redress such grievances within the time specified by the Board then such company or intermediary shall be liable to a penalty of 1lakh rupees for each day during which such failure continues or 1 crore rupees, whichever is less. In, Dharnendra Industries Ltd v Securities and Exchange Board of India Appellants companies having failed to redress investors grievances, SEBI debarred them from securities market for five years.Section 15D: Penalty for certain defaults in case of mutual funds:If any person who is doing such activity without obtaining certificate of registration, or fails to comply the conditions specified in the governing regulations he shall be liable to a penalty of 1 lakh rupees for each day during which such failure continues or 1 crore rupees, whichever is less.Section 15E: Penalty for failure to observe rules and regulations by an asset management company: Where any asset management company of a mutual fund registered under this Act, fails to comply with any of the regulations providing for restrictions on the activities of the assts management companies, such company shall be liable to a penalty of 1lakh rupees for each day during which such failure continues or 1 crore rupees, whichever is less.Section 15F: Penalty for default in case of stock brokers: If any person who is registered as a stock broker under this Act,(a) fails to issue contract notes in the form, he shall be liable to a penalty 5 times the amount of contract note.(b) fails to deliver any security or fails to make payment due to the investor, shall be liable to a penalty of 1 lakh rupees for each day during which such failure continues or 1 crore rupees, whichever is less.(c) charges excess brokerage, he shall be liable to a penalty of 1 lakh rupees or 5 times the amount of brokerage excess charged, whichever is higher.Section 15G: Penalty for insider trading: Contravention of provisions of insider trading, shall be liable to a penalty of 25 crore or 3 times the amount of profit made out of such insider trading, whichever is higher. In, Rakesh Agrawal v. SEBI Held dealing in securities while possessing the unpublished price sensitive information is not sufficient to hold the appellant guilty. The dealing should result in an advantage to him. The appellant has acted in the interest of the company and was not held guilty. S. Ramesh, S. Padmalata and Asis Bhaumik v. SEBI Held that the term "insider" has the following three essential ingredients: Insider is a person; and Who is connected or deemed to have been connected with the Company; and Who is reasonably expected to have access by virtue of such connection, to Unpublished Price Sensitive Information or who has received or has had access to Unpublished Price Sensitive Information.Section 15H: Penalty for non disclosure of acquisition of shares and takeovers: Contravention of provisions of Takeover Code Regulations, shall be liable to a penalty of 25 crore rupees or 3 times the amount of profit made out of such failure, whichever is higher. In, Krishna Naik v SEBI SEBI imposed penalty of Rs. 5 lakhs upon appellant for the violation.Section 15HA: Penalty for fraudulent and unfair trade practices.Indulging in any fraudulent and unfair trade practices, shall be liable to a penalty of 25 crore rupees or 3 times the amount of profit made out of such practices, whichever is higher.Section 15HB: Penalty for contravention where no separate penalty has been provided:Contravention of any of the provisions of the Act where no specific penalty is specified, shall be liable to a penalty which may extend to 1 crore rupees.

Powers and functions of SEBIIntroduction SEBI was established as a statutory authority through an Ordinance promulgated on 30.01.1992 by the President of India. SEBI is the regulator for the Securities Market in India. It is managed by a Board comprising of nine members including the chairman. SEBI promotes orderly and healthy development in the stock market.Objectives of SEBI:1. To regulate the activities of stock exchange. 2. To protect the rights of investors and ensuring safety to their investment.3. To prevent fraudulent and malpractices by having balance between self regulation of business and its statutory regulations.4. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters, etc.Powers and Functions of SEBI: (Section 11)Functions of SEBI: i. Protective functions ii. ii. Developmental functionsiii. Regulatory functions.1. Protective Functions:These functions are performed by SEBI to protect the interest of investor and provide safety of investment.As protective functions SEBI performs following functions: (i) It Checks Price Rigging: Price rigging refers to manipulating the prices of securities with the main objective of inflating or depressing the market price of securities. SEBI prohibits such practice because this can defraud and cheat the investors.(ii) It Prohibits Insider trading: Insider is any person connected with the company such as directors, promoters etc. These insiders have sensitive information which affects the prices of the securities. This information is not available to people at large but the insiders get this privileged information by working inside the company and if they use this information to make profit, then it is known as insider trading, e.g., the directors of a company may know that company will issue Bonus shares to its shareholders at the end of year and they purchase shares from market to make profit with bonus issue. This is known as insider trading. SEBI keeps a strict check when insiders are buying securities of the company and takes strict action on insider trading.(iii) SEBI prohibits fraudulent and Unfair Trade Practices: SEBI does not allow the companies to make misleading statements which are likely to induce the sale or purchase of securities by any other person.(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the securities of various companies and select the most profitable securities.(v) SEBI promotes fair practices and code of conduct in security market by taking following steps:(a) SEBI has issued guidelines to protect the interest of debenture-holders wherein companies cannot change terms in midterm.(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff fine and imprisonment.(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to market prices.2. Developmental Functions: These functions are performed by the SEBI to promote and develop activities in stock exchange and increase the business in stock exchange. Under developmental categories following functions are performed by SEBI:(i) SEBI promotes training of intermediaries of the securities market.(ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable approach in following way:(a) SEBI has permitted internet trading through registered stock brokers.(b) SEBI has made underwriting optional to reduce the cost of issue.(c) Even initial public offer of primary market is permitted through stock exchange.3. Regulatory Functions: These functions are performed by SEBI to regulate the business in stock exchange. To regulate the activities of stock exchange following functions are performed:(i) SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters, etc.(ii) These intermediaries have been brought under the regulatory purview and private placement has been made more restrictive.(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer agents, trustees, merchant bankers and all those who are associated with stock exchange in any manner.(iv) SEBI registers and regulates the working of mutual funds etc.(v) SEBI regulates takeover of the companies.(vi) SEBI conducts inquiries and audit of stock exchanges.Powers of SEBI:i)Power to Seek Information: Section 11 of the SEBI Act, 1992 alas amended by the Amending Act of 2002 confers a very important power on SEBI to seek information and records from any bank or any other statutory authority or board or corporation established either by central, state or local government.ii)Powers of Inspection: The new section 11(2) inserted by the Securities and Exchange Board of India (Amendment) Act 202 empowers SEBI to conduct inspection of books, registers, documents and records of any listed company or public company intending to get its securities listed.iii) Powers of Civil Court Exercisable by SEBI: The SEBI shall have the same powers as revested in a civil court under the code of Civil Procedure, 1908 while trying a suit, in respect of the following matters , (a) The discovery and production of books of account and other documents, at such place and such time as may be specified by the SEBI. .(b) Summoning and enforcing the attendance of persons and examining them on oath;(c) Inspection of any books, registers and other documents of any person referred to in section 12, at any place. .(d) Inspection of any book, or register, or other document or record of the company;(e) Issuing commissions for the examination of witnesses or documents.iv) Power to issue directions : SEBI has the power to direct inquiries to be made in relation to affairs of stock exchanges or their members.v) Power of Search and Seizure: A new section 11C has been introduced in the principal Act by the Securities and Exchange Board of India (Amendment) Act 2002 which covers the power of search and seizure.vi) Power to Order Cease and Desist: Section 11D, a new section inserted by thesecurities and Exchange Board of India (Amendment) Act 2002 empowers SEBI to issue a cease and desist order, where necessary. It provides that if the Board finds, after causing an inquiry to be made, that any person has violated, or is likely to violate, any provisions of this Act, or any rules or regulations made there under, the Board may pass an order requiring such person to cease and desist from committing or causing such violation.vii) Power of SEBI Under SCRA: Following are the powers enjoyed by the SEBI under the Securities Contracts Regulations Act, 1956.a)To grant recognition to a stock exchange. .b)To withdraw recognition of any stock exchange in the interest of the trade.c)To require every stock exchange to furnish periodical returns of day to day affairs.d)To approve any stock exchange to make bye laws .e)To super said the governing body of a recognized stock exchange.f) To suspend the business of a any recognized stock exchange for a limited period.g)To compel listing of securities by public companies.CASE LAWS In, Ramrakh R.Bohra Vs. SEBI It was also held that the power to issue directions under section 11B carries with it by necessary implication all powers and duties incidental and necessary to make exercise of these powers fully effective including power to pass interim orders in aid of final orders. In, SEBI vs. Alka Synthetics Ltd. The Gujarat High Court held that section 11B is essentially a power to issue directions after inquiryand SEBI had the authority of law to take measures under the provisions of the Act. In,SEBI Vs. Libra Plantation Limited The Court held that where the corporate character is employed for the purpose of committing illegality or for defrauding others, the Court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. In, A Vaidyanathan Vs.UOI and anr The Honble High Court of Madras held that trading in securities is not a fundamental right but a statutory right and the trading can be regulated by statute. It was also held that rejection of membership of a recognized stock exchange cannot be challenged on the ground of violation of Articles 14 and 19(1)(g) of the Constitution of India. . Scope and objectives To facilitate external trade and payments; andThe Reserve Bank of India today stated that the Foreign Exchange Management Act (FEMA) and rules give full freedom to a person now resident in India who was earlier a non- resident to hold or own or transfer any foreign security or immovable property situated outside India and acquired when he/she was resident there. Similar freedom is also given to a resident who inherits such security or immovable property from a person resident outside India.`the object of the Foreign Exchange Regulation Act, 1973, was to conserve foreign exchange resources, whereas the object of the new Act, Foreign Exchange Management Act, 1999, is to facilitate external trade and payments and to promote orderly maintenance of the foreign exchange market in India.'', a person resident outside India is permitted to hold shares, securities and properties acquired by him while he/she was resident in India. A person resident outside India is also permitted to hold such properties inherited from a person resident in India. The exchange drawn can also be used for purposes other than for which it is drawn provided drawal of exchange is otherwise permitted for such purpose. To promote the orderly development and maintenance of foreign exchange market in India without any chaos and violations. Regulation of foreign companies in India: A foreign company is a company which is incorporated outside India but having its place of business (including a share transfer or an office registered with a regulatory authority) in India. Under the Companies Act 2013, a foreign company means any company or body corporate incorporated outside India which has a place of business in India, either of its own or if it conducts business through an agent, physically / electronically or any other manner. However, all foreign companies are not required to comply with the Companies Act, it is only applicable to foreign companies where 50% or more of the paid-up share capital (calculated by including preference shares) is held by Indian entities.Foreign companies must comply with the provisions of the Companies Act, 2013 in respect to the business as if it were a company incorporated in India.g To make strong and developed foreign exchange market Without any hawala : An important objective of exchange regulation is to prevent hawala transactions.We may briefly consider hawala from two angles.(i) legal; and(ii) Economic.Legal restrictions on hawala.Under FERA, sections 8 & 9 provided detailed legal prohibitions on hawala market. Section 8 provided the restrictions on transactions in foreign currency as well as conversions between Indian currency & foreign currency, Section 9 covered rupee transactions. Section 9(1)(f) provided specific prohibition on hawala. Rest of the clauses in section 9 were direct / indirect support to the main target of preventing flight of capital outwards through any channel. Conservation and proper utilization of forex resources of the country.As foreign exchange being a scare commodity, the administrators doesnt have any option than controlling the forex demand. Any breach of FERA was a criminal offence. It was more a prohibitive law. Except the list of transactions permitted by RBI, FERA prohibited all other dealings in foreign exchange and foreign securities. Along with FERA, another draconian law with preventive detention right was enacted as Conservation of Foreign Exchange and Prevention of Smuggling Activities Act 1974 (Popularly referred as COFEPOSA) followed by another preventive detention law namely Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (popularly referred as SAFEMA).

Control certain aspects of the conduct of business outside the country by Indian Companies and in India by Foreign companies. This is done through FDI To regulate acquisition, holding etc of immovable property in India by NRI Acquisition of immovable property in India by persons resident outside India (foreign national) is regulated in terms of section 6 (3) (i) of the Foreign Exchange Management Act (FEMA), 1999 as well as by the regulations contained in theNotification No. FEMA 21/2000-RB dated May 3, 2000------------------------------------------------------------------------------------------__What is meant by a person resident in India?A.53. From FEMA angle, a person resident in India means a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year (April-March) and who has come to or stays in India either for taking up employment, carrying on business or vocation in India or for any other purpose, that would indicate his intention to stay in India for an uncertain period.In other words, to be treated as a person resident in India, under FEMA a person has not only to satisfy the condition of the period of stay (being more than 182 days during the course of the preceding financial year) but has also to comply with the condition of the purpose/intention of stay.

If we take the interpretation of it would appear that a resident is a person who:

1. Spends more than 182 days inIndiaduring the Preceding Financial YearAND2. Does not fall in either (a) or (b) in the definition above.Point (a) excludes from the definition of FEMA resident those who meet (1) and then go abroad for an indefinite period, say for employment. Point (b) excludes from the definition of FEMA resident those who meet (1), but have come toIndiaas visitors/ tourists toIndiawith a definite plan to return abroad__________________________________________________________________________________________What is meant by contravention and compounding of contravention?Ans.Contravention is a breach of the provisions of the Foreign Exchange Management Act (FEMA), 1999 and rules/ regulations/ notification/ orders/ directions/ circulars issued there under. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal. The Reserve Bank is empowered to compound any contraventions as defined under section 131of FEMA, 1999 except the contravention under section 3(a)2ibid, for a specified sum after offering an opportunity of personal hearing to the contravener. It is a voluntary process in which an individual or a corporate seeks compounding of an admitted contravention. It provides comfort to any person who contravenes any provisions of FEMA, 1999 [except section 3(a) of the Act] by minimizing transaction costs. Willful,malafideand fraudulent transactions are, however, viewed seriously, which will not be compounded by the Reserve Bank.3(a)deal in or transfer any foreign exchange or foreign security to any person not being an authorized person;Who can apply for compounding?Ans.Any person who contravenes any provision of the FEMA, 1999 [except section 3(a)] 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 is issued by the Reserve Bank, can apply for compounding to the Reserve Bank. Applications seeking compounding of contraventions under section 3(a) of FEMA, 1999 may be submitted to the Directorate of Enforcement.

3 When should one apply for compounding?Ans.When a person is made aware of the contravention of the provisions of FEMA, 1999 by the Reserve Bank or the Foreign Investment Promotion Board (FIPB) or any other statutory authority or the auditors or by any other means, she/he may apply for compounding. One can also make an application for compounding, suo moto, on becoming aware of the contravention.What action is taken by the Reserve Bank on receipt of the application?Ans.The Reserve Bank makes a scrutiny of the application to verify whether the required details and documents furnished by the applicant are prima-facie in order. Applications with incomplete details or where the contravention is not admitted will be returned to the applicant. On the admission of applications, the Reserve Bank will examine and decide if the contravention is technical, material or sensitive in nature. If technical, the applicant will be issued a cautionary advice. If the contravention is material, it will be compounded by imposing a penalty after giving an opportunity to the contravener to appear before the compounding authority for a personal hearing. If the contravention is sensitive in nature requiring further investigations, the same would be referred to the Directorate of Enforcement (DoE) for further investigation/ action.__________________________________________________________________________________________

In C V Govinda Rao vs govt of IndiaThe term giving of notice was held to mean communication of notice to person concerned and not mere dispatch of notice to the address of the person. It should be actually tendered to him. The expression understood in the common parlance would convey that the notices must be served or tendered in order to complete the process of giving such notice.

Procedure to be followed on arrest of a person:

In N H Wane V Mohaammed Akthar Hussain , it was held that under the Customs act that when the provisions of that act are silent as to what a magistrate has to do in a case where a person is arrested for an offence punishable under that Act, the accused should be dealt with in accordance with the provisions of Sec.437 of the Criminal Procedure Code.

Detention order can be executed anywhere in India as per cr.p.c Capital Account Transactions

During the long journey from FERA to FEMA, there was a time when India pondered over Capital Account convertibility. The Tarapore Committee submitted a detailed report laying down the road map to Capital Account convertibility. However, with the eruption of the South East Asian currency crisis, the idea of full convertibility of rupee on Capital Account has been shifted to the slow track. An honest attempt is made in FEMA to define and codify the Capital Account transactions to govern which Regulations have been framed. This will facilitate the Government to introduce Capital Account convertibility in a phased manner. In fact, one such step had already been taken by the Government by allowing remittance of up to US$ 1 million out of balances held in NRO Accounts/sale proceeds of the immovable property held for more than ten years, on production of an undertaking from the person making the remittance, coupled with the certificate from a Chartered Accountant about payment of applicable taxes. A resident individual has also been permitted to draw foreign exchange up to USD 2,00,000/- per Financial Year for a capital account transaction.

Section 2(e) defines Capital Account Transactions to mean a transaction whichaltersthe assets or liabilities, including contingent liabilities,outside Indiaof a person resident in India or assets or liabilitiesin Indiaof persons resident outside India, and

includes transactions referred to in sub-section (3) of Section 6.[Refer Annexure 2 for Capital Account Transactions specified in Section 6(3)].Permissible Capital Account Transactions are discussed inAnnexure 3.

Section 6(3) contains ten sub-clauses covering a wide range of transactions, namely, Foreign Direct Investments in India, Overseas Direct Investments from India, Borrowing or Lending in foreign exchange and in Indian rupees, various kinds of bank accounts, immovable property in India and abroad, guarantees, etc., for each of such categories, the RBI has issued separate Notifications.1.10 Distinction between Capital Account and Current Account Transactions

The distinction between the two types of transactions needs to be understood from the viewpoint of balance of payments of the country. There is a difference between our normal understanding of a Capital asset or a Capital expenditure and a Capital account transaction per se.

For example, import of machinery on payment of cash or on normal credit terms of the vendor will be regarded as a current account transaction. The importer may capitalise it in his account books and claim depreciation thereon. As far as the country is concerned, it is a trade transaction. However, if the same machinery is imported on deferred credit basis or is funded out of ECB etc., then the credit beyond twelve months (as less than twelve months again would fall within the definition of Current account transactions) would result in the creation of the long-term liability outside India and therefore, be termed as a Capital account transaction.

A word of caution here is that, the meaning of alteration of assets or liabilities is not properly defined and therefore, leads to different interpretations. In order to be on right side of the law, it is advised that in case of doubt, the matter may be referred to the Reserve Bank of India, for guidance.