Foreign Exchange Management Act (FEMA)

Foreign exchange Management Act (FEMA) 1999 came into effect in India from June 1, 2000 replacing earlier law FERA, 1973. FEMA is a regulatory mechanism that enables the Reserve Bank of India to pass regulations and the Central Government to pass rules relating to foreign exchange in tune with the Foreign Trade policy of India. This Act is not only applicable to residents of India within India, but also applicable to all branches, offices and set-ups outside India which are owned or controlled by a person resident in India.

FEMA was introduced because FERA did not meet the requirements of the policies that were implemented after liberalization. FEMA introduced a significant change in the system by making all crimes related to currency exchange civil crimes, rather than criminal offences (previously applicable in the case of FERA).


It was enacted in 1973 to promote the regulation of foreign exchange and trade in India. It was enacted in 1999 to encourage and facilitate external trade.
It was restrictive It is flexible and makes foreign trade and transactions comparatively easy.
It contains 81 sections It contains 49 sections
It was a gravely strict act as it criminalized every offence and required imprisonment for even minor offences. It promoted liberalization and converted the criminal offence under FERA into ‘civil offence’.
It was introduced at a time when the foreign exchange reserves (Forex) of India were low. It was introduced with the intention of replacing FERA, as it was unsuccessful in applying the restrictions.

Salient Features of FEMA

  • It gives the authority and power to Central Government to impose the restrictions on all such activities that include payments to or from any person residing outside India.
  • All the transactions relating to foreign exchange and trade cannot be carried out without prior permission from FEMA.
  • The foreign transactions / trade can be carried out only through an individual who is registered/authorized under FEMA.
  • Deals involving foreign exchange under current account can be prohibited by Central Government, even after being carried out by an authorized person, based on general public interest.
  • Indian residents will be allowed to carry out trade in foreign exchange, foreign security or to possess an immovable property outside India if it was owned while staying abroad or inherited from a person residing outside India.

Contravention and Penalties

If any person contravenes any provisions 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 authorisation is 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 contravention is a continuing 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) of Section 13 of the Act, 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.

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 of 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, 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 respect of the contravention so compounded.

Authority and Courts

Adjudicating Authority : Adjudicating Authority holds an enquiry for the purpose of imposing any penalty upon a complaint in writing made by any officer authorised by an order passed by Central Government.

Appeal to Special Director (Appeals) : 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) within 45 days of the communication of the Order.

Appellate Tribunal under FEMA : Any person aggrieved by an Order made by the Adjudicating Authority, or by Special Director (appeals) may prefer an appeal to Appellate Tribunal within 45 days from the date on which a copy of the Order is received by the aggrieved person or by the Central Government.

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 60 days of the date of communication of a decision or the Order of the Appellate Tribunal to him on any question of law arising out of such Order.

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