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HARITHA Foreign Exchange Regulation Act (FERA) BASIC CONCEPTS & DEFINATIONS FERA is an act to regulate dealings in foreign exchange and foreign securities with the objective of conservation of foreign exchange resources of India and its proper utilization in the economic development of India. It extends to whole of India and applies to all the citizens of India, outside India as well as in India and to branches and agencies of Indian companies or body corporates, outside India. FERA is a very stringent act.
Unlike other laws where everything is permitted unless specifically prohibited, under FERA nothing is permitted unless specifically permitted. Hence the tenor and tone of the Act is very drastic. It provides for imprisonment for violation of even a very minor offense. Under this act, a person is presumed guilty unless he proves himself innocent whereas under other laws, a person is presumed innocent unless he is proven guilty. Therefore one has to be very careful while dealing in foreign exchange and ensure that all legal compliances are carried out.
With liberalization, there has been a move to remove the drastic measures of FERA and replace it with a set of liberal foreign exchange management regulations. A draft of the Foreign Exchange Management Bill (FEMA) has been prepared by the Government of India to replace FERA keeping in view the liberal spirit of the Indian economy. However, until FEMA is enacted, the provisions of FERA apply. FERA contains definitions of certain terms which have been used throughout the Act. Their meaning of these terms may differ under other laws or under common language.
But for the purposes of FERA, the terms will signify the meaning as defined thereunder. Let us take up some of the more important ones. Authorized dealer means a person for the time being authorized by the Reserve Bank of India (RBI) under section 6 to deal in foreign exchange. Bearer certificate means a certificate of title to securities, whose ownership can be transferred by mere delivery, whether with endorsement or not. In this sense, it is similar to a bearer cheque ie whoever has such a certificate can easily encash it without any other person’s endorsement.
Certificate of title to a security means any document used in the ordinary course of business as a proof of the possession or control of the security or authorizing or purporting to authorize, either by endorsement or by delivery the possessor of the document to transfer or receive the security thereby represented. Coupon means the coupon representing the dividends or interest on a security. Eg Dividend warrants Currency includes all coins, currency notes, bank notes, postal notes, postal orders, money orders, cheques, drafts, traveller’s cheques, letters of credit, bills of exchange and promissory notes.
Foreign currency means any currency other than Indian currency. Foreign exchange means foreign currency and includes :-: 1. All deposits, credits and balances payable in any foreign currency and any drafts, traveller’s cheques, letters of credit and bills of exchange expressed or drawn in Indian currency but payable in any foreign currency. 2. Any instrument payable at the option of the drawee or the holder thereof or any other party, either in Indian currency or in foreign currency or partly in one and partly in the other.
Foreign security means any security created or issued outside India and any security, the principal of or the interest on which is payable in any foreign currency or is payable outside India. Indian currency means the 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. Such Rupee One notes are issued by the Ministry of Finance.
Indian Customs Waters means water extending into the sea upto a distance of 12 nautical miles measured from the appropriate base line on the coast of India and includes any bay, gulf, harbour, creek or tidal river. Money changer means a person for the time being authorized under section 7 to deal in foreign exchange. Owner, in relation to any security, includes :- 1. Any person who has the power to transfer the security; or 2. Any person who has the custody thereof; or 3. Any person who receives, whether on his own behalf or on behalf of any other person, dividends or interest thereon and who has any interest therein; . In a case where a security is held on in any trust or dividends or interest thereon are paid into a trust fund, owner also includes any trustee or any person entitled to enforce performance of the trust or to revoke or vary, with or without the consent of any other person, the trust or any terms thereof or to the control investments of the trust moneys. Person resident in India means 1. A citizen of India, who has at anytime after 25th March 1947 been staying in India but does not include citizen of India who has gone out of or stays outside India :- i) for taking an employment outside India ; or (ii) for carrying on outside India any business or vocation ; or (iii) for any other purpose, in circumstances which indicate the intention to stay outside India for an uncertain period. 2. A citizen of India who having ceased to be a person resident in India as per the above conditions, who returns to or stays in India :- (i) for taking an employment in India ; or (ii) for carrying on business or vocation in India ; or (iii) for any other purpose in circumstances which indicate his intention to stay in India for an uncertain period. . A person, not being a citizen of India who has come to or stays in India :- (i) for taking an employment ; or (ii) for carrying on business or vocation in India ; or (iii) for any other purpose in circumstances which indicate his intention to stay in India for an uncertain period. (iv) for staying with his or her spouse, such spouse being a person resident in India. 4. A citizen of India who has not stayed in India at anytime after 25th day of March 1947 comes to India for any of the aforesaid purposes. Person resident outside India means a person who is not resident in India.
Precious stones include pearls and semi precious stones and such other stones or gems as the Central Government may, for the purposes of this Act, notify in the Official Gazatte. Securities means shares, stock, bonds, debentures stock, government securities as defined in the Public Debt Act, 1944, savings certificates to which the Government Savings Certificate Act, 1959 applies, deposit receipts in respect of deposits of securities and units or sub-units of the Unit Trust and includes certificates of title to securities but does not include bills of exchange or promissory notes other than government promissory notes.
Transfer in relation to any security includes transfer by way of loan or security. Authorized dealer in foreign exchange: Authorized dealers are persons who can legally deal in foreign exchange. Most of the authorized dealers are banks. However, not all branches of the banks are authorized dealers. Only certain designated branches of banks act as authorized dealers. Any person wanting to deal in foreign exchange must deal through the authorized dealers unless specifically exempted from doing so. A application must be made by a person desiring to be an authorized dealer to the RBI.
The RBI may authorise that person to be an authorized dealer if he meets with certain parameters laid down for this purpose. An authorisation by the RBI for this purpose will be in writing and may authorise dealing in all foreign currencies or may be restricted to authorized dealing in specified foreign currencies only. It may authorise transaction of all descriptions in foreign currency or it may be restricted to specific transactions only. It may be granted for a specific period or within specified amount.
It may be granted subject to such conditions as many specified therein. An authorisation granted by the Reserve Bank may be revoked at anytime if the RBI is satisfied that it may be in public interest to do so or if authorized dealer has not complied with the conditions subject to which the authorisation was granted or has contravened any of the provision of this Act or rules, notification direction or orders made thereunder. However before revoking the authorisation, the authorized dealer should be given a reasonable opportunity of making representation in the matter.
An authorise dealer must in all his dealings in foreign exchange and in the exercise and discharge of the powers and functions given to him under FERA comply with all general and special directions and instructions that the reserve bank may from time to time think fit to give. Except with the previous permission of the reserve bank, the authorized dealer cannot not engage in any transaction relating any foreign exchange which is not in conformity in the terms of his authorisation.
An authorized dealer must before undertaking any transaction in foreign exchange on behalf of any other person, require that person to make such declaration and to give such information which reasonably satisfies him that the transaction will not involve and is not designed for the purpose of contravention or evasion of the provisions of FERA or any rules, notification or direction made thereunder and if that person refuses to comply with such requirement or makes only unsatisfactory compliance thereof, the authorized dealer should refuse to undertake the transaction and must report the matter to the reserve bank.
Money Changer: Money changers are authorized to deal in foreign exchange but for very limited and specific purposes. Generally, hotels, foreign travel agents, foreign tour operators, etc who have foreign exchange requirements for specific purposes only are allowed to become money changers. They must function strictly within the terms and conditions under which they are licensed to act as money changers. A application must be made by a person desiring to be a money changer to the RBI.
The RBI may authorise that person to be a money changer if he meets with certain parameters laid down for this purpose. An authorisation by the RBI for this purpose will be in writing and may authorise dealing in all foreign currencies or may be restricted to authorized dealing in specified foreign currencies only. It may authorise transaction of all descriptions in foreign currency or it may be restricted to specific transactions only. It may be granted for a specific period or within specified amount. It may be granted subject to such conditions as many specified therein.
All other provisions are similar to those applicable to authorized dealers. For the purpose of dealings with money changers, foreign currency means foreign currency in the form of notes, coins and traveller’s cheques and dealing means purchasing foreign currency notes, coins or traveller’s cheque or selling foreign currency in form of notes and coins. Restriction on dealing in foreign currency: FERA imposes restriction on every dealing involving foreign exchange. No dealing in foreign exchange is permitted unless allowed by the RBI.
Under section 8, except with the previous general or special permission of the reserve bank, no person, other than an authorized dealer, can deal in India and no person resident in India, other than an authorized dealer, can outside India purchase or otherwise acquire, borrow from, or sell, or otherwise transfer or exchange with any person not being an authorized dealer, any foreign exchange. This restriction will not apply to any purchase or sale of foreign currency in India between any person and a money changer.
A person who deposits foreign exchange with another person or opens an account in foreign exchange with another person will be deemed to lend foreign exchange to such other person. Except with the previous general or special permission of the reserve bank, no person, whether an authorized dealer or a money changer or otherwise, can enter into any transaction which provides for the conversion of Indian currency into foreign currency or foreign currency into Indian currency at rates of exchange other than the rates of exchange for the time being authorized by the reserve bank.
Where any foreign exchange is acquired by any person other than a authorized dealer or money changer for any particular purpose or where any person is permitted to conditionally acquire foreign exchange, that person cannot use the foreign exchange so acquired otherwise than for that purpose or fail to comply with any condition subject to which permission was granted to him.
Where any foreign exchange so required cannot be used for that particular purpose or the condition cannot be complied with, that person must, within a period of 30 days from the date on which he comes to know that the foreign exchange cannot be so used for that purpose or that the condition cannot be complied with, sell the foreign exchange to an authorized dealer or to a money changer.
The above provision is not applicable to buying from any post office in accordance with any law or rules made thereunder any foreign exchange in the form of a postal order or money order. The RBI has issued notifications from time to time for granting permissions for dealings in foreign exchange. Where so permitted by the RBI, permission need not be sought for undertaking such transactions. Let us discuss some of the more important permissions : – I.
Notification no FERA 47/77-RB dated 24/11/1977 as amended by Notification no FERA 135/93 dated 26/4/93 Reserve Bank of India permits – 1) Any person to acquire the foreign exchange by way of scholarship or stipend from charitable trust or educational institutions or foundation or from foreign government to enable him either to undergo a course or study or training or both 2) Any person to acquire the foreign exchange by way of income on assets held outside India or by way of inheritance, settlement or gift. ) Any person to acquire from any person not in India, foreign exchange by the way of remuneration of services rendered whether in or outside India or in settlement of any lawful obligation ;provided the person who acquires foreign exchange as in clause 2 or clause 3 above shall, if he is an Indian citizen and receiving foreign exchange as in clause 2 or clause 3 shall, if he is an Indian citizen and receives foreign exchange in India, within seven days from its receipt and in any case other than within three months from its receipt, offer it or cause it to be offered for sale to an authorized dealer in the prescribed manner laid down in the Central Government’s Notification. 4) Any person resident in India while on visit to any place outside India to receive foreign exchange by way of gift or honorarium or payment of the services not arising out of business in or anything done in India. II. Notification no FERA-158/94-RB dated 24th February, 1994 in suppression of the notification no 62/83-RB dated 13/9/83
The Reserve Bank is pleased to permit any person to receive payment in any foreign currency from any person resident outside India who is on visit to India for services rendered or settlement of any lawful obligation provided that such foreign currency acquired in excess of 500 US Dollar or its equivalent is sold to or caused to be sold within seven days from its receipt to an authorized dealer in the prescribed manner. III. Notification no FERA-73/88-RB dated 27/2/1998 The Reserve Bank of India permits any person resident in India who has acquired foreign exchange under the general or special permission of Reserve Bank of India for travel abroad to retain unspent foreign exchange brought to India for a period not exceeding 90 days from the date of his return. IV. Notification no FERA-98/91-RB dated 18/11/91 as amended notification no 137/93 dated 26/4/93
The Reserve Bank permits the exporters who have obtained post-bid letters of approval from the Exim Bank on the behalf of the Working Group on Projects Exports or Exim Bank or authorized dealers within their delegated powers in respect of export of engineering goods on deferred payment, execution of turnkey projects or civil construction projects abroad or for the export of consultancy, technical or other services abroad :- 1) To operate and maintain such number of foreign currency bank accounts and at such places outside India for the purpose receiving payments due under and meeting expenditure connected with the export contract as provided in the letter of approval. 2) To establish a temporary site office at such place or at such places outside India for purpose of co-ordinating the work or services in the execution of the export contract as approved in the letter of approval. 3) To pay such commission due to any agent outside India in connection with export contract as approved in the letter of approval. ) To raise such foreign currency loan or overdraft abroad against the guarantees of their bankers in India for the purpose of bridging temporary shortfall in cashflows in the execution of export contracts as approved in the letter of approval; subject to the condition that :- 1) Terms and conditions specified in the letter of approval and any directions that may be given from time to time by the Reserve Bank are strictly complied with by the exporters. 2) Within the 15 days of opening of such foreign currency bank account, temporary site office, payment of any agency commission or availing of foreign currency loan or over-draft the export submits to the concerned regional office of Reserve Bank, a statement containing full particulars of such bank accounts, site office, commission or loan or overdraft. )A quarterly statement in the form specified for the purpose along with the document specified in the such form is submitted by the exporter to the concerned regional office of the Reserve Bank. V. Notification no FERA-159/49-RB dated 31/3/94 in suppression of notification no 112-92- RB dated 12/3/92 The Reserve Bank is pleased to permit :- 1) 100% export oriented units or units located in export processing zone or software technology park or in hardware or electronic hardware technology park to open and operate an account in India expressed in foreign currency with an authorized dealer and to Credit to such amount upto 50% of any remittance received from outside India in convertible foreign exchange by the unit ) Any other person to open and operate in India account expressed in foreign currency with an authorized dealer and to credit such account upto 25% of any remittance received by the person from outside India in convertible foreign currency provided that such remittances were other than those received pursuant to an undertaking or for meeting any specific obligation and provided further that withdrawal from such account, other than for remittance outside India or for the payment in India in foreign currency for the such purposes as may be advised through any circular is allowed by the authorized dealer only in Indian rupees at market rate prevailing on the date of such withdrawal. BHAVIK VI. Notification no FERA-116/92-RB dated 19/7/1992 The Reserve Bank has directed that the provisions imposed by the Section 8(1) shall not apply to the maintenance of and operation on an account expressed in foreign currency with an authorized dealer in India in accordance with any scheme approved by the Reserve Bank of India in this behalf or outside India if such foreign currency was acquired by a person 1) Otherwise than in contravention of the said Act (FERA) while he was resident outside India; or ) Through employment, business or vocation outside India taken up or commenced while such person was resident outside India provided that in either case such person has been resident outside India for a continuous period not less than one year. The general permission also applies to all income i. e. interest, dividend, etc. earned on the foreign exchange assets i. e. bank deposits, investments in foreign currency shares or securities, or immovable properties situated outside India or investments in business etc. outside India, lawfully acquired by such persons while resident outside India as well as to sale proceeds of such investments (but received after their return to India). Pension received by such persons from erstwhile employment outside India is also covered by the general permission.
In the case of persons who have not returned to India for good i. e. those who have retained their links abroad through employment, business or vocation outside India, taken up or commenced while they were resident outside India, the exemption applies to foreign currency continued to be acquired through such employment, business or vocation outside India even after their return to India. Balances held in overseas bank accounts by such persons at the time of their return to India are not required to be surrendered or declared to Reserve Bank. Fresh credits to such accounts should be out of foreign currency acquired for which exemption is available as indicated above.
Permission for opening New Accounts in certain cases: Persons of Indian nationality/origin returning to India for permanent settlement and satisfying either of the aforesaid 2 conditions would be eligible for continuing to maintain their existing foreign currency accounts with banks abroad or to open fresh accounts to deposit the eligible funds in such accounts. They can also retain eligible funds in Resident Foreign Currency (RFC) Accounts with an authorized dealer in India. However, persons who do not satisfy any of the two conditions e. g. persons returning to India after short assignments abroad of less than one year, should arrange to close their foreign currency accounts, if any, maintained by them during their stay abroad and transfer the balances therein to India within three months from the date of their arrival in the prescribed manner.
Reserve Bank may agree, on application, in deserving cases to the retention of the foreign currency accounts abroad for a slightly longer period in order to facilitate settlement of outstanding dues, collection of income-tax refund, etc. subject to the balance being eventually repatriated to India. Applications for this purpose may be made in form FAD 1. They will also be permitted, on application, to keep funds in RFC accounts with an authorized dealer in India. Accounts abroad of Indian Firms, Companies, etc. : Indian shipping companies will be permitted, on application, to maintain foreign currency accounts with banks abroad for retaining foreign exchange earnings by way of freight collections etc. o meet their operating expenses in foreign ports on condition that they will maintain at all times balances not exceeding reasonable fund requirements to meet disbursements at foreign ports subject to such overall limit as may be stipulated by Reserve Bank from time to time as also for meeting expenditure such as P & I Club fees, charter hire payments, ship repairs, dry docking, spares, etc. Any surplus funds should be repatriated to India without delay. Investment of foreign currency balances in any form including placement on call or term deposits with overseas banks is not permitted. Applications for permission to open and maintain foreign currency accounts abroad should be made to the concerned office of Reserve Bank in whose jurisdiction the shipping company is functioning. VII. Notification no FERA-125/93-RB dated 22/3/93 The RBI permits any person resident in India :- 1) To incur liability 2) To purchase from the authorized dealers sums of money 3) To make payments ) To receive payments in foreign exchange in respect of the global bids where the Central Government has authorized bidding procedures enabling Indian as well as foreign companies entities to bid for supply of goods and services for projects to be executed in India and in cases of bids submitted by persons resident in India, they have accepted by the Indian Agency authorized by the Government inviting bids. VIII. Notification no FERA-127/93-RB dated 22/3/1993 The Reserve Bank permits any person who has entered into the agreement in one or more credit card servicing bank / organisation in India to receive payment in Indian rupees for the goods and services sold in India against charge slips raised on internationally recognised credit cards of persons resident outside India provided that the dues are realised in the foreign exchange through authorized dealers from the credit card issuing institutions overseas in an approved manner. IX. Notification no FERA 134/93-RB dated 25/4/1993
The Reserve Bank permits a person resident in India who is out of India to open with the bank outside India, an account in foreign currency and operate thereon during his stay outside India provided that deposit in such money such account is made out such (i) Foreign exchange obtained from authorized dealer or money changer in India ; or (ii) Foreign exchange received outside India by the way of scholarship or stipend or by way of salary or payment of services not arising from business in or anything done while in India. The general permission ceases to be operative on the return of the account holder to India. The accounts opened in terms of the general permission should, therefore, be closed and balances transferred to India immediately on return to India. X. Notification No FERA 161/95-RB dated 13/1/95
The RBI permits a person resident in India but who out of India for participation in exhibition or trade fair to open with a bank outside India an account in foreign currency and to operate for depositing the foreign exchange obtained by the sale of jewellery or other goods exported for display cum sale in international exhibition or trade fair provided that the account is closed immediately after the close of the exhibition or trade fair and the amount is repatriated in foreign exchange at the time of closure of exhibition or trade fair and the exporter furnishes to the Reserve Bank full account of transaction and sale of goods exported for display cum sale in the exhibition or trade fair duly by the certified by his banker and evidence of re-importing of the jewellery/goods within the period of 15 days. Loans against Foreign Currency Authorized dealers should obtain prior approval of Reserve Bank for granting loans and overdrafts whether in India or abroad, to residents against foreign currency balances or foreign securities held by them Restrictions on payments FERA imposes restrictions on making payments in foreign currency.
Under section 9, except as provided below and in accordance with any general or special exemption from the provisions of this section, which may be granted conditionally or unconditionally by the reserve bank, no person resident in India shall :- 1. Make any payment to or credit of any person resident outside India. 2. Receive otherwise than through an authorized dealer, payment by order or on behalf of any person resident outside India. 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 dealer without a corresponding inward remittance from any place outside India, such person shall be deemed to have received such payment otherwise than through an authorized dealer. 3.
Draw, issue or negotiate any bill of exchange or promissory note or acknowledge any debt so that a right, whether actual or contingent to receive a payment is created or transferred in favour of any person resident outside India. 4. Make any payment to or for the credit of any person by order or on behalf of any person resident outside India. 5. Place any sum to the credit of a person resident outside India. 6. Make any payment to or for credit of any person or receive any payment for or by order or on behalf of any person as consideration for or in association with :- (i) Receipt by any person of a payment or the acquisition by any person of property outside India ii) Creation or transfer in favour of any person or right, whether actual or contingent, to receive payment or aquire property outside India. 7. Draw, issue or negotiate any bill of exchange or promissory note, transfer any security or acknowledge any debt so that a right, whether actual or contingent, to receive a payment is created or transferred in favour of any person as consideration for or in association with any matter referred to in clause 6. The above provisions do not affect and will not render unlawful the making of any payment already authorized either with foreign exchange obtained from an authorized dealer or a money changer or with foreign exchange retained by a person in pursuance of authorisation granted by the Reserve bank.
It will also not affect and render unlawful the making of payment with foreign exchange received by way of salary or payment for services not arising from any business or anything done while in India. Except in accordance with any general or special exemption from the provisions of this section, which may be granted conditionally or unconditionally by the reserve bank, no person shall remit or cause to be remitted any amount from any foreign country into India except in such a way that the remittance is received in India only through an authorized dealer. Under section 9, any remittance into India from abroad can be made only through an authorized dealer unless a special or general permission to the contrary is given from the Reserve Bank.
Under notification no 50 / 1977-78 dated September 21, 1977 persons who receive any payment in India from a non-resident must ensure corresponding inward remittance from outside India; otherwise they will not be deemed to have received such payment through an authorized dealer. The RBI has also advised banks authorized to deal in foreign exchange that they should ensure, before making remittances in foreign exchange or transfer of rupees to non-resident Bank accounts that the counterpart rupee payment is made by the remitter only by debit to his account with the remitting bank or by a crossed cheque on his own bank, if the remittance or transfer is for some equivalent of Rs 1000 and above.
This restriction is applicable irrespective of whether the remittances or transfers are made by the authorized dealer under the authority delegated to them by the Reserve bank or against specific exchange permits except blank exchange permits issued by the Reserve Bank. ABHISHEKBlocked Account : Sometimes, non-residents are entitled to payments under normal law of a nature which cannot be approved by the Reserve Bank under current exchange control regulations to be taken outside India notwithstanding that they have arisen legitimately and lawful. Such payments to non-residents must be made to their blocked accounts in India. A block account means an account opened as a blocked account at any office or any ranch in India of a bank authorized in this behalf by the Reserve bank or an account blocked by order of the Reserve Bank. Where the RBI directs that a payment must be made to a blocked account only, it will be the responsibility of the authorized dealer to whom the direction is issued to ensure that the payment is made only to the credit of blocked account in the name of the non-resident concerned. The banker with whom the non-resident may maintain or has arranged to open blocked account in his name must obtain RBI approval in Form A4 for credit of that amount and confirm to the paying banker the fact of his obtaining such approval. Form A4 must be completed in respect of all transactions dealing with the operation of a blocked account.
The words “Blocked Account” must be prominently written in red ink at the top of every Form A4 in respect of every debit or credit entry in a blocked account. Where the Forms are for the purpose of obtaining RBI specific approval, they must be sent to the Reserve Bank in duplicate and the entry made in the account only after one copy of the form has been returned by the Reserve Bank duly approved. A Copy of each Form A4 must be submitted to the Reserve Bank along with the annual statement regarding the operations of blocked accounts. The Reserve Bank issues special directions regarding the operations on individual blocked account at the time of authorising the opening such blocked account.
Such balances will not ordinarily be allowed to be invested in India. No blocked account can be de-blocked by authorized dealers except under specific directions from the Reserve Bank. Payment for exported goods The Central Government may, by notification in the official gazette, prohibit the taking or sending out by land, sea or air of all goods or any goods or class of goods specified in notification from India, directly or indirectly, to any place so specified unless the exporter furnishes to the prescribed authority a declaration in the prescribed form (Form GR) supported by such evidence as may be prescribed and true in all matters. This shall include details of :- 1) The full export value of the goods ) If the full export value of the goods is not ascertainable at the time export, the value which exporter having regard to prevailing market condition expects to receive on the sale of goods in the overseas market; and affirms in the said declaration that the full export value of the goods whether ascertainable at the time of export or not has been or will within the prescribed period be paid in the prescribed manner. Where any exports of goods to which the notification applies has been made, no person can, except with the permission of the Reserve Bank do or refrain from doing anything or take or refrain from taking any action which has the effect of: – (i) Securing that the payment of the goods is made otherwise than in the prescribed manner or (ii) is delayed beyond the period prescribed or iii) that the proceeds of sale of the goods exported do not represent the full export value of the goods subject to such deduction if any allowed by the Reserve bank or (v) the sale of the goods is delayed to the extent which is unreasonable having regard to ordinary course of trade. In relation to any goods to which any notification applies, if the prescribed period has expired and payment therefor has not been made, it shall be presumed that, unless the contrary is proved by the person who has sold or entitled to sale the goods or to procure the sale thereof, that such person has not taken all reasonable steps to receive or recover the payment of goods as aforesaid and he shall accordingly be presumed to contravene the provision of this section.
Where in relation to any goods to which the notification applies, the prescribed period has expired and the payment thereof has not been made as aforesaid, the Reserve Bank may give to any person who has sold the goods or who is entitled to sell the goods or procure the sale thereof, such directions as appear to be expedient for the purpose of securing the payment in respect of the sale or for the purpose of re-import of the goods into India as the circumstances permit within such period as the Reserve Bank may specify in this behalf. In such circumstances, the RBI may also direct the goods, the right to receive the payment or any other right to enforce such payment shall be transferred or assigned to the Central Government or to a person specified in the direction.
If any goods or any right to receive any payment or any other right to enforce such payment are transferred or assigned, the Central Government shall pay to the person transferring or assigning, the same amount recovered by or on behalf of Central Government in respect of the goods after deducting the cost, charges and expenses incurred by the Central Government in selling the goods or recovering or realising amount in the respect of the such goods. For the purpose of ensuring compliance with the provisions of this section and any order or direction made thereunder, the Reserve bank or the prescribed authority may require any person making any export of goods to which the notification applies to exhibit contracts with his foreign buyers or the other evidence to show that the full export value of the goods has been or will be received within the prescribed period in the prescribed manner.
The Reserve bank may for the purpose of ensuring that full export value of the goods is received in proper time or without delay, by general or special order, direct from time to time that in respect of goods to any destination or any class of export transactions or any class of the goods or class of exporters, the exporter shall, prior to export of goods, comply with the any of or all of the following conditions as may be specified in the order namely: – 1) Any contract or any other arrangement for sale of the goods shall be registered in such manner and with such authority or organisation as may be specified in the order 2) That the payment for the goods is covered by irrevocable letter of credit or by such other arrangement or document specified as may be specified in the order ) That the copy of declaration to be furnished to the prescribed authority under sub-section 1 shall be submitted to such authority or organisation as may be specified in the order for certifying the value of the goods specified in such declaration represent proper value thereof 4) That any declaration to be furnished to the prescribed authority under sub-section 1 shall be submitted to the Reserve bank for its prior approval, which may having regard to the circumstances, be given or withheld, or may be given subject to such conditions as the Reserve Bank may deem fit to impose provided that no approval shall be withheld by the Reserve Bank under this clause unless the exporter has been given reasonable opportunity for making representation in the matter.
Where the Central Government is of the opinion that, in respect of any goods or any class of goods or class of exporters or in respect of export to any destination, the practice of exporting goods in accordance with terms which effectively lead to a situation or is likely to lead to a situation where the full export value of the goods is not brought to India in the prescribed manner or within the prescribed period, then it may, by general or special order prohibit the export in accordance in such terms of such goods and class of goods or by such exporters to such destination. Exchange Earners Foreign Currency (EEFC) Accounts The Reserve Bank by its Notification No. F. E. R. A. 183/98-RB dated 22nd April, has permitted exporters of goods and services and other beneficiaries of inward remittances in convertible foreign currency, other than those remittances received pursuant to undertakings given by them or those received for meeting specific obligations, to open and maintain with authorized dealers in India accounts expressed in foreign currency and titled “Exchange Earners Foreign Currency (EEFC) Accounts” and to credit to such accounts amounts not exceeding 50% of such remittances and operate on such accounts.
In the case of 100% Export Oriented Units or units located in Export Processing Zones or in Software Technology Parks or in Electronic Hardware Technology Parks, amounts up to 70% of the remittances can be credited to such accounts. Authorized dealers may also allow credits to EEFC accounts in the following cases: 1. Up to 50%/70% of the inward remittances, as the case may be, received towards export advance in freely convertible currencies subject to monitoring of the advances received by the authorized dealers concerned. 2. Up to 50% of the payments received by exporters by debit to U. S. Dollar Escrow accounts maintained in India as also under the foreign currency debt repayment route, towards value of goods exported by them. 3.
Up to 50% of the payments received by hotels from Credit Card Servicing Organisations (CCSO) in India in rupees against goods/services sold/supplied to foreign tourists against international credit cards issued abroad, provided CCSO in India confirms that the total bill amount as per charge slips received by the hotels has been realised in convertible foreign currency in an approved manner. In such cases foreign exchange equivalent of the 50% of the amount received in rupees may be credited to their EEFC accounts by converting at the market rate. Minimum balance Authorized dealers maintaining EEFC accounts may prescribe a suitable minimum balance for these accounts. Utilisation of Funds for Approved Purposes only
The funds held in EEFC accounts may be permitted to be utilised by the accountholder for all bona fide payments of the account holder subject to certain limits and conditions and on verification of the prescribed documents and/or against permits issued by Reserve Bank. Authorized dealers may also permit utilisation of the funds held in EEFC accounts for making bona fide payments of the account holders in foreign exchange connected with their trade and business related transactions which are of a current account nature (i. e. other than for capital account transactions viz. for investments abroad or for repayment of loans, etc. ), without any restriction except in the case of remittance of agency commission on exports.
In other words such business/trade related remittances may be allowed by authorized dealers beyond the monetary or prescribed percentage ceilings or for similar other purposes not expressly stated therein but where the rate of agency commission on exports exceeds 12. 5 per cent prior approval of Reserve Bank should be obtained. Before allowing such remittances authorized dealers should satisfy themselves about the bona fides of the transaction with reference to the documentary evidence produced by the account holder. Doubtful cases should, however, be referred to Reserve Bank with full details together with comments of the authorized dealer. RASHMIReserve Requirements The balances in the EEFC accounts will be exempt from the Cash Reserve Ratio and Statutory Liquidity Ratio requirements. Rate of Interest
The rate of interest payable on the balances in savings/term deposit accounts will be determined by the banks taking into account the interest rates prevailing in international markets. No interest is payable on the balances held in the form of current accounts. Transfer to Other Accounts Funds held in the EEFC accounts will not be permitted to be sold/transferred to accounts of other residents in India. However, authorized dealers may permit, on application, transfer of funds from the EEFC account/s of the Indian tour operator/s to EEFC accounts of hotels and other establishment/s provided the tour operator confirms that the amount represents the proportionate share of the latter in relation to the services rendered to foreign tourists. Liquidation of Export Credit
In case the exporter has obtained any export credit from a bank against shipment in respect of which a percentage of the proceeds is sought to be credited to the EEFC account, authorized dealers should ensure that the export credit has been liquidated fully before affording any credit out of export proceeds to the EEFC account. Facilities against the Security of Deposits No credit facilities, whether fund based or non-fund based, should be permitted either in India or abroad, against the security of funds held in the EEFC accounts. Statement of Operations on EEFC Accounts Central/Head Offices of authorized dealers should submit a consolidated quarterly statement in form STAT 7 giving summary of operations in EEFC accounts maintained by all their branches as at the close of each calendar quarter i. e.
March, June, September and December so as to reach the concerned Regional Office of Reserve Bank of India, Exchange Control Department, under whose jurisdiction the Central/Head Office of the bank is situated, on or before the 15th day of the month following the quarter to which it relates. Payment for lease, hire or other arrangement This section deals with international lease arrangements or exports on deferred payment basis. Under this section, no person can, except with general or special permission of the Reserve Bank, take or send by land, sea or air any goods from India to any place on hire or on lease or under any arrangement other than sale or disposal in any other manner of such goods. INVESTMENT PROVISIONS Regulation of export and transfer of securities
FERA imposes restrictions on the dealing and investing outside India of Indian securities. It also imposes restrictions on dealing and investing in foreign securities in India. It overrides the provisions of the Companies Act also in this connection. No person can, except with general or special permission of the Reserve bank :- 1) Take or send any security to the place outside India 2) Transfer any security or create or transfer any interest in the security to or in the favour of person resident outside India 3) Issue whether in India or elsewhere in the security which is registered or to be registered in India to a person resident outside India. ) Acquire, hold or dispose any foreign security Where the holder of a security is a nominee, neither he nor any person through whose agency the exercise of all or any of holder rights in respect security is controlled, can, except with general or special permission of the Reserve bank, do any act whereby he becomes obligated to hold the security for a person resident outside India. The Reserve Bank, may for the purpose of securing that the provisions of this section are not evaded require that person transferring any security and the person to whom such security is transferred shall subscribe to the declaration that the transferee is not resident outside India.
No person in India shall except with the permission of the Reserve bank :- (1) Enter any transfer or transfer of securities in a register or book in which securities are registered and inscribed if he has any ground for suspecting that the transfer involves an contravention of provisions of this Section. (2) Enter in any such register or book in respect of any securities whether in connection with issue or transfer of security or otherwise and address outside India except by way of substitution for such address in the same country or for the purpose of any transaction for which the permission has been granted under this Section with knowledge that it involves entry of the said address.
Notwithstanding anything contained in another law, no transfer of any share, bond, debenture of a company registered in India made by the person resident outside India or by a national of a foreign state to another person resident in India shall be valid unless such transfer is confirmed by the Reserve bank on an application made it on this behalf by the transferor or transferee. If the Reserve bank is of the opinion that it is necessary or expedient in the public interest to do so, it may by general or special permission exempt any such transfer or any class of such transfers from the operation of this provision subject to such condition as may be prescribed or specified in such permission.
Except with the general or special permission of Reserve Bank, no person can in India and no person resident in India can outside India, create or issue any bearer certificate or coupon or alter any document that it becomes bearer certificate or coupon. PROVISIONS PERTAINING TO IMMOVABLE PROPERTY Restriction on holding an immovable property outside India FERA imposes several restrictions on holding immovable properties outside India. No person resident in India can, except with general or special permission of Reserve Bank, acquire or hold or transfer or dispose off by sale or mortgage or lease or gift or settlement or otherwise any immovable property outside India. However this restriction is not applicable to acquisition or transfer of any immovable property by the way of lease for period not exceeding 5 years.
The RBI has issued notifications from time to time for granting permissions for acquiring and holding immovable property outside India. Where so permitted by the RBI, permission need not be sought for undertaking such transactions. These regulations will be applicable to acquisition, holding etc. of immovable property in Nepal by Indian nationals resident in India and firms/companies registered/incorporated in India even though the transactions may be settled in Indian rupees. Under Notification No. FERA. 120/92-RB dated 7th September 1992, the Reserve Bank has granted general permission to Indian nationals to acquire/hold immovable property outside India to the following categories of persons- 1.
Persons returning to India after a minimum continuous stay of one year abroad as persons resident outside India, provided (A) the property has been purchased out of foreign exchange lawfully acquired by them while resident outside India or (B) earned through employment, business or vocation taken up or commenced while resident outside India. 2. Persons holding the property since prior to 8th July 1947 and for which permission/ licence of Reserve Bank was obtained. 3. Persons acquiring the property by way of gift or inheritance from persons referred to in category (1) or (2) above and covered by the exemption granted by Reserve Bank, provided in the case of gift, the recipient donee is relative i. e. husband, wife, brother, sister or any lineal ascendant or descendant of the donor and the tax payable thereon, if any, has been paid in India.
The general permission also applies to fresh acquisition (which includes holding/disposal) of properties out of foreign exchange held by such persons satisfying any of the conditions of clause 1 above. Income on such properties can also be credited to their foreign currency accounts abroad. In the case of persons referred to in category (B) above, the income can also be credited to their RFC accounts maintained with an authorized dealer in India. Indian nationals resident in India who are not eligible for the general permission and holding or becoming owners of immovable properties abroad should apply to Reserve Bank in form FAD 1 for permission to hold immovable properties outside India acquired by them.
It may be necessary for firms/companies registered in India desiring to establish offices abroad to acquire or take on long lease, immovable properties outside India. In cases where applications for establishing offices abroad are approved, permission for acquiring immovable properties required for establishing the offices will be considered. The Reserve Bank will permit, on application, any person/firm/company holding immovable property abroad to sell it, provided Reserve Bank is satisfied that the property is being sold at the best possible price and the seller has undertaken to repatriate sale proceeds to India through an authorized dealer. Reinvestment abroad of sale proceeds of a property will not be permitted. Sale of immovable property held abroad to another resident in India is also not permitted.
Transfer of property by gift, settlement, lease (for a period exceeding five years), etc. in favour of any person will require prior permission of Reserve Bank. Restriction on holding, acquisition, etc of immovable property in India FERA imposes certain restrictions on non-residents and foreign citizens on holding immovable property outside India. No person who is not citizen of India and no company (other than banking company) which is not incorporated under Indian laws can, except with the previous general or special permission of Reserve Bank acquire or hold or transfer or dispose off by way of sale or mortgage or lease or gift or settlement or otherwise, an immovable property situated in India.
However, this restriction does not apply to the acquisition or transfer of any such immovable property by the way of lease for the period not exceeding five years. Such a person desiring to hold or acquires an immovable property may make an application to the Reserve Bank in the prescribed form and content as may be prescribed containing such particular as may prescribed. On receipt of such application, the Reserve Bank may, after making such inquiry as it deems fit, either grant or refuse to grant the permission applied for. No permission shall be refused unless the applicant have been given reasonable opportunity of making a representation before the RBI.
If before the expiry of the period of 90 days from the date on the application was received by the Reserve Bank, the Reserve Bank does not communicate to the applicant that the permission applied has been refused, it shall be presumed that the Reserve Bank has granted such permission. In computing the period of 90 days, the period taken by the Reserve Bank for giving an opportunity to the applicant for making representation shall be excluded. The RBI has permitted a foreign company to acquire or hold any immovable property which is necessary for or incidental to carry on by such company any activity permitted by section 28 or section 29 of FERA and such company files a declaration within 90 days from the date of such acquisition or holding giving full particulars of transactions as may required by the Reserve Bank in that regard.
Such company may also transfer such property by the way of security for any borrowing permitted under FERA. This permission is not available to a company which has been permitted to under Section 29 to open a liason office or to post a representative in India. Application for the above purpose will have to be made in from IPI-1 prescribed for the purpose. Notification no 99-1992 dated 8/1/92 permits a non resident Indian citizen to let out any the residential property, provided that the property held in by him for his bonafide residential purpose, but due to his residence abroad, he is not able to occupy the same. The rentral income is however non-repatriable.
Notification no 152/93 dated 26th May, 1993 permits general permission to foreign citizens of Indian origin to acquire by way of purchase or inheritance and dispose off by way of sale any immovable property other than agricultural land or farmhouse or plantation property situated in India and to acquire by the way of gift and dispose off by the way of sale or gift any residential property situated in India subject to certain conditions. It also permits repatriation of original investment in foreign exchange in residential properties after obtaining prior approval, subject to maximum of two houses (READ)BUSINESS & PROFESSION IN INDIA Restriction on appointment of certain persons and companies and agents of technical or management advisers in India FERA has imposed certain restrictions on the appointment of certain persons and companies and agents of technical or management advisers in India.
A person resident outside India, whether a citizen of India or not, or person who not a citizen of India but is resident in India or company (other than banking company) which is not incorporated under any law in force in India or any branch of such company shall not, except with the general or special permission of the Reserve Bank, act or accept appointment as agent in India of any person or company in trading or commercial transactions of such person or company. Where any such person or company acts or accepts appointment as such agent without permission of Reserve Bank, such acting or appointment shall be void. Where any such person or company desires to act or accept appointment as such agent, it must make an application to the Reserve Bank in such form and containing such particulars as specified by the Reserve Bank.
On receipt of an application as above, the Reserve Bank after making such inquiry as it deems fit either allow the application subject to certain conditions if any as the Reserve Bank may deem fit to impose or reject the application. No application shall be rejected this sub-section unless the parties who may be affected by such rejection has been given a reasonable opportunity for making representation in the matter. Where any direction made has not been complied with by any person or company, then, the acting shall be void with effect from the period of specified in the direction. Restrictions on the establishment of business of place in India FERA imposes restrictions on the establishment of business of place in India.
A person resident outside India, whether a citizen or not, or a person who is not citizen of India but is resident in India or company (other than banking company) which is not incorporated under law in force in India or any branch of such company cannot except with general or special permission of the Reserve Bank: 1) Carry on in India or establish in India a branch office or other place of business for carrying the activities of a trading, commercial and industrial nature other than activity for carry of which permission of the Reserve Bank has been obtained 2) Acquire the whole or any part of any undertaking in India of any person or the company carrying on such trade, commerce or industry or purchase the share of such company in India.
A Company (other than banking company) in which the non-resident interest is more than 40% cannot except with general or special permission of the Reserve Bank carry on any activity in India relating to agriculture and plantation or acquire whole or any part of undertaking in India of any person or company carrying on activity relating to agriculture or plantation or purchase of share of in such company. I. Notification no FERA 146-93 dated 26th April, 1993 directs that none of the restriction on appointment as agents or technical or management advisers in India or establishment of a place of business in India shall apply to foreign nationals of Indian origin permanently resident in India. Foreign citizens of Indian origin are treated as not permanently residing in India, if he is residing in India for the employment of specific duration irrespective of the length thereof or for a specific job or assignment, duration of which does not exceed 3 years. II.
Notification no FERA 22/74-RB dated October 11, 1974 has permits shipping companies which are not incorporated in India and which do not have branch office or other place of business in India to carry on in India through their local agents and subject to other provisions of FERA or of any rules, directions or orders made thereunder, the normal commercial activities like transportation of goods and passengers and collection of freight charges and fare. Prior Approval of Reserve Bank required for taking up employment, etc in India by the nationals of foreign state No national of a foreign country can, without the previous permission of Reserve Bank practice any profession or carry on any occupation, trade or business in India in a case where such national desires to acquire any foreign exchange for the remittance outside India out of any money received by him in India by the reason of practising such profession or on carrying of an occupation, trade, business as the case may be.
Where any national of foreign state desires to obtain the permission of Reserve Bank, he must make an application to the RBI in the prescribed form containing prescribed particulars. On the receipt of such application the Reserve Bank may after making such inquiry as it deems fit allow the application subject to such conditions as it seems fit to impose or reject the application, provided that no application shall be rejected under sub-section unless the applicant has been given reasonable opportunity of making representation in the matter. Application must accompanied by :- 1) Certified copies of the contract in duplicate giving terms and conditions of the employment 2) Applicant’s current passport.
PRAMOD TYPES OF BANK ACCOUNTS RUPEE ACCOUNTS OF NON-RESIDENTS The RBI has come out with several schemes under which non-resident can maintain rupee accounts in India. However there are certain categories of non-residents whose bank accounts in India are treated as resident bank accounts. Such accounts may be opened and operated upon freely provided similar to a resident account. These persons are : 1. Indians, Nepalese or Bhutanese resident in Nepal or Bhutan. 2. Offices and branches situated in Nepal or Bhutan of any business carried on by a company or a corporation incorporated or established under any law in force in India, Nepal or Bhutan. 3.
Offices and branches situated in Nepal or Bhutan of any business carried on as a partnership firm or otherwise by Indians, Nepalese or Bhutanese. Now let us briefly discuss the main schemes available to non-residents to maintain bank accounts in India. I. Ordinary non-resident rupee (NRO) accounts Authorized dealers may open accounts in the names of non-resident individuals/ entities without approval of Reserve Bank for the purpose of putting through bona fide transactions in rupees not involving any violation of the provisions of FERA 1973 and Exchange Control regulations framed thereunder. The operations on the accounts do not allow making available foreign exchange to any person resident in India against reimbursement in rupees or in any other manner in India.
At the time of opening of the account, the account holders should give an undertaking that in cases of debits to the accounts for the purpose of investment in India and credits representing sale proceeds of investments, they would ensure that such investments/ disinvestments would be covered either by the general or special permission of Reserve Bank. Once this undertaking has been obtained, authorized dealers need not verify the particulars of approvals for investments/disinvestments while permitting individual credits/debits to the account. Opening of and operations on the accounts of individuals/entities of Pakistani/Bangladesh nationality/ownership require approval of Reserve Bank. Post Offices have been authorized to maintain savings bank accounts in the names of persons resident outside India and to allow operations on these ccounts subject to the same rules as are applicable to NRO accounts maintained by authorized dealers. Accounts of non-residents may be held jointly with residents. Change of Status from Resident to Non-resident : When a person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment, business or vocation outside India or for any other purpose indicating his intention to stay outside India permanently or for an uncertain period, he becomes a person resident outside India. His account should, therefore, be designated as non-resident. Doubtful cases should be referred to Reserve Bank by letter in duplicate giving full particulars. Change of Status from Non-resident to Resident :
NRO accounts may be re-designated as resident accounts on the return of the account holder to India, provided authorized dealers are satisfied that the account holder has returned to India for taking up employment, business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Where the account holder is only on a temporary visit to India, the account should continue to be treated as non-resident even during such visit. Types of Accounts under the NRO scheme NRO accounts may be maintained in the nature of current, savings, recurring or fixed deposit accounts. The requirements laid down in the directives issued by Reserve Bank in regard to resident accounts shall apply to NRO accounts. Operations on the Accounts The undernoted credit and debit transactions may be allowed in the accounts by authorized dealers. Credits 1.
Proceeds of remittances received in any permitted currency from abroad through normal banking channels or any permitted currency tendered by the account-holder during his temporary visit to India or transfers from rupee accounts of non-resident banks. 2. Legitimate dues in rupees of the account holder in India. Debits 1. All local payments in rupees Form A4 (see blocked accounts also) Form A4 should be completed in respect of operations on the account where the transactions are for Rs. 10,000 and above (except interest earned on funds in the account or on deposits held by the account holder). These forms A4 need not be forwarded to Reserve Bank but should be retained with authorized dealers for scrutiny at the time of audit/inspection. Form A4 need not be forwarded to the non-resident constituent for completion.
As far as possible, authorized dealers should have the form completed by the resident party to the transaction or complete it themselves after obtaining requisite particulars from resident beneficiary or remitter, as the case may be. Autho