April 12, 2020

Foreign Exchange Regulation Act(FERA)

Foreign Exchange Regulation Act (FERA) was introduced at a time when foreign
exchange (Forex) reserves of the country were low. FERA proceeded on
presumption that all foreign exchange earned by Indian residents rightfully
belonged to the Government of India and had to be collected and surrendered to
the Reserve Bank of India (RBI). FERA primarily prohibited all transactions that
are not permitted by RBI. The objective of FERA was to regulate certain payment
dealings in foreign exchange and securities transactions that indirectly affects
foreign exchange of import and export of currency and to conserve precious
foreign exchange and to optimize the proper utilization of foreign exchange so as
to promote the economic development of the country.
Basic definitions of FERA
Authorized dealer- means a person for the time being authorized to deal
in foreign exchange.
Bearer certificate- means a certificate to securities of which the title to the
securities is transferable.
Coupon- means a coupon representing dividends or interest on a security.
Currency- includes all coins, currency notes, banks notes, postal notes,
postal orders, money orders, cheques, drafts, traveller's cheques, letters of
credit, bill of exchange and promissory notes.
Foreign currency- means any currency other than Indian currency.
Foreign exchange- means foreign currency all deposits, credits and
balance payable in any foreign currency and any drafts traveller's cheque,
letters of credit and bill of exchange drawn in the form of Indian currency
but payable in any foreign currency.
Foreign security- means any security created or issued elsewhere than in
India and any security the principal of interest on which is payable in any
foreign currency or elsewhere than in India.
Money changer- means a person for the time being authorized to deal in
foreign currency.
Overseas market- means the market in the country outside India and in
which such goods are intended to be sold.
Transfer- in relation to any security includes transfer by way of loan or
security.Officers of Enforcement
The officers of Enforcement take different roles in foreign exchange enforcement.
They are as follows
Director of Enforcement
Additional Director of Enforcement
Deputy Director of Enforcement
Assistant Director of Enforcement
Officers of Enforcement can be appointed for the purposes of this Act.
The appointment of enforcement officer and their powers are appointed by
central government. The Central Government may appoint persons such as it
thinks fit to be officers of Enforcement. Subject to conditions and limitations as
the Central Government may impose an officer of Enforcement may exercise
powers and discharge the duties conferred on him under this Act.
Features of FERA
FERA applied to all citizens of India. The idea was to regulate the foreign
payments that deal the Foreign Exchange and securities and conservation of
Foreign exchange for the nation. RBI can authorize a person / company to deal in
foreign exchange and also can authorize the dealers to do transact the Foreign
Currencies subject to review. RBI was given power to revoke the authorization in
case of non-compliancy. RBI authorizes Money Changers who will convert the
currency of one nation to currency of other nation at rates determined by RBI.
For whatever purpose Foreign exchange is required it has to be used only for that
purpose. If he feels that he cannot use the currency for that particular purpose
he would sell it to an authorized dealer within 30 days. Some of the rules and
restrictions that are followed by RBI are as follows
Restrictions on import and export of certain currency
Restrictions on payments that is illegal
Restrictions on dealing in foreign exchange
Payment for exported goods are done according to RBI
Restrictions on issue of bearer securities
Restriction on settlement in other country
Restriction on holding of immovable property outside India
Restrictions on the appointment of certain persons and companies as
agents for doing FOREX. Restrictions on establishment of place of business in India
Permission of Reserve Bank required for practicing profession, etc. in India
by nationals of foreign States
Restriction on acquisition, holding, etc., of immovable property in India
RBI has the Power to call for information of any person documents like
Indian currency, foreign exchange and books of account.
Power to search suspected persons and to seize documents
At the time of legislation of the law, India had shortage of foreign exchange
(forex). The government then tried to restrict the exchanges, or dealings of India
with foreign countries. But the rules and regulations had great impact on the
import and export of currency.
There were several issues with this act those are
Law violators were treated as criminal offenders.
Wide power in the hand of Enforcement Directorate to arrest any person
and seize any document (Corporate world found themselves at the mercy
of E.D)
Control everything that was specified related to foreign exchange and
aimed for minimizing dealings in forex and foreign securities, etc.
With liberalization there has been a move to remove the measures of FERA and
replace it with a set of foreign exchange management regulations. A draft for the
Foreign Exchange Management Bill (FEMA) was prepared by the Government of
India to replace FERA keeping in view of the Indian economy. However until
FEMA is enacted the provisions of FERA was applied. These are important basic
information about Foreign Exchange Regulation Act (FERA).

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