INTRODUCTION
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 there under. 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 i.e. 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. E.g. 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 ;
4.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.
3. A person, not being a citizen of India who has come to or stays in India :-
(i) for taking an employment ; or
(ii) for carring 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 Gazette.
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 forign 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 there under. However before revoking the authoisation, 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 there under 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 traveler’s cheque or selling foreign currency in form of notes and coins
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