Airlines and shipping companies as well as banking companies are exempted. IMPLEMENTATION OF FEAR There were substantial delays in implementation of FEAR. 1. By June 1979, only about half the companies directed to dilute the foreign holdings had carried out the process as stipulated. Most of the companies were in the process of diluting, but 64 companies had, at that time, yet to initiate the process. 2. Not until 1982, i. E. , eight years after FEAR came into force, did the last group of 28 companies receive final directions pursuant to the Act.
Moreover, Upton the end of 1985, a total of 252 foreign controlled companies were exempted from the general rule stipulating a maximum of 40 percent non- resident interest. 3. In regard to the companies that did not comply with FEAR isolations, it was found that all the companies belonged to only three groups. They were either engaged in tea plantation activities or in the manufacture of drugs and pharmaceuticals, or they were affiliated with particularly large Tans. The special treatment to tea companies was due to the importance of tea in Indian’s foreign trade.
As far as the drug and pharmaceuticals industry is concerned, Indian’s heavy dependence on Macs for bulk drugs came in the way of compliance of FEAR regulations. 4. As far as the third category of powerful Macs is concerned for example Hindustan Lever Ltd. This company managed to cure concessions from the government on flimsy grounds, like-it succeeded in getting 60 percent of its toiletries manufacturing classified by government as high technology activity as it helped in import substitution.
CONCESSIONS FOR FEAR COMPANIES Along with the liberalizing measures announced in the new industrial and trade policy in 1991, the government announced major concessions to FEAR companies in November Andean January 1992. On January 8, 1993 the government promulgated an Ordinance to amend FEAR with immediate effect. The ordinance removed a large number of restrictions on large companies with ore than 40 percent non-resident equity, removed FEAR controls on Indian firms setting up joint ventures abroad etc.
Important concessions announced in November 1991, January 1992 & 1993 were as follows: Companies with foreign shareholdings were allowed to increase foreign equity to 51 percent by remittances in foreign exchange in specific high priority industries. Section 26, which required the FEAR companies to get Reserve Bank’s permission before raising working capital or accepting deposits was revoked. Section 28 and 29 were revoked, which meant that FEAR companies could use their trademarks in
India and carry on activities of trading, commercial or industrial nature. Section 31 was revoked that allowed FEAR companies to deal in immovable property in India. Section 27 which restricted Indian companies’ setting up joint ventures abroad was scraped. Restrictions regarding assets held in India by non-residents were removed. Indians were allowed to keep foreign currency Upton $500 or equivalent to RSI 15,000. Import and export in gold and silver was exempted from FEAR implying that these commodities were to be governed by Exam policy.
Section 17 which conferred powers on the government to regulate uses of imported gold and liver was deleted. Restrictions on transfer of any security from a register in India to a register outside India were removed. Restrictions on transfer of shares from one non-resident to another non-resident were removed. The provision allowing the government to acquire foreign securities for purpose of strengthening foreign exchange position was deleted. Foreign nationals were exempted from obtaining prior permission under FEAR before taking up employment in India.
A provision which provided that the government could direct certain payments to be made by FEAR companies in a special account was deleted. The Union Budget, 1998-99, advocated repealing FEAR and replacing it with FEM. (Foreign exchange management act) as, according to the government, FEAR was out of tune with changing times. Consequently the government adopted FEM. in 1999. Under FEM. the emphasis is on ‘management’ rather than ‘regulation. Foreign Exchange Management Act FEM. The Foreign Exchange Management Bill (FEM.) was introduced by the Government of India, in parliament on august 4, 1998.
The bill aims ‘to The Foreign Exchange Management Bill (FEM.) was introduced by the consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange in India”. It was adopted by the parliament in 1999 and is known as the Foreign Exchange Management Act, 1999. Chapter II of FEM. deals with the regulation and management of foreign exchange.
Section 3 states that except as otherwise provided in this Act, no person shall in any manner deal in or transfer any foreign exchange or foreign security to any person not being an authorized person. Section 4 states that except as provide in this Act, no person resident in India shall acquire, hold, own, possess or transfer any reign exchange, foreign security or any immovable property situated outside India. FEATURES OF FEM. Activities such as payments made to any person outside India or receipts from them, along with the deals in foreign exchange and foreign security is restricted.
It is FEM. that gives the central government the power to impose the restrictions. Restrictions are imposed on residents of India who carry out transactions in foreign exchange, foreign security or who own or hold immovable property abroad. Without general or specific permission, the FEM. restricts the transactions involving foreign exchange or foreign security and payments from outside the country to India – the transaction should be made only through an authorized person. Deals in foreign exchange under the current account by an unauthorized person can be restricted by the central government.
Although selling or drawing of foreign exchange is done through an authorized person, the RIB is empowered by this act to subject the capital account transactions to a number of restrictions. Residents of India will be permitted to carry out transactions in foreign exchange, foreign security or to own or hold immovable property abroad if the currency, security or property was owned or acquired hen he/she was living outside India, or when it was inherited by him/her from someone living outside India.
Exporters are needed to furnish their export details to RIB. To ensure that the transactions are carried out properly, RIB may ask the exporters to comply with its necessary requirements. OBJECTIVES AND EXTENT OF FEM. The intent of this Act is to consolidate and amend the laws relating to foreign exchange with the objective of facilitating external trade and payments; and for promoting the orderly development and maintenance of foreign exchange market in India. FEM. extends to the whole of India.
It applies to all branches, offices and agencies outside India, owned or controlled by a person who is a resident of India and also to any contravention there under committed outside India by any person to whom this Act applies. Except with general or specific permission from the Reserve Bank of India, no person can: (a) Deal in or transfer of any foreign exchange or foreign security to any person not being an authorized person: (b) Make any payment to any person resident outside India in any manner; (c) Receive any payment by order through an unauthorized person or on behalf of any person resident outside India in any manner; (d)
Change reasonable restrictions for current account transactions. Any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction. The Reserve Bank of India in consultation with the Central Government, specify: (a) Any class or classes of capital account transactions which are permissible: (b) The limit up to which foreign exchange shall be admissible for such transactions. IMPLEMENTATION OF FEM. 1. Current account and capital account transactions Section Sand 6 deal with current account and capital account transactions.
According to section 5, any person may sell or draw foreign exchange to or room an authorized person if such sale or withdrawal is a current account transaction. However, 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 prescribed. According to sub- section 1 of section 6, any person may sell or draw foreign exchange to or from an authorized person for a capital account transaction subject to provisions of sub-section 2.
Sub-section 2 states that Reserve Bank may, in consultation with the Central Government, specify- any class or classes of capital account transaction which are permissible; b) the limit Upton which foreign exchange shall be admissible for such transactions. 2. Realization and repatriation of foreign exchange Section 8 lays down that save as otherwise provided in the act, where any amount of foreign exchange is due or has accrued to any person resident in India such person shall take all reasonable steps to realize and repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve Bank.
Section 9 provided the following exemptions from realization and repatriation of foreign exchange: Possession of foreign currency or foreign coins by any person Upton such limit as the Reserve Bank may specify. (b) Foreign currency account held or operated by such person or persons and the limit Upton which the Reserve Bank may specify. (c) Foreign exchange acquired or received before the 8th of July, 1947 or any income arising or accruing thereon which is held outside India by any person in pursuance of permission granted by the Reserve Bank. D) Foreign exchange held by a person resident in India Upton such limit as the Reserve Bank may specify, if such foreign exchange was acquired by way of gift or inheritance from a person referred to in clause, including any income arising there from. Foreign exchange acquired from employment, business, trade, vocation, services, honorarium, gifts, inheritance of any other legitimate means Upton such limit as the Reserve Bank may specify. (f) Such other receipts in foreign exchange as the Reserve Bank may specify. 3. Contravention and penalties Chapter IV deals with the issue of contravention and penalties.
Section 13 says that if any person contravenes any provisions of this Act he shall, Upton adjudication, be liable to a penalty Upton thrice the sum involved in such contravention where such amount is quantifiable, or Upton two lash rupees where he 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. Section 14 says that if the person concerned fails to make full payment of the penalty imposed on him within a period of ninety days, he shall be liable to civil imprisonment. . Adjudication and appeal Chapter V deals with the issue of adjudication and appeal. Section 16 states that the Central Government may appoint adjudicating authorities for holding an inquiry in the manner prescribed after giving the accused person a reasonable opportunity of being heard for the purpose of imposing any penalty . Section 17 provides for the appointment of one or more Special Directors (appeals) to hear appeals against the order of the Adjudication Authorities.
Section 18 says that the Central government shall, by notification, establish an appellate Tribunal for Foreign Exchange to hear appeals against the orders of the adjudicating Authorities and the Special Director (Appeal) under this Act. 5. Directorate of enforcement Chapter VI deals with the establishment of the Directorate of Enforcement ND its powers, etc. Sub section 1 of this section 36 states that the Central Government shall establish a Directorate of Enforcement with a Director and such other officers or class of officers as it thinks fit, who shall be called Officers of Enforcement, for the purpose of this Act.
Sub-Section 3 of section states that the Director of Enforcement and other officers of Enforcement shall exercise the like powers which are conferred on Income-tax authorities under the Income-Tax Act, 1961 and shall exercise such powers, subject to such limitations laid down under the Act. 6. Other Sections The last chapter, Chapter VII consisting of sections 39 to 49 deals with miscellaneous issues. Sub-section 1 of Section 40 empowers the Central Government in the public interest and by notification to suspend or relax the provisions of the Act in certain circumstances.
Section 41 empowers the Central Government to give general or special directions to the Reserve Bank. Section 42 provides that when contravention of any of the provisions of this act is committed by a company, the person responsible for the conduct of its business shall be deemed to be guilty of the contravention. Section 44 bars the resection of legal proceedings against the officers of the central government or the Reserves Bank or any other person exercising any powers or discharging any function or performing any duties under the provision of this Act or anything done in good faith.
Section 45 empowers the Central Government to remove the difficulties in giving effect to the provisions of the Act. Section 46 empowers the Central Government to frame the rules and Section 47 empowers the Reserve Bank to make regulations to carry out the provisions of this act and the rules made thereunto. Section 48 provides for lying before parliament the rules and isolations made under this Act. Section 49 provides for repeal of the Foreign Exchange Regulation Act, 1973 and for dissolution of the Appellate Board constituted under section 52 of the said Act.
