Definitions & Main provisions - Foreign Exchange Management Act(2000), Business Law Video Lecture | Business Law - B Com

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welcome friends we are discussing the
subject of regulatory framework of
business and the topic we are discussing
today is an all-important one that is
for an Exchange Management Act
this is unit 6 basically what we are
going to discuss in this program is the
total layout of the act is starting from
its extent applications commencement
objectives definitions and in the next
part of the program then we are going to
talk about various provisions there are
six provisions of this act namely
Providence related to regulations and
management of foreign exchange covered
under six heads such as Providence s to
transactions in foreign exchange next
Providence's to holding of foreign
exchange security by residents next s to
current account transactions Providence
s to capital account transactions
Providence s to export of goods and
services also Providence lastly s to
realization and repatriation of foreign
exchange and also like I have said we
will talk about the different Providence
of the eight with regard to its
administration or its management which
is defined in terms of who is authorized
person appointment of adjudicating
authorities a special director as well
as Appellate Tribunal the organizational
structure that is prevalent if one has
to appeal against some of the orders
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coming back to the first aspect of this
act fem a-- basically liberalization
privatization and globalization policies
of our government led to need for better
foreign exchange management we were
having an act by the name of foreign
exchange Regulation Act fara which was
enacted in 1973 this Act was reviewed
thoroughly and it was felt that it
should be repealed and replaced with the
new Act namely FEMA for an exchange
Management Act which was passed by Lok
Sabha on 2nd December 1999 and it got
the assent of the President of India on
9th December 1999 it came into effect
from the first June of the year 2000 so
we can say that the advent of new
century led us to the new regulatory
framework in the name of FEMA 2000 as
far as its extent is concerned it
extends to the whole of India meaning
thereby that every resident every
business organization every
establishment operating within India is
covered by the gamut of this act apart
from that it is also applicable to all
branches offices agencies which are
located outside India but owned or
controlled by a person who is residing
in India
so because the FEMA Act takes into
account the foreign transactions that is
this is one subject which is applicable
to those organizations which may not be
located in India but which are located
abroad outside
however they are owned are controlled by
the resident Indians that is why they
have to come under the gamut of this act
that is FEMA 2000 objectives of the Act
are really clear that to consolidate and
amend the law relating to foreign
exchange with the objective of
facilitating external trade end payments
as it was said that the LPG regime led
to the globalization of Indian business
and external trade increased many fold
in order to facilitate this external
trade in order to manage the flow of the
currency foreign currency coming into
India this act helps in consolidating
and amending the existing legal
structure relating to foreign exchange
secondly it also helps in promoting the
orderly development as well as
maintenance of foreign exchange markets
in India so that there is some
institutional framework which is
available for trading in foreign
exchange currency in India numerous
occasions arise when suppose you are
planning a trip to any foreign country
then before leaving India you will be
required to have some currency of that
country which you are planning to visit
in that case you will have to convert
the Indian rupee Indian currency that
you are having in the form of the
foreign currency of that country which
you intend to visit so then what kind of
development and maintenance of foreign
exchange market in India will take place
is also governed by the Providence of
this particular act
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now we shift our attention to various
definitions stipulated in the eight
first definition is the authorized
person authorized person is that
authorized dealer moneychanger person
authorized under Section 10b to deal
with foreign exchange reserve bank of
india has laid down certain terms and
conditions which the person intending to
set up this foreign exchange market
should fulfil and then only that person
will be authorized by Reserve Bank of
India and he will be considered as the
authorized person to deal in the foreign
exchange second definition is related to
capital account transactions all those
transactions which alter the assets and
liabilities outside India of persons
residing in India or assets or
liabilities in India of persons residing
outside India so this capital account
transactions are very important from the
point of view of if you are living in
India and if you want to change or alter
the ownership of assets or liabilities
outside India then it is governed by
capital account transactions
vice-a-versa
if someone is NRI non-resident Indian
residing outside our country but wants
to alter his assets or liabilities in
India then those transactions will also
be covered under the scope of capital
account transactions currency is defined
as currency notes postal notes postal
orders money orders cheques drafts
travelers takes
very useful when you are traveling from
one place to another letter of credit an
instrument which is used for the
business transactions from one
industrial organization if they want to
purchase some product from another
institution then they will have to open
the letter of credit LC it is called
then bill of exchange promissory notes
these are also important transaction
documents for businesses and most
interestingly credit cards or such other
instruments as may be notified by RBI so
even the ATM cards that we are using
debit cards and credit cards which are
used for creation of financial money
they are also coming under the
definition of currency as far as
currency notes is concerned it is
further classified or specified as the
cash in the form of coins and banknotes
so this will be the currency notes now
we come to the all-important current
account transactions essentially they
are defined as those transactions which
are not covered in capital account
transactions so transactions other than
a capital account transactions will come
under current account transactions but
what are these such as payments related
to ordinary course of business wherein
some goods have been purchased and then
the payment for those kind of goods may
have to be given or some services
received so the payment for receiving
those services has to be given similarly
payment due as interest on loans will
come under this remittances for living
expense for a spouse children elderly
parents also now this can also be two
ways that an NRI located outside India
sending money back to India for taking
care of his family members his parents
and that will be covered similarly
vice-a-versa if the money is sent from
india to take care of the living
expenses of dependent family members who
might be living outside India now those
expenses which are incurred in
connection with foreign travel education
and medical care and the payments of the
medical care that is taken up sometimes
abroad so then we see that nowadays
there is a tendency that some of these
students they wish to go abroad for
receiving higher education so the fees
that is remitted in the form of the
money that is given to the educational
institution will come under this current
account transaction similarly if
healthcare treatment is received that
will also come here
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next definition is for export and to
simplify goods which are taken out of
India from India that means that those
goods which are exported to any foreign
country will come under this similarly
providing services out of India from
India number of examples can be given we
have an organization called aircon
Indian Railways consultancy or nation
now this aircon is giving consultancy
services in many of the other countries
and helping them in developing the
network the railway network and so the
services aircon is giving outside India
will come under the export of services
similarly import is defined as the goods
brought into India it will also include
the services that the Indian business or
nations are receiving from the
consultants located abroad and that will
also be considered as import of services
as far as the foreign currency is
concerned it is defined as any currency
other than Indian currency now because
we are designing this act FEMA for the
context of India that that is why any
currency other than Indian rupees will
be defined as foreign currency so you
might be noticing that this particular
act FEMA is having great relevance and
applicability when it comes to having
international business exchange next
definition is that of foreign exchange
and it covers all the deposits credits
and balance payable in foreign exchange
it also includes drafts traveler stakes
Bills of exchange drawn in Indian
currency but payable in foreign currency
similarly draft traveller stakes Bills
of exchange payable Indian currency
outside India so we have to consider
these aspects that the foreign exchange
covers deposits that is the credits and
balance payable in foreign exchange it
also covers the drafts traveler stakes
Bills of exchange drawn in real Indian
currency but payable in foreign currency
similarly draft traveller stakes Bills
of exchange payable in Indian currency
outside India 10th aspect is related to
security now security means shares
stocks bonds and debaters government
securities savings certificates mutual
fund now we have seen that the business
has globalized and now attempts are
being made to acquire funds from all
over the world and that way if any
Indian resident wants to buy some funds
in foreign companies then it will be
considered as the security as far as the
definition of this act goes similarly
any Indian company may issue their GDR
that is global depository receipts and
through ddr's they may wish to attract
foreign investment the Indian government
will also have policies with regards to
encouraging such foreign investment into
Indian businesses so in the light of all
these transactions the importance of
defining security in the act increases
then we have foreign security exchange
that exchange where foreign shares is
talks
bonds and debentures government
securities saving certificates mutual
funds can be traded will be covered
under foreign security exchange next is
Indian currency as we have said that the
currency which is expressly drawn in
Indian rupees will be covered under this
heading of Indian currency it will
include both banknotes as well as coins
the discussions on foreign exchange play
an important role in the sense that we
have to keep on trekking that how Indian
currency is faring with respect to
different foreign currencies nowadays
you are well aware that Indian currency
has not been faring well especially when
we compare it to US dollar and we have
seen that it has reached all-time low
level similarly definition is given as
that of persons and these persons are
also defined as individuals HUF that is
Hindu Undivided families companies firms
association of persons office agency
branch so these will be considered as
different entities which will be covered
by this particular eight
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similarly the definition is given of
persons residing in India person
residing in India for more than 182 days
it does not include person who goes out
of India or who comes to India for
employment business or with the
intention to set up business so who is
defined as person resident in India the
one who has been residing in India for
more than 182 days also body corporate
or persons registered offices branch
agencies they will be considered as
resident in India as far as person
resident outside India is concerned it
is simply defined as a person who is not
resident in India repatriate to India
now repatriate means bringing for an
exchange to India by means of sailing
holding a realized amount to an
authorized person in India so if some
foreign investor comes to India with the
intention of bringing for an exchange to
India he will be termed as repatriate to
India in the act
services are defined and the services
which are defined as follows that of
banking financing insurance that means
that the whole of the banking sector is
covered transportation processing will
include food processing also supply of
electrical or other energy it could be
electrical energy it could be now the
non-conventional energy sources such as
solar wind power energy etcetera are
also be coming into walk so they will
also be covered boarding or lodging or
both meaning there by hospitality
industry is covered house construction
entertainment amusement nowadays we are
having so many of the amusement parks
and so many other amusement uh venues
for the young ones are there or the
purveying or new or other information
meaning there by some of the
communication
industry will also be covered under
these services now we also talked about
the transfer transfer is defined as how
the foreign exchange will be transferred
actually it will be done through sale
also through purchases exchange mortgage
pledge gift then loan or any other form
of transfer of Rights so the transfer of
rights the transfer of title can take
place through any of these means of
transfer so what we have to understand
that by giving these definitions in the
act very clearly it has been explained
that the authorized persons who are the
authorized persons it has also been
defined as two different kinds of
currency which are there and we should
also be knowing as to what are the
various transfer means which are
available now when we will shift our
attention to various provisions in all
those six provisions we find that these
definitions clear understanding of these
definitions will be helpful in the
discussions
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when we are talking about the act FEMA
we find that foreign exchange Management
Act was actually taken up as a
replacement of the earlier act of fara
for an exchange regulation Act 1973 and
the changing economic scenario in terms
of the policies of government of
liberalization privatization and
globalization led the policy makers to
bring in the new act of foreign exchange
Management Act which was basically
brought in with the objective of
facilitating external trade and also for
the maintaining the management of
foreign exchange in the country we have
also been seeing in this particular
program that different segments of the
agencies associated with this act have
been defined clearly and these
definitions their understanding will
help all of us in better understanding
of the Act the Act also assumes greater
significance in the viewpoint that most
of the business organizations which are
operating from India are as a means of
getting up the economic ladder are
trying to have external links with some
of the foreign companies and then this
is also a good sign for our economy
we're in more external business more
overseas business brings in the
much-coveted much desired foreign
currency to our economy also thanking
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you