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...