FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)

The Enforcement Directorate (ED) has issued a fresh look out circular (LOC) against edutech entrepreneur Byju Raveendran in an alleged violation of the Foreign Exchange Management Act (FEMA) amounting to ₹9,362.35 crore.

In November last year, the FEMA Adjudicating Authority had issued show-cause notices to Think & Learn Private Limited, which runs Byju’s, and Mr. Raveendran.

2.Foreign Exchange Management Act(FEMA)

The Foreign Exchange Management Act (FEMA) is an important piece of legislation in India that governs foreign exchange and payments.

Here is an overview of FEMA and its history:

FEMA replaced the Foreign Exchange Regulation Act (FERA) of 1973. FERA was considered stringent and primarily aimed at controlling and regulating foreign exchange in India. However, it was felt that the economic environment required a more liberalized and contemporary approach

FEMA was introduced in 1999 to replace FERA, aligning with the economic reforms and liberalization measures undertaken by the Indian government in the early 1990s. The primary objective was to promote external trade and payments and to facilitate foreign investment in India.

3.Key Features of FEMA

• FEMA brought about a more liberalized approach compared to its predecessor. It aimed to simplify and rationalize foreign exchange management, making it more conducive for foreign trade and investment
• FEMA distinguishes between current account transactions (related to trade in goods, services, and short-term financial transactions) and capital account transactions (related to long-term investments and capital movements)
• FEMA provides a comprehensive regulatory framework for foreign exchange transactions and seeks to manage and regulate various aspects, including dealings in foreign exchange, export and import of currency, and opening and maintenance of foreign currency accounts
• The act empowers the Reserve Bank of India (RBI) to regulate foreign exchange transactions. It also prescribes penalties for contravention of its provisions to ensure compliance.
• FEMA establishes adjudicating authorities to hear cases related to violations. It also provides for the establishment of the Foreign Exchange Appellate Tribunal to hear appeals against the orders of the adjudicating authorities
• Since its enactment, FEMA has undergone several amendments to keep pace with changing economic scenarios and to address emerging challenges. Amendments have been made to enhance regulatory measures, facilitate ease of doing business, and align with international best practices

• One of the primary objectives of FEMA is to liberalize and facilitate foreign exchange transactions. It aims to simplify procedures and create a conducive environment for foreign trade and investment
• FEMA seeks to promote external trade and payments by providing a regulatory framework that governs the flow of foreign exchange in and out of the country. This includes facilitating imports and exports of goods and services
• FEMA is designed to encourage foreign direct investment (FDI) and foreign portfolio investment (FPI) by providing a transparent and predictable regulatory environment. The act lays down the rules and regulations governing the acquisition and transfer of immovable property by non-residents
• FEMA empowers the Reserve Bank of India (RBI) to manage and regulate the country's foreign exchange reserves effectively. This involves maintaining stability in the foreign exchange market and ensuring the availability of adequate reserves to meet external obligations
• FEMA distinguishes between current account transactions (related to day-to-day trade in goods, services, and short-term financial transactions) and capital account transactions (related to long-term investments and capital movements). This helps in applying appropriate regulations to different types of transactions
• The act aims to establish a robust adjudication and enforcement mechanism to ensure compliance with its provisions. It provides for penalties and adjudicating authorities to address violations and maintain the integrity of the foreign exchange management system
• FEMA is designed to align with international best practices in the field of foreign exchange management. This alignment is essential for integrating India into the global economy and ensuring compatibility with international norms and standards
• The act allows for amendments to be made to its provisions to adapt to changing economic conditions and emerging challenges. This ensures that the regulatory framework remains relevant and effective in a dynamic global economic environment.