Foreign Exchange Control Manual, Chapter-1, Introduction.
CHAPTER 1
INTRODUCTION
1.1 Statutory Basis for Exchange Control
1.2 Rules, Notifications and Orders issued under the Act
1.3 Transactions Regulated by Exchange Control
1.4 Authorised Dealers in Foreign Exchange
1.5 Authorised Co-operative/Commercial Banks
1.6 Authorised Money-Changers
1.7 Revocation of Licence/Authorisation granted by Reserve
Bank
1.8 Object of the Manual
1.9 Scheme of the Manual
1.10 Supplement on Nepal and Bhutan
1.11 Instructions issued by Reserve Bank in certain Operative
Areas
1.12 A.D. Circulars
1.13 Authorised Dealers' Powers
1.14 Reference to Reserve Bank
1.15 Attestation of Applications
1.16 Marking of Documents
1.17 Organisation of Exchange Control Department
1.18 Publicity to Regulations
1.19 Authorised Dealers' Responsibility
1.20 Evasion or Attempts of Evasion
1.21 Restrictions on Dealings in Foreign Exchange
1.22 Breach of Regulations by Non-resident
Branches/Correspondents of Authorised Dealers
1.23 Exchange Rates
1.24 Employment of Brokers
1.25 Compliance with Laws
1.26 Penalties
1.27 Restrictions on Transactions with certain countries
1.28 Definitions
ANNEXURE
List of Authorised Dealers
1
INTRODUCTION
Statutory Basis for Exchange Control
1.1 The Foreign Exchange Regulation Act, 1973 (FERA 1973), as
amended by the
Foreign Exchange Regulation (Amendment) Act, 1993, forms the statutory basis for
Exchange Control in India. The FERA1973 as amended, is reproduced in Volume II
at Appendix I.
Rules, Notifications and Orders issued under the Act
1.2 Rules, Notificationsand Orders issued by the Central
Government and Notifications
and Orders issued by Reserve Bank of India under FERA 1973 which are in force
are
reproduced in Volume II at Appendix II andAppendix III respectively, classified
Section-wise.
Transactions Regulated by Exchange Control
1.3 The types of transactions which are affected by the
Foreign Exchange Regulation Act
are, in general, all those having international financial implications. In
particular, the
following matters are regulated by Exchange Control:
- Purchase and sale of and other dealings in foreign exchange and
maintenance of balances at foreign centres
- Procedure for realisation of proceeds of exports
- Payments to non-residents or to their accounts in India
- Transfer of securities between residents and non-residents and
acquisition and holding of foreign securities
- Foreign travel with exchange
- Export and import of currency, cheques, drafts, travellers cheques and
other financial instruments, securities, etc.
- Activities in India of branches of foreign firms and companies and
foreign nationals
- Foreign direct investment and portfolio investment in India including
investment by non-resident Indian nationals/persons of Indian origin and
corporate bodies predominantly owned by such persons
- Appointment of non-residents and foreign nationals and foreign companies
as agents in India
- Setting up of joint ventures/subsidiaries outside India by Indian
companies
- Acquisition, holding and disposal of immovable property in India by
foreign nationals and foreign companies
- Acquisition, holding and disposal of immovable property outside India by
Indian nationals resident in India.
Authorised Dealers in Foreign Exchange
1.4 Authorisations in the form of licences to deal in foreign
exchange are granted to banks which are
well equipped to undertake foreign exchange transactions in India.
Authorisations have also been granted to certain financial institutions to undertake specific types of foreign
exchange transactions incidental to their main business. A list of such banks
and institutions is given in the Annexure to this Chapter.
Authorised Co-operative/Commercial Banks
1.5 Authorisations have also been issued to certain State
Co-operative/Urban Co-operative banks
and Scheduled Commercial banks to open and maintain Ordinary Non-Resident Rupee
Accounts (NRO Accounts) and Non-Resident (External) Rupee Accounts (NRE Accounts), on
behalf of non-resident individuals of Indian nationality/origin.
Authorised Money-Changers
1.6 In order to provide facilities for encashment of foreign
currency to visitors from abroad, especially
foreign tourists, Reserve Bank has granted licences to certain established
firms, hotels and other
organisations permitting them to deal in foreign currency notes, coins and
travellers cheques subject to directions issued to them from time to time. These
firms and organisations who are generally known as' authorised money-changers'
fall into two categories, viz. 'Full-fledged money-changers' who are authorised
to undertake both purchase and sale transactions with the public and 'Restricted
money-changers' who are authorised only to purchase foreign currency notes,
coins and travellers cheques, subject to the condition that all such collections
are surrendered by them in turn to an authorised dealer in foreign
exchange/full-fledged money-changer.
Revocation of Licence/Authorisation granted by Reserve Bank
1.7 Reserve Bank may revoke the licence/authorisation granted
by it to an authorised
dealer, co-operative/commercial bank or money-changer at any time if the holder
of the
licence/authorisation is found to have failed to comply with any condition
subject to which it was granted or to have contravened any provision of FERA
1973 or of any Rule, Notification, Direction or Order made thereunder.
Object of the Manual
1.8 This Manual is a compendium of various statutory
directions, administrative instructions,explanatory
notes, etc. issued by Reserve Bank from time to time in connection with the
administration of Exchange Control. It also embodies the directions of a
standing nature issued by Reserve Bank to authorised dealers under the Foreign
Exchange Regulation Act, 1973, setting forth their authority to buy and sell
foreign exchange and to do other things incidental to foreign exchange ankibng
as also procedures to be followed by them while dealing with matters relating to
Exchange Control. The directions to full-fledged money-changers, restricted
money-changers, Life Insurance Corporation, General Insurance Corporation and
its subsidiaries, etc. in the matter of their respective business activities
have been incorporated in separate Memoranda.
Scheme of the Manual
1.9 For convenience of handling, the Manual has been divided
into two volumes as under:
Volume I: comprising directions and
procedural instructions issued to authorised dealers and others relating to
foreign exchange transactions.
Volume II: comprising (i) text of the Foreign Exchange
Regulation Act, 1973 and Notifications etc. issued thereunder, and (ii)
specimens of all forms of applications and declarations to be made to Reserve
Bank/authorised dealers and statements/certificates to be furnished by
authorised dealers and others.
Supplement on Nepal and Bhutan
1.10 Exchange Control regulations applicable to Nepal and
Bhutan have been given in
appropriate Chapters of the Manual. For facility of quick reference, these
regulations have been brought together and amplified, wherever necessary, in the
Supplement on 'Exchange Control Regulations applicable to Nepal and Bhutan'
which is given at the end of this Volume.
Instructions issued by Reserve Bank in certain Operative Areas
1.11 Instructions issued by Reserve Bank to authorised dealers
in certain operative areas
such as imports under foreign loans/credits, exports and imports under Special
Trade Agreements with certain foreign countries, exports against Government of
India credits to foreign Governments etc. have not been incorporated in detail
in the Manual. In these areas, authorised dealers should be guided by the
provisions contained in the relative circulars as amended from time to time and
Public Notices issued on the subject.
A.D. Circulars
1.12 All amendments to the Manual and other operative
instructions to authorised dealers
will be communicated in the form of A.D. Circulars.
Authorised Dealers' Powers
1.13
- Authorised dealers may exercise powers within the parameters laid down
in this
Manual and in circulars issued from time to time by Reserve Bank, subject to fulfilment
of the conditions, if any, indicated therein.
- With effect from August 20, 1994 India has accepted the obligations under
Article
VIII of the Articles of Agreement of the International Monetary Fund in
regard to current account transactions. Accordingly, all bona fide current
account transactions would qualify for release of foreign exchange either
under the authority delegated to authorised dealers or after obtaining the
necessary approval from Reserve Bank. [Also see paragraphs 1.14 and
3B.3(iv)].
Reference to Reserve Bank
1.14
Authorised dealers should refer to Reserve Bank any application for foreign
exchange
or other transaction which they are called upon to undertake and which does
not fall within the scope of the powers delegated to them. They should,
however, avoid referring to Reserve Bank any matter which is clearly covered
by the provisions in the Manual and which they are empowered to dispose of.
While referring applications to Reserve Bank, reasons for making the
reference should be indicated citing, wherever necessary, the relevant
provision in the Manual without which the applications will be returned to
them. If a branch of an authorised dealer has any doubt regarding the
interpretation of any regulation or whether any application for remittance
etc. stands covered by the delegated authority or not, it should consult its
controlling office. Authorised dealers should ensure that applications are
made on the prescribed forms, wherever such forms have been prescribed, and
are supported by appropriate documentary evidence.
Attestation of Applications
1.15
The stamp and signature of an authorised dealer on a form prescribed in the
Manual or in any
Rules under FERA 1973, will be regarded as indicating that the authorised
dealer is satisfied as to (a) the correctness of the statements made on the
form and (b) the bona fides of the application.
Marking of Documents
1.16
Authorised dealers should mark all documents submitted by their constituents
in support of
applications made to them for any purpose such as remittances to
non-residents etc. under their stamp as evidence of the documents having
passed through their medium. Authorised dealers must ensure, before
returning any documents to their constituents, that they have been marked in
this manner.
Organisation of Exchange Control Department
1.17
- Powers conferred upon Reserve Bank by FERA 1973 and Central Government
Notifications issued under the Act are exercised by the Exchange Control
Department of Reserve
Bank. The Department has its Central Office at Mumbai and Offices at other
centres with
jurisdiction as indicated below:
| Office |
Jurisdiction |
| Ahmedabad |
State of Gujarat |
| Bangalore |
State of Karnataka |
| Bhopal |
State of Madhya Pradesh |
| Bhubaneswar |
State of Orissa
|
| Calcutta |
States of Sikkim and West Bengal and Union Territory of Andaman
and Nicobar Islands
|
| Chandigarh |
States of Haryana (excluding the districts of Faridabad, Gurgaon
and Sonepat), Himachal Pradesh and Punjab and Union Territory of
Chandigarh
|
| Chennai |
State of Tamil Nadu and Union Territory of Pondicherry
|
| Kochi |
State of Kerala and Union Territory of Lakshadweep
|
| Guwahati |
States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland and Tripura
|
| Hyderabad |
State of Andhra Pradesh |
| Jaipur |
State of Rajasthan |
| Kanpur |
State of Uttar Pradesh excluding New Okhla Industrial
Development Area (NOIDA) in Ghaziabad district |
| Mumbai |
State of Maharashtra, Union Territory of Dadra and Nagar Haveli
and Union Territory of Daman and Diu |
| New Delhi |
Union Territory of Delhi, the districts of Faridabad, Gurgaon
and Sonepat of State of Haryana and New Okhla Industrial Development
Area (NOIDA) in Ghaziabad district of State of Uttar Pradesh |
| Panaji |
State of Goa |
| Patna |
State of Bihar |
- Nagpur Office of Reserve Bank will deal with applications from persons,
firms and companies resident in the districts of Akola, Amravati, Bhandara,
Buldhana, Chandrapur, Gadchiroli, Nagpur, Wardha and Yeotmal of the State of
Maharashtra, for travel and sundry remittances outlined in Annexure I to
Chapter 8 which are beyond the powers delegated to authorised dealers.
- Reference to Reserve Bank should be made to the office of Exchange
Control Department
within whose jurisdiction the applicant person, firm or company resides or
functions unless otherwise indicated. If for any particular reason, a firm
or a company desires to deal with a different office of ECD, it may approach
the office within whose jurisdiction it functions for necessary approval.
Publicity to Regulations
1.18 Authorised dealers should bring the Exchange Control
regulations and changes made therein from time to time through A.D. Circulars to
the notice of their customers. They may also advise their customers that copies
of this Manual are available with Reserve Bank for sale to the public.
Authorised Dealers'
Responsibility
1.19 Reserve Bank trusts that authorised dealers will ensure
that the Exchange Control regulations are observed by themselves and their
constituents both in letter and in spirit. Their responsibility has considerably
increased with the delegation of large powers. It will also welcome any comments
likely to facilitate administration of Exchange Control so that it may serve
better its purpose of conserving and increasing the foreign exchange resources
of India with the least obstruction to trade and its financing.
Evasion or Attempts of Evasion
1.20 Authorised dealers should report to Reserve Bank cases
which may come to their notice, of evasion of, or of attempts, either direct or
indirect, to evade the provisions of the Foreign Exchange Regulation Act or any
Rule, Notification, Order, Direction or Regulation issued thereunder.
Restrictions on Dealings in Foreign Exchange
1.21 Except for transactions involving purchase or sale of
foreign currency between any person and an authorised money changer, no person,
firm or company, other than an authorised dealer, is permitted to enter into
transactions involving the buying, acquiring or borrowing from, or selling,
transferring or lending to, or exchanging with a person not being an authorised
dealer, any foreign exchange except with the general or special permission of
Reserve Bank. Anyone dealing in foreign exchange in any form, except to the
extent indicated above, will be deemed to be contravening the provisions of the
Act.
Breach of Regulations by Non-resident Branches/ Correspondents of
Authorised Dealers
1.22 If any non-resident branch or correspondent of an
authorised dealer is found to have contravened or attempted to contravene any of
the Exchange Control regulations in force in India, all rupee transfers on its
account may be made subject to prior permission of Reserve Bank or totally
prohibited.
Exchange Rates
1.23 Section 8(2) of FERA 1973 lays down that all transactions
in foreign exchange shall be done at rates for the time being authorised by
Reserve Bank. In pursuance of this provision, Reserve Bank has authorised that
the rates of exchange for inter-bank as well as merchant transactions in all
currencies (including currency notes and travellers cheques) may be fixed by
authorised dealers on the basis of prevailing market conditions subject to the
guidelines that may be framed by the Foreign Exchange Dealers' Association of
India (FEDAI) from time to time. The terms and conditions laid down by FEDAI for
transacting foreign exchange business will govern all business transacted by
authorised dealers.
Employment of Brokers
1.24 There is no objection to employment of brokers, but in
all cases their principals as well as the brokers must comply with the
requirements of the Exchange Control. Exchange brokers are, however, not
authorised to deal in foreign exchange and hence they should not purchase or
sell foreign exchange from/to public.
Compliance with Laws
1.25 Nothing in this Manual authorises any transaction which is contrary to any
of the provisions of any statute (including the Foreign Exchange Regulation Act,
1973) or any Rule, Notification, Order, Direction or Regulation issued
thereunder. Similarly, any approval granted by the Exchange Control Department
of Reserve Bank will be deemed to be its approval only under the Foreign
Exchange Regulation Act and/or Rules, Notifications and Orders issued thereunder.
Approvals required under any other statute should be obtained separately from
the concerned authority.
Penalties
1.26 Adjudications and prosecutions for infringement of the
provisions of FERA 1973 are made by the Enforcement Directorate set up by the
Government of India under the Act. In terms of Section 73A of FERA 1973, Reserve
Bank can also impose penalty on an authorised dealer without prejudice to the
powers of the Enforcement Directorate.
Restrictions on Transactions with certain countries
1.27 Export-Import Policy (1997-2002) prohibits exports to / imports from Fiji*
and Iraq. No remittances should be made to these countries or on account of
their Governments or any of their agencies or nationals except to the extent
generally or specially authorised by Reserve Bank from time to time. However,
there shall be no ban on the export of items to Iraq in cases where the prior
approval of the concerned Sanctions Committee of the United Nations' Security
Council has been obtained. Remittances and other facilities available to foreign
nationals (Chapter 11) are not available to Pakistani nationals. Personal
remittances to Pakistan should also not be allowed.
* This prohibition is currently on Iraq only vide DGFT's
Public Notice No.73(PN)/97-02 dated 24th February 1998
Definitions
1.28
- The following terms have been defined in Section 2 of FERA 1973:
'Appellate Board'
'authorised dealer'
'bearer certificate'
'certificate of title to a security'
'coupon'
'currency'
'foreign currency'
'foreign exchange'
'foreign security'
'Indian currency'
'Indian customs waters'
'money-changer'
'overseas market'
'owner'
'person resident in India'
'person resident outside India'
'precious stone'
'prescribed'
'Reserve Bank'
'security'
'transfer'
- The following further clarifications are given in respect of certain
terms for a better understanding -
'Person resident in India'
- Indian citizens who proceed abroad for business visit, medical
treatment, study and such other purposes which do not indicate their
intention to stay outside India for an indefinite period will be considered
as 'person resident in India' during their temporary absence from India.
- By virtue of clauses (c) and (d) of sub-section (1) of Section 73 of the
Act, an office or branch situated in India, of any business whether carried
on by a body corporate or otherwise i.e. companies, firms, banks or any
other organisations, whether Indian or foreign, is treated for all purposes
of the Act as 'person resident in India'.
- Wherever there is doubt as to the residential status of a person, authorised
dealers should make a reference to Reserve Bank with full facts of the case
for consideration.
- In terms of Reserve Bank Notification No. FERA.7/74-RB dated 1st January
1974, for the purpose of transactions in Indian rupees, Indians, Nepalese
and Bhutanese resident in Nepal and Bhutan as well as offices and branches
of Indian, Nepalese and Bhutanese firms, companies or other organisations in
these two countries are treated as 'person resident in India'.
'Person resident outside India'
- The implication of the Reserve Bank Notification referred to in D above is
that persons resident in Nepal and Bhutan other than those indicated therein
for the purpose of transactions in Indian rupees and all persons resident in
Nepal and Bhutan for the purpose of transactions in foreign exchange, are
treated as 'person resident outside India'.
- The term 'non-resident' used in this Manual is synonymous with the term
'person resident outside India'.
'Security'
For purposes of Sections 9 and 19 of the Act, 'security' includes coupons or
warrants representing dividend or interest and life/endowment insurance
policies.
'Foreign company'
'Foreign company' refers to a firm, company or any other organisation
incorporated/registered outside India.
'FERA company'
'FERA company' refers to a firm, company or any other organisation
incorporated/registered in India in which non-resident interest exceeds
forty per cent.