FERA V/S FEMA: Static Awareness

Dear Readers,

Foreign Exchange Management Act, 1999 (FEMA) emerged as a replacement or say an improvement over the old Foreign Exchange Regulation Act, 1973 (FERA). Foreign investors, frequently hear the terms FERA and FEMA, when they deal with India. As their name specifies, FERA lays emphasis on the regulation of currencies, whereas the FEMA manages foreign exchange, i.e. Forex.

The first and foremost difference between FERA and FEMA is that the former requires previous approval of Reserve Bank of India (RBI), whereas the latter does not require RBI’s approval, except when the transaction is related to foreign exchange. Check out this article to know more differences between the two acts.

About FERA:

Foreign Exchange Regulation Act, shortly known as FERA, was introduced in the year 1973. The act came into force, to regulate foreign payments, securities, currency import and export and purchase of fixed assets by foreigners. The act was promulgated in India when the position of foreign reserves wasn’t satisfactory. It aimed at conserving foreign exchange and its optimum utilisation in the development of the economy.

The act applies to the whole country. Therefore, all the citizens of the country, inside or outside India are covered under this act. The act extends to branches and agencies of the Indian multinationals operating outside the country, which is owned or controlled by the person who is the resident of India.

About FEMA:

FEMA expands to Foreign Exchange Management Act, which was promulgated in the year 1999, to repeal and replace the earlier act. The act applies to the whole country and to all the branches and agencies of the body corporate operating outside India, whose owner or controller is an Indian resident and also any violation committed by the person covered under the Act, outside India.

The main objective of the act is to facilitate foreign trade and to encourage systematic development and maintenance of Forex market in the country. There are total seven chapters contained in the act which are divided into 49 sections, out of which 12 sections deal with the operational part while the remaining 37 sections cover penalties, contravention, appeals, adjudication and so on.

The primary differences between FERA and FEMA are:

1. FERA is an act which is enacted to regulate payments and foreign exchange in India, is FERA. FEMA an act initiated to facilitate external trade and payments and to promote orderly management of the forex market in the country.
2. FEMA came out as an extension of the earlier foreign exchange act FERA.
3. FERA is lengthier than FEMA, regarding sections.
4. FERA came into force when the foreign exchange reserve position in the country wasn’t good while at the time of introduction of FEMA, the forex reserve position was satisfactory.
5. The approach of FERA, towards forex transaction, is quite conservative and restrictive, but in the case of FEMA, the approach is flexible.
6. Violation of FERA is a non-compoundable offence in the eyes of law. In contrast violation of FEMA is a compoundable offence and the charges can be removed.
7. Citizenship of a person is the basis for determining residential status of a person in FERA, whereas in FEMA the person’s stay in India should not be less than six months.
8. Contravening the provision of FERA may result in imprisonment. Conversely, the punishment for violating the provisions of FEMA is a monetary penalty, which may turn into imprisonment if the fine is not paid on time.

Differences between FERA and FEMA:

	DIFFERENCES	FERA	FEMA
1	PROVISIONS	FERA consisted of 81 sections, and was more complex	FEMA is much simple, and consist of only 49 sections.
2	FEATURES	Presumption of negative intention (Mens Rea ) and joining hands in offence (abatement) existed in FEMA	These presumptions of MensRea and abatement have been excluded in FEMA
3	NEW TERMS IN FEMA	Terms like Capital Account Transaction, current Account Transaction, person, service etc. were not defined in FERA.	Terms like Capital Account Transaction, current account Transaction person, service etc., have been defined in detail in FEMA
4	DEFINITION OF AUTHORIZED PERSON	Definition of "Authorized Person" in FERA was a narrow one ( 2(b)	The definition of Authorizedperson has been widened to include banks, money changes, off shore banking Units etc. (2 ( c )
5	MEANING OF "RESIDENT" AS COMPARED WITH INCOME TAX ACT.	There was a big difference in the definition of "Resident", under FERA, and Income Tax Act	The provision of FEMA, are in consistent with income Tax Act, in respect to the definition of term " Resident". Now the criteria of "In India for 182 days" to make a person resident has been brought under FEMA. Therefore a person who qualifies to be a non-resident under the income Tax Act, 1961 will also be considered a non-resident for the purposes of application of FEMA, but a person who is considered to be non-resident under FEMA may not necessarily be a non-resident under the Income Tax Act, for instance a business man going abroad and staying therefore a period of 182 days or more in a financial year will become a non-resident under FEMA.
6	PUNISHMENT	Any offence under FERA, was a criminal offence , punishable with imprisonment as per code of criminal procedure, 1973	Here, the offence is considered to be a civil offence only punishable with some amount of money as a penalty. Imprisonment is prescribed only when one fails to pay the penalty.
7	QUANTUM OF PENALTY.	The monetary penalty payable under FERA, was nearly the five times the amount involved.	Under FEMA the quantum of penalty has been considerably decreased to three times the amount involved.
8	APPEAL	An appeal against the order of "Adjudicating office", before " Foreign Exchange Regulation Appellate Board went before High Court	The appellate authority under FEMA is the special Director ( Appeals) Appeal against the order of Adjudicating Authorities and special Director (appeals) lies before "Appellate Tribunal for Foreign Exchange." Anappeal from an order of Appellate Tribunal would lie to the High Court. (sec 17,18,35)
9	RIGHT OF ASSISTANCE DURING LEGAL PROCEEDINGS.	FERA did not contain any express provision on the right of on impleaded person to take legal assistance	FEMA expressly recognizes the right of appellant to take assistance of legal practitioner or chartered accountant (32)
10	POWER OF SEARCH AND SEIZE	FERA conferred wide powers on a police officer not below the rank of a Deputy Superintendent of Police to make a search	The scope and power of search and seizure has been curtailed to a great extent

The economic policy of liberalization was first time introduced in India in the year 1991 that opened gates for foreign investment in many sectors. In the year 1997, the Tarapore Committee recommended changes in the present legislation that regulate foreign exchange in the country. After which FERA was replaced by FEMA in the country.