Legal Framework for Growing International Finance in India

1. Legal Framework for
Growing
International Finance in India

2. TABLE OF CONTENTS
• FERA
• FEMA
• PMLA(2002)
• FIPB
• FTP (2015-2020)
• ADR and GDR
• ECB

3. HISTORY
Prior to 1973…………..
Why FERA & FEMA?
• Maintain exchange rate stability.
• Conserve foreign exchange.
• Regulate Foreign business
• Consolidate and amend the law relating to foreign exchange with the object to facilitating external
trade and payments and for promoting the foreign exchange market in India.
• Facilitate external trade and payments .
• Promote the orderly development and maintenance of foreign exchange market.

4. FOREIGN EXCHANGE
REGULATION ACT-1973
• FERA imposed stringent regulations on certain kinds of payments.
• It deals in foreign exchange and securities and the transactions which had an indirect
impact on the foreign exchange and the import and export of currency.
• The purpose of the act, inter alia, was to "regulate certain payments, dealings in
foreign exchange and securities, transactions indirectly affecting foreign exchange and
the import and export of currency, for the conservation of foreign exchange resources
of the country".
• FERA was repealed in 1999 by the government of Atal Bihari Vajpayee.
• It replaced by the Foreign Exchange Management Act, which liberalised foreign
exchange controls and restrictions on foreign investment.

5. FOREIGN EXCHANGE
MANAGEMENT ACT-1999• The Foreign Exchange Management Act(FEMA) was an act passed in the winter session of Parliament
in 1999 which replaced Foreign Exchange Regulation Act.
• This act seeks to make offenses related to foreign exchange civil offenses.
• It extends to the whole of India.
• FEMA, which replaced Foreign Exchange Regulation Act(FERA).
• It had become the need of the hour since FERA had become incompatible with the pro-liberalisation
policies of the Government of India.
• FEMA has brought a new management regime of Foreign Exchange consistent with the emerging
framework of the World Trade Organisation(WTO).
• It is another matter that the enactment of FEMA also brought with it the Prevention of Money
Laundering Act 2002, which came into effect from 1 July 2005.

6. FERA vs FEMA
FERA FEMA
Objective To conserve forex and to prevent
its misuse.
To facilitate external trade and payments and
maintenance of forex market in india.
Offence Not compoundable compoundable
Violation Criminal offence Civil offence
Citizenship Residential status is mandatory More than 182 days in India is the criteria to
decide residential status
Categorization Does not recognize any
distinction between current &
capital account transactions.
Recognized the distinction between current
account and capital account transactions.

7. CURRENT ACCOUNT
TRANSACTION VS CAPITAL
ACCOUNT TRANSACTION
Current account transaction Capital account transaction
The definition is inclusive and any expenditure
which is not a capital account transaction will be
current account transaction.
It includes:
• payments due in connection with foreign
trade, other current business, services, and
short-term banking and credit facilities in the
ordinary course of business
• payments due as interest on loans and as net
income from investments
• remittances for living expenses of parents,
spouse and children residing abroad, and
• expenses in connection with foreign travel,
education and medical care of parents, spouse
and children
Means a transaction which alters the assets or
liabilities, including contingent liabilities, outside
India of persons resident in India or assets or
liabilities in India of persons resident outside
India.
It includes transactions like:
• Changes in Assets/ Liabilities
• Transfer/ issue of security
• Borrowing/ Lending
• Export, import or holding of currency or
currency notes
• Giving guarantee

8. REPATRIATION
“Repatriate to India" means bringing into India the realized foreign exchange and-
• the selling of such foreign exchange to an authorized person in India in exchange for rupees, or
• the holding of realized amount in an account with an authorized person in India to the extent notified
by the Reserve Bank,
• It includes use of the realized amount for discharge of a debt or liability denominated in foreign
exchange.

9. PENALTIES FOR
CONTRAVENTION UNDER FEMA
• The Penalty could be up to thrice the sum involved where amount is quantifiable
• If the Amount is not quantifiable , penalty upto Rs 2 lacs can be imposed
• If contravention is of continuing nature, further penalty up to Rs 5000 per day during which the
contravention continues can be imposed

10. PMLA, 2002
• Money laundering is: "any act or attempted act to conceal or disguise the identity of illegally obtained
proceeds so that they appear to have originated from legitimate sources".
• The Prevention of Money Laundering Act, 2002 came into force with effect from 1st July, 2005.
• The Act was amended by the Prevention of Money Laundering (Amendment) Act 2009 w.e.f.
01.06.2009.
•
• The Act was further amended by the Prevention of Money- Laundering (Amendment) Act, 2012 w.e.f.
15-02-2013.
• PMLA and the Rules notified there under pose obligation on banking companies, financial institutions,
intermediaries of the securities market.

11. STAGES OF MONEY
LAUNDERING

12. PUNISHMENT FOR MONEY-
LAUNDERING
• Monetary penalties can be imposed on defaulting reporting entity or its designated Director on the
Board or any of its employees, which shall not be less 27 than ten thousand rupees but may extend to
one lakh rupees for each failure [Section 13(2)(d)].
• The act prescribes that any person found guilty of money-laundering shall be punishable with rigorous
imprisonment from three years to seven years and where the proceeds of crime involved relate to any
offence under paragraph 2 of Part A of the Schedule (Offences under the Narcotic Drugs and
Psychotropic Substance Act, 1985), the maximum punishment may extend to 10 years instead of 7
years.

13. SCHEDULED OFFENCES
UNDER PMLA
• Offences specified under Part A of the schedule
• Offences under the Indian Penal Code
• Offences under the Narcotic Drugs and Psychotropic Substances Act 1985.
• Offences specified under Part B of the schedule, if the total value involved in such offences is Rs
30 lakh or more
• Offences under the Indian Penal Code.
• Offences under the Arms Act 1959.
• Offences under the Wild Life (Protection) Act 1972.
• Offences under the Immortal Traffic (Prevention) Act 1956.
• Offences under the Prevention of Corruption Act 1988

14. FIU - INDIA
• Financial Intelligence Unit – India(FIU – IND)was set up government of India vide O.M. dated
18/11/2004, as a central national agency responsible for receiving, processing, analyzing and
disseminating relating to dubious financial transaction.
• A suspicious transaction is one for which there are reasonable grounds to suspect that the
transaction is related to a money laundering offence or a terrorist activity financing offence. A
suspicious transaction can include one that was attempted. Throughout this guideline, any
mention of a “transaction” includes one that is either completed or attempted.
• FATCA is an acronym for the United States (US) Foreign Account Tax Compliance Act (FATCA),
which was introduced by the US Government in October 2009, but became law as part of the
Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010. FATCA is aimed at
ensuring that US persons with financial assets outside of the US pay US tax. The new rules require
foreign financial institutions (FFI’s) to provide the (IRS) with information on certain investments of
U.S. persons invested in accounts outside of the U.S.

15. FIPB
• The Foreign Investment Promotion Board (FIPB) is a government body that offers a single window
clearance for proposals on Foreign Direct Investment (FDI) in India that are not allowed access through
the automatic route.
• FIPB comprises of Secretaries drawn from different ministries with Secretary, Department of Economic
Affairs, MoF in the chair.
• This inter-ministerial body examines and discusses proposals for foreign investments in the country
for sectors with caps, sources and instruments that require approval under the extant FDI Policy
(prescribed vide Circular 1 of 2011) on a regular basis.
• The Minister of Finance, considers the recommendations of the FIPB on proposals for foreign
investment up to 1200 crore. Proposals involving foreign investment of more than 1200 crore require
the approval of the Cabinet Committee on Economic Affairs (CCEA).

16. ADR GDR and ECB
• An American Depositary Receipt (ADR) is a negotiable certificate issued by a U.S. bank
representing a specified number of shares in a foreign (i.e. non-U.S.) stock that is traded on a U.S.
exchange.
• A Global Depositary Receipt (GDR) represents a bank certificate issued in more than one country
for shares in a foreign company. The shares are held by a foreign branch of an international bank.
The shares trade as domestic shares, but are offered for sale globally through the various bank
branches.
• ECB - An external commercial borrowing(ECB) is an instrument used in India to facilitate the
access to foreign money by Indian corporations and PSUs (public sector undertakings).
• The DEA (Department of Economic Affairs), Ministry of Finance, Government of India along with
Reserve Bank of India, monitors and regulates ECB guidelines and policies.

17. HISTORY OF EXIM POLICY
• In the year 1962, the Government of India appointed a special EXIM Policy Committee to review the
government previous export import policies. The committee was later on approved by the Government
of India.
• Mr. V. P. Singh, the then Commerce Minister and announced the EXIM Policy on the 12th of April,
1985.
• Initially the EXIM Policy was introduced for the period of three years with main objective to boost the
export business in India.
• Foreign Trade Act has replaced the earlier law known as the Imports and Exports (Control) Act 1947.

18. FOREIGN TRADE POLICY
(EXIM POLICY)
• EXIM Policy or Foreign Trade Policy is a set of guidelines and instructions established by the
DGFT.
• DGFT (Directorate General of Foreign Trade) is the main governing body in matters related to
EXIM Policy.
• The Foreign Trade Policy is regulated by the Foreign Trade Development and Regulation Act,
1992.
• Objective of the FTDR Act is to provide the development and regulation of foreign trade by
facilitating imports into, and augmenting exports from India.
• FTP aims at developing export potential, improving export performance, encouraging foreign
trade and creating favourable balance of payments position.

19. INDIA NEW FOREIGN TRADE
POLICY 2015 - 2020
• To double the percentage share of global merchandise trade within the next five years.
• To act as an effective instrument of economic growth by giving a thrust to employment generation.
• BOOST TO "MAKE IN INDIA“
• Online filing of documents/ applications and Paperless trade in 24x7 environment
• Simplification of procedures/processes, digitisation and e-governance
• Facilitating & Encouraging Export of Defence and e-Commerce Exports
• Additional Ports allowed for Export and import
• Calicut Airport, Kerala and Arakonam ICD, Tamil Nadu have been notified as registered ports for
import and export
• Vishakhapatnam and Bhimavaram added as Towns of Export Excellence
• Government has already recognized 33 towns as export excellence towns. It has been decided to
add Vishakhapatnam and Bhimavaram in Andhra Pradesh as towns of export excellence (Product
Category– Seafood)

20. THANK YOU
HINAL BHATT 6
MANALI DALVI 13
ABHISHEK DARIRA 14
HARESH GALA 16
AKANKSHA NERURKAR 32
AAKASH PARAB 34