Replacement of FERA by FEMA…
The replacement of FERA (Foreign Exchange Regulation Act) by FEMA (Foreign Exchange Management Act) reflects a paradigm shift in the attitude and the perception from that of restriction and regulation, including the mistrust and doubting every transaction as being violation of the foreign Exchange laws to that of management of foreign Exchange.
FERA was enacted at the time when foreign exchange was scarce and was perceived to be a rare commodity and hence required constant monitoring and regulation. This shift has been on account of global liberalization and on account of free and more secure trade. The draconian provisions of the FERA (of being continuously hauled up before the Enforcement Directorate and being put behind bars for the smallest of crimes) have been done away with.
FEMA has been set up to consolidate and amend the law relating to foreign exchange, with the objective of facilitating foreign external trade and payments for promoting the orderly development and maintenance of foreign exchange.
Yet similarities do exist…
Between FERA and FEMA to the extent that they continue to be governed by the Reserve Bank of India and the Central Govt. as the Regulatory Bodies. The Directorate of Enforcement continues to be the agency for Enforcement of the provisions of Search and Seizure. The presumption of Extra -Territorial Jurisdiction as envisaged by FERA has been retained.
But the differences outweigh…
The exclusion of the presumption of Mens Rea (guilty mind) and abetment (encouragement to commit a crime) in FEMA, represent a material shift in perception of the Authorities in their handling of Forex violations.
On account of the Globalization of the Economy, and with the impending Convertibility on the Capital Account - what constitutes a 'Capital Account Transaction' and 'Current Account Transaction' among others have been clearly defined.
The concept of an "Authorized person" to deal in Foreign Exchange has been widened under FEMA to include an Authorized Dealer, Money Changer, or an offshore banking unit or any person authorized to deal in Forex and Foreign Securities.
FERA also suffered from lack in uniformity and harmony, with other Laws. Under FERA - the concept of a "Resident " was distinct and separate to that under the Income Tax Act, and hence this was remedied by FEMA.
The most significant difference however was in the nature and perception of Offences- whilst under FERA every offence was a Criminal Offence - punishable with imprisonment; under FEMA the offences are Civil Offences and punishable with a monetary penalties only.
The most Draconian Provision under FERA of arrest and detention by the Enforcement Directorate of any person suspected of or even alleged to have committed an offence punishable under the act has been considerably curtailed to take effect only when one fails to pay the monetary penalty. Under the new FEMA, even the quantum of the monetary penalty has been curtailed from five times the amount involved to three times the value of the transaction. The sweeping powers of search and seizure granted to a police officer, under FERA have been curtailed and restricted.
The right of an impleaded person to seek assistance in the form of a legal counsel or a Chartered Accountant has been recognized and granted under the FEMA.
FEMA represents the changing reality of the era of globalization to which the authorities have finally woken up to.