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 | |||
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. | |||
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. | |||
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: | |||
(a) | Purchase and sale of and other dealings in foreign exchange and maintenance of balances at foreign centres | ||
(b) | Procedure for realisation of proceeds of exports | ||
(c) | Payments to non-residents or to their accounts in India | ||
(d) | Transfer of securities between residents and non-residents and acquisition and holding of foreign securities | ||
(e) | Foreign travel with exchange | ||
(f) | Export and import of currency, cheques, drafts, travellers cheques and other financial instruments, securities, etc. | ||
(g) | Activities in India of branches of foreign firms and companies and foreign nationals | ||
(h) | 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 | ||
(i) | Appointment of non-residents and foreign nationals and foreign companies as agents in India | ||
(j) | Setting up of joint ventures/subsidiaries outside India by Indian companies | ||
(k) | Acquisition, holding and disposal of immovable property in India by foreign nationals and foreign companies | ||
(l) | Acquisition, holding and disposal of immovable property outside India by Indian nationals resident in India. | ||
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. | |||
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. | |||
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. | |||
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. | |||
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. | |||
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. | |||
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. | |||||
1.12 | All amendments to the Manual and other operative instructions to authorised dealers | ||||
will be communicated in the form of A.D. Circulars. | |||||
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. | |||||
(ii) | 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)]. | |||||
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. | |||||
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. | |||||
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. |
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 | |
Jammu/Srinagar | State of Jammu and Kashmir | |
(ii) | 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.
(iii) | 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.
1.28 | (i) | 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' | |||
A. | 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. | ||
B. | 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'. |
C. | 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. | ||
D. | 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' | |||
A. | 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'. | ||
B. | 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. |