Journey from FERA to FEMA and structure of the FEMA law
1. Foreign Exchange Regulation Act, 1947 was the first legislation in India to deal with the issues relating to foreign exchanges. Then, same was significantly repealed and a new Foreign Exchange Regulation Act, 1973 (FERA) was enacted. While enacting such new legislation, object and purpose can be derived from the preamble of the FERA 1973, which reads as under: -
“An Act to consolidate and amend the law regulating certain payments, dealing in foreign exchange and securities, transactions indirectly affecting foreign exchange and the import and export of currency for the conservation of the foreign exchange resources of the country and the proper utilisation thereof in the interest of the economic development of the country.”
2. As appearing from the above preamble clause, FERA was basically used as a weapon for regulation and conversion of the foreign exchange. This resulted into the same being a rigid, draconian and more of a criminal nature of law adversely impacting the development of International trade, economy and investments. These points made the government think over it and lead to enactment of a newly devised law in form of Foreign Exchange Management Act, 1999 (FEMA).
3. FEMA was enacted with effect from 1st June 2000 with the preamble, reproduced as under: -
An Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
4. On perusal of the both the preamble clause of the FERA and FEMA, one can conclude that the new law is intended to be more liberal - less regulative, more open for global trade and investment, less criminal, more of compounding and less draconic.
5. Framework of law relating to FEMA – The implementation and interpretation of FEMA 1999 is further supplemented by: -
a) FEMA Rule – notified by Central Government;
b) FEMA Regulations – notified by RBI
c) AP (Dir) Circulars – by RBI
d) Master directions – by RBI
e) FAQ’s – by RBI
f) Foreign trade policy
6. Accordingly, while executing any transactions one should have a conjoint reading and interpretation of all of the above items. Further FEMA is one of the most dynamic law which is subject to frequent various changes / amendment from time to time.