ITC – The FERA Violation Controversy

Designation

Name

Chairman

Y.C. Deveshwar

Deputy Chairman

Saurabh Misra, Feroze Rustom Vevaina

Executive Directors

R. P. Agarwal, R. K. Kutty, Biswadev Mitter, G. K. P. Reddi, N. Sitaraman

Non-Executive Directors

Malcolm Fry (Alternate: A.C. Johnston), Tapan Ganguly, Subrata Mukherji, P. V. Narasimham, K.P. Narasimham, Richard Henry Pilbeam (Alternate: S.J.R. Smith), Basudeb Sen

FERA’s objectives:

• Savings in the large outflow of foreign exchange.
• Prevention of leakage of foreign exchange.
• Reduction in the level of external dependence for economic needs through proper utilization of foreign exchange in the economic development of India.

FERA was a very stringent law – Under other laws in India every act is permitted unless specifically prohibited, but under FERA no act is permitted unless specifically permitted. Even violation of a minor rule under FERA makes a person liable for imprisonment. And unlike other laws where a person is presumed to be innocent unless proved guilty, under FERA the person is presumed to be guilty, unless proved innocent. The RBI was the sole administrative and sanctioning authority for all foreign exchange transactions until 1993. In 1993, the government amended the Act, reducing the number of sections to 72 from 81 and modifying another 33 sections. Under the amended act, the RBI delegated some of its powers to other commercial banks and designated those banks as Authorized Dealers (ADs).
With the liberalization of the Indian economy in the early 1990s, there had been a move to replace the stringent FERA with a more liberal foreign exchange Act. In 1999, FERA was replaced by the Foreign Exchange Management Act (FEMA), which came into effect from 1st June 2000. The central government and the RBI are the authoritative bodies of FEMA, empowered to make rules and regulations to carry out the provisions of the Act. The Enforcement Directorate is the enforcement body appointed by the central government for the purposes of the Act.
Salient features of FEMA:

• While FERA aimed at ‘controlling’ foreign exchange transactions, FEMA aims at ‘regulating’ and ‘managing’ of foreign exchange transactions.
• FEMA facilitates trade rather than prevent misuse of foreign exchange.
• There are no restrictions on current account transactions related to foreign exchange. A person is soon draw foreign exchange is free to sell or draw foreign exchange for his current account transactions.
• The Reserve Bank of India, in consultation with the union government, will classify the types of capital account transactions which are permissible and the limit to which foreign exchange is admissible for such transactions.
• The Reserve Bank of India will regulate transfer and issue of foreign securities by a resident in/outside India, along with regulating the set up of branches/offices by foreign companies in India.
• All key sections related to dealings, holding and payments in foreign exchange and exports have been simplified.