6. ENFORCEMENT DIRECTORATE (THE FOREIGN EX-CHANGE REGULATION ACT, 1973) 6.

1 The Foreign Exchange Regulation Act, 1973 provides the statutory basis to the present system of exchange control of India. It is a law for regulating foreign exchange and imposes various restrictions on dealings in foreign exchange by persons resident in India and by Indian citizens visiting abroad. Exchange control was introduced in India in 1939 under the emergency powers derived from the Defence of India rules. The emergency powers were later enacted into a statute, namely, the Foreign Exchange Regulation Act, 1947. Later a new Act, namely, the present Foreign Exchange Regulation Act, 1973 was passed in 1973 containing comprehensive provisions for the regulation and control of foreign exchange dealings in India. 6.2 Enforcement Directorate: The Directorate of Enforcement is mainly concerned with the enforcement of the provisions of the Foreign Exchange Regulation Act, to prevent leakage of foreign exchange which generally occurs through the following malpractices: (1) (2) (3) (4) (5) (6) (7) (8) Remittances by Indians abroad otherwise than through normal banking channels, i.e., through compensatory payments. Acquisition of foreign currency illegally by persons in India from foreign tourists. Non-repatriation of the proceeds of the exported goods. Unauthorised maintenance of accounts in foreign countries. Under-invoicing of exports and over-invoicing of imports and any other type of invoice manipulation. Siphoning off of foreign exchange against fictitious and bogus imports. Illegal acquisition of foreign exchange through Hawala. Secreting of commissions abroad.

Directorate has to detect cases of violation and also perform substantial adjudicatory functions to curb such malpractices. 6.3 Organisation set up: The Enforcement Directorate, with its Headquarters at New Delhi, has seven Zonal offices at Bombay, Calcutta, Delhi, Jalandhar, Chennai, Ahmedabad and Bangalore. The Director of Enforcement is the head of this Organisation. The Zonal offices are headed by the Deputy Directors. The Directorate has nine sub-zonal offices at Agra, Srinagar, Jaipur, Varanasi, Trivandrum, Calicut, Hyderabad, Guwahati and Goa, which are headed by the Assistant Directors. The Directorate has also a Unit at Madurai, which is headed by a Chief Enforcement Officer. Besides, there are three Special Directors of Enforcement, one Additional Director of Enforcement who generally, look after the adjudication work. The organisation chart of the Enforcement Directorate is given as Annexure. 6.4 Staff and Budget: The total sanctioned strength of staff of all categories is 798- The break-up is as under:Category "A" Officers (Class I officers) Category "B" Officers (Class II officers) Category "C" Officers (Class III) Category "D" Officers (Class IV officers) 54 152 426 166

The Budget of this Directorate for the year 1997-98 is Rs. 11.95 crores (approximately). 6.5 Functions : The main functions of the directorate are as under:(a) To collect and develop intelligence relating to violation of the provisions of Foreign Exchange Regulation Act and while working out the same, depending upon the circumstances of the case:(i) to conduct searches of suspected persons, conveyances and premises for seizing incriminating materials (including Indian and foreign currencies involved) and/or (ii) To enquire into and investigate suspected violations of provisions of the Foreign Exchange Regulation Act and for that purpose, arrest suspects, if necessary. (b) To adjudicate cases of violations of Foreign Exchange Regulation Act for levying penalties departmentally and also for confiscating the amounts involved in contraventions; (c) to prosecute offenders in courts; (d) to defend cases before the Foreign Exchange Regulation Appellate Board and Courts; (e) to realise the penalties imposed in departmental adjudication; In addition to the above functions relating to the Foreign Exchange Regulation Act, the Directorate also processes & recommends cases for detention of habitual offenders under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974) , which provides inter-alia for detention of a person with a view to preventing him from acting in a manner prejudicial to the conservation and augmentation of foreign exchange. 6.6 Broad Scheme of the Foreign Exchange Regulation Act, 1973: The Reserve Bank of India performs the regulatory functions under the Foreign Exchange Regulation Act, Central Government formulates the policy relating to exchange control laws through the Department of Economic Affairs, and the Enforcement Directorate deals with violations of the Act. 6.7 Substantive provisions: The following important provisions of the Foreign Exchange Regulation Act, 1973 are enforced by the Enforcement Directorate:

Section 6 Under section 6, the Reserve Bank of India grants licences to various banks to work as "Authorised Dealer" in foreign exchange. Section 7 Under section 7, the R.B.I. authorises certain persons to act as "Money-Changers". Except those who have been authorised by the R.B.I. under Sections 6 and 7 of the Act, nobody else can deal in foreign exchange. Section 8 Impose restrictions on dealings in foreign exchange; unauthorised acquisition of foreign exchange and unauthorised conversion of currency at rates of exchange other than that prescribed by the Reserve Bank of India and utilisation of foreign exchange other than the purpose for which it is granted is prohibited under this section. Section 9 This section imposes certain restrictions on payments to or to the credit of any person resident outside India or the receipt of payments by order or on behalf of any person resident outside India. Such payments which are known as Compensatory or "Hawala" payments and are resorted to mostly by Indians residing abroad in order to remit their earnings to India through illegal channels. Section 13 Section 13 prohibits the import and export of any foreign exchange, or Indian currency by any person except to the extent permitted by the Central Government (Provisions of this section are enforced by the Customs Department). Section 14 Section 14 requires a person to surrender to an authorised dealer in foreign exchange in India the foreign exchange owned or acquired by him within a period of three months of his arrival in India failing which he is liable to penal action. Section 16 Section 16 provides that all those persons who are entitled to receive foreign exchange will have to bring the foreign exchange to the country. Section 18 Section 18 provides that the exporters shall bring the sale proceeds of the goods exported by them within the prescribed period unless they have obtained Reserve Bank of India's permission. Section 19 Section 19 provides that transfer of securities between residents and non-residents and acquisition and holding foreign securities requires permission of the Reserve Bank of India. Section 25 Under Section 25, no person resident in India without the permission of the Reserve Bank of India can acquire an immovable property situated outside India. Section 28 Permission of the Reserve Bank of India is required under section 28 for appointment of certain persons and companies as agents or Management Advisors in India. Section 29 Under section 29, without the permission of the R.B.I. persons resident outside India including corporate bodies cannot establish any business in India. Section 31 Section 31 provides that no person who is not a citizen of India, and no Company which is not incorporated in India, or in which the non-resident interest is more then 40 percent shall acquire any immovable property in India or dispose off the same without the permission of the Reserve Bank of India. 6.8 Procedural Provisions: For enforcing the substantive provisions the Act gives powers to the officers of the Enforcement Directorate to investigate cases of violation and confers powers to summon and examine suspected persons including the powers to search premises and arrest persons whenever necessary. The following sections are important from this point of view. Section 33 Section 33(2) empowers the officer to call for any information or any document from any person.

Section 34 Section 34 confers the powers of physical search of suspected persons and to seize documents from the possession of the person who is believed to have secreted such document. Section 35 under the Act. Section 35 confers the power to arrest any person in India who is believed to be guilty of an offence punishable

Section 36 Section 36 empowers any officer of Enforcement to stop and search conveyances for obtaining any document which would be useful in any investigation or proceeding under the Act. Section 37 Section 37 confers the power to search for and seize any document which are believed to be useful or relevant in any investigation or proceeding under the Act. The power to search can only be carried out under the authorisation of an officer not below the rank of an Assistant Director of Enforcement. Section 38 Section 38 vests the power in an officer of Enforcement to seize any document or that it would be relevant in any investigation or proceeding under the Act. Section 39 Section 39 authorises the officers of Enforcement Directorate to require any person to produce any document relevant to any investigation of proceedings under the Act; and to examine any person acquainted with the facts and circumstances of the case without issuing any summons.

Section 40 Section 40 empowers the officer of Enforcement to summon any person to give evidence or to produce a document during the course of any investigation or proceeding under the Act. 6.9 Adjudication and Appeals (Section 50, 51 & 52): The cases are adjudicated by the officers of the Enforcement Directorate of the rank of Assistant Director, Deputy Director, Additional Director, Special Director and Director for levy of penalties. Appeals against their orders lies to the FERA Board which is under the administrative control of the Law Ministry. Appeals against the orders of the FERA Board lies to the High Court but only on questions of law. 6.10 Prosecution: Under Section 56, either simultaneously after or before adjudication persons violating the provisions can also be prosecuted before a Court of Law making them liable for imprisonment. 6.11 Statistical Data about performance: The statistical data on the performance of the Enforcement Directorate in its key areas of work during the years 1996 to 1998 (upto March) is indicated below: 1998 (Jan. to March) (A) Searches & Seizure: 1. Searches conducted 2. F.E. seized* 3. I.C. seized* (B) Investigations: 1. Initiated 2. Disposed 3. Pending 4. SCNs issued 5. Amount involved in SCNs issued* (C) Adjudication: 1. Cases Adjudicated 2. Cases pending Adjudication 3. Confiscation of F.E.** 4. Confiscation of I.C.* (D) Penalties: 1. Imposed* 2. Realised* 3. Pending* (E) Prosecutions: 1. Launched 2. Disposal 3. Convictions 4. Pending (F) (G) Arrests: 1. Persons arrested COFEPOSA: 1. Orders issued 2. Detained (* in lakhs of Rs.) (** Equivalent in lakhs of Rs.) 38 43 49 39 10 8 213 159 36 101 64 74 2034 92 49 31 2077 17 7 11 2072 7804.19 162.41 18924.13 8380.59 158.21 27146.51 6990.76 44.22 33434.40 2202 4807 203.12 401.22 1889 5639 232.66 301.70 679 5596 56.00 32.46 5486 4347 5506 2291 39095.21 5511 5219 5798 2721 209804.07 880 1283 5395 636 69665.89 1164 724.42 1083.16 1238 555.48 1269.49 235 105.68 360.83

1996

1997