FEMA ACT - INTRODUCTION

The Foreign Exchange Management Act (FEMA) was an act passed in the winter session of Parliament in 1999 which replaced Foreign Exchange Regulation Act. This act seeks to make offenses related to foreign exchange civil offenses. It extends to the whole of India. FEMA is an act that provides guidelines for the free flow of foreign exchange in India. FEMA was earlier known as Foreign exchange regulation act which has been found to be unsuccessful with the proliberalisation policies of government of India. It has brought a new management regime of foreign exchange consistent with the emerging framework of the WTO.

SOME HIGHLIGHTS OF FEMA

It prohibits foreign exchange dealing undertaken other than an authorized person. There are 7 types of current account transactions, which are totally prohibited, and therefore no transaction can be undertaken relating to them. These include transaction relating to lotteries, football pools, banned magazines and a few others. FEMA and the related rules give full freedom to Resident of India (ROI) to hold or own or transfer any foreign security or immovable property situated outside India. Similar freedom is also given to a resident who inherits such security or immovable property from an ROI.

CONT
An ROI is permitted to hold shares, securities and properties acquired by him while he was a Resident or inherited such properties from a Resident. The exchange drawn can also be used for purpose other than for which it is drawn provided drawl of exchange is otherwise permitted for such purpose. Certain prescribed limits have been substantially enhanced. For instance, residence now going abroad for business purpose or for participating in conferences seminars will not need the RBI's permission to avail foreign exchange up to US$. 25,000 per trip irrespective of the period of stay, basic travel quota have been increased from the existing US$ 3,000 to US$ 5,000 per calendar year.

OBJECTIVES & FUNCTIONS

Main objective of apply FEMA is to reduce the restriction on foreign exchange. Now, any offense in foreign exchange will be civil offense not criminal offense. This law's main objective is to increase the flow of foreign exchange in India. Now, under this law, you can bring foreign currency in India without any legal barrier. The Foreign Exchange Management Act regulates (through the Reserve Bank of India) actions ranging from the transfer of foreign securities by residents of India to borrowing or lending done on a foreign exchange to deposits between citizens of India and outside residents. Penalties for misconduct under the Foreign Exchange Management Act can be up to three times the monetary value of the offending transaction.

SALIENT FEATURES OF FEMA:

It will facilitate trade rather than prevent misuse of foreign exchange. Definitions of capital account transaction and current account transaction have been introduced keeping in mind the possibility of introduction of capital account convertibility in the near future. All current account transactions shall be allowed (subject to reasonable restrictions). Reserve Bank to classify those capital account transactions that are to be permitted and to regulate transfer and issue of foreign securities by a resident in/outside India as well as setting up of branches/offices by foreign companies in India. All key sections relating to dealings, holding and payments in foreign exchange and exports have been simplified. Liberalization in enforcement provisions reflects that the attitude is of putting trust in the persons covered.

PROVISIONS OF FEMA
Provision regarding dealing in foreign exchange:According to section 3 of FEMA 2000," only authorized person under the govt. terms can deal in foreign exchange in India. " Provision regarding holding of foreign exchange:According to section 4 of FEMA 2000, All persons which are provided authority only can hold or purchase foreign exchange in India or outside India." Provision regarding current account transactions:According to section 5 of FEMA 2000," There is no restriction regarding sale or deal foreign exchange, if it is a current account transaction." RBI can also make rules and regulations for realization of amount earned from foreign country.

CONT
Provision regarding authorized persons The following transactions are deemed current account transactions under FEMA:a) Expenses in connection with foreign travel , education and medical care of parents , spouse and children ( Any body now can send the foreign currency in India for above expenses under current account ) b) Payment due as interest on loan c) Payment due under short term loan for business . Provision regarding capital account transactions :Under section six ," RBI will fix the limit of foreign exchange transactions relating to capital account after discussion with Indian govt. "

CONT
Provision regarding export of goods and services :According to section 7 of FEMA 2000 , " It is the duty of exporter to declare the true and correct detail of goods which , he have to sell the market outside India and must send complete report to RBI . Provision regarding authorized persons :RBI can authorize anybody who can deal in money exchange or off shore transaction and foreign exchange . He has to follow the rules and guidelines of RBI . RBI can revoke the authorization granted to any person at any time in public interest. If authorized person will be done contravention the rules of RBI , he will be liable to pay up to Rs. 10000 penalty and Rs. 2000 for every day during which such contravention continue .

FERA ACT

The Foreign Exchange Regulation Act (FERA) was legislation passed by the Indian Parliament in 1973 by the government of Indira Gandhi and came into force with effect from January 1, 1974. FERA imposed stringent regulations on certain kinds of payments, the dealings in foreign exchange and securities and the transactions which had an indirect impact on the foreign exchange and the import and export of currency. Regulated in India by the Foreign Exchange Regulation Act(FERA),1973. Consisted of 81 sections. FERA Emphasized strict exchange control. Control everything that was specified, relating to foreign exchange. Law violators were treated as criminal offenders.

SWITCH FROM FERA

This was done in 1974, a period when Indias foreign exchange reserve position wasnt at its best. A new control in place to improve this position was the need of the hour. FERA did not succeed in restricting activities, especially the expansion of TNCs (Transnational Corporations). The concessions made to FERA in 1991-1993 showed that FERA was on the verge of becoming redundant. After the amendment of FERA in 1993, it was decided that the act would become the FEMA. FEMA served to make transactions for external trade (exports and imports) easier transactions involving current account for external trade no longer required RBIs permission. The deals in Foreign Exchange were to be managed instead of regulated. The switch to FEMA shows the change on the part of the government in terms of foreign capital.

DIFFERENCE BETWEEN FEMA AND FERA

Points of Comparison 1.Content FEMA -2000 There are 49 sections out of which 12 section relate to operational part and rest with penal provisions Basically it is a civil law The Act applies to all branches , offices and branches outside India owned or controlled by a person resident in India Capital account transactions, current account transactions, persons, services like new terms are introduced. FERA -1973 There were 81 sections out of which 32 sections related to operational part and rest deals with penalty, appeals etc. It was considered as a criminal law The Act applied to all citizens of India and to branches and agencies outsides India and to branches and agencies outside India These terms were not defined.

2. Nature 3. Applicability

4. New Terms

5.Penality

Limited to three times the sum involved if it is quantifiable .

Five times of the sum involved + imprisonment in most of the cases The object was to control, regulate and prohibits foreign exchange transactions There was no provision for legal assistance

6. Object

The object is to encourage external trade.

7. Legal Help

The complainant has full right to take legal help from a lawyer or a chartered accountant The power to the police officers has restricts to great extent It has been extended to include banks, money changes, off shore banking units etc The term has defined in accordance with income tax act

8.Power of Police Authorities 9. Definition of authorized person 10.Definition of Resident

Extensive powers had given to police officer It was limited in case of FERA The term defined was not in accordance with income tax act

RELEVANT PROGRESS MADE, FROM

FERA TO FEMA

DRAWL OF FOREIGN EXCHANGE Now, the restrictions on drawl of Foreign Exchange for the purpose of current Account Transactions, has been removed. However, the Central Government may, in public interest in consultation with the Reserve Bank impose such reasonable restrictions for current account transactions as may be prescribed. OMISSION OF CRIMINAL PROCEEDINGS Under FERA, any contravention was a criminal offence and the proceedings were governed by the code of Criminal Procedure. Now all these have been done away with, and contravention of FEMA is no more a Criminal offence, and only monetary penalty, i.e. civil proceedings are applicable.

CONT
RESIDENTIAL STATUS The residential status is now based on the physical stay of the person in the country. The period of 182 days as provided, indicates that it is not necessary that there should be a continuous period of stay. The period of stay would be calculated by adding up all the days of stay of the individual in the country. IMMOVABLE PROPERTY OUTSIDE INDIA Earlier, under FERA, there was no restriction placed on foreign citizens who were residents of India, for acquiring immovable property outside India. Now FEMA prohibits a resident to acquire, own process, hold or transfer any immovable property situated outside India. This restriction applies irrespective of whether the resident is an Indian citizen or foreign citizen.

CONT
IMMOVABLE PROPERTY IN INDIA Earlier, under FERA, a foreign citizen could acquire or transfer immovable property in India only after seeking permission from the Reserve Bank. Now, under FEMA, the control of Reserve Bank is determined by the residential status of a person. EXPORT OF SERVICES FERA had no provision for export of services. Now, FEMA has included payment received by an Exporter of Services in its ambit. Every Exporter, who receives payment from outside India, for his services rendered is obliged to furnish details of payment to the 'Reserve Bank. INCLUSION OF NEW TERMS Some new terms like "Capital Account Transactions, Current Account Transactions"; have been included in FEMA. Reserve Bank has been confirmed with powers and with consultation with central government to specify maximum permissible limit upto which exchange is admissible for such transactions.

AMENDMENTS IN THE FEMA ACT...

Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) (Amendment) Regulations, 2007 Short Title and Commencement : (i) These Regulations may be called the Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) (Amendment) Regulations, 2007. (ii) They shall be deemed to have come into force with effect from December 4, 2006. Regulation 5, sub-regulation (3) shall be substituted, namely; "(3)A company incorporated in India having overseas offices, may acquire immovable property outside India for its business and for residential purposes of its staff, in accordance with the direction issued by the Reserve Bank of India from time to time.

CONT
Foreign Exchange Management (Guarantees) (Amendment) Regulations, 2010 In regulation 5, after clause (d), the following new clause shall be inserted and shall be deemed to have been inserted with effect from April 20, 2009, namely, (e) a bank which is an authorized dealer may, subject to the directions issued by the Reserve Bank in this behalf, permit a person resident in India to issue corporate guarantee in favor of an overseas lesser for financing imports through operating lease effected in conformity with the Foreign Trade Policy in force and under the provisions of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 framed by Government of India vide Notification No G.S.R. 381 (E) dated May 3, 2000 and the directions issued by Reserve Bank under Foreign Exchange Management Act, 1999 from time to time.

THE UNIVERSITY GRANTS COMMISSION ACT, 1956

INTRODUCTION

An Act to make provision for the co-ordination and determination of standards in Universities and for that purpose, to establish a University Grants Commission. CHAPTER I

PRELIMINARY 1. (a) This Act may be called the University Grants Commission Act, 1956. (b) It shall come into force on such date1 as the Central Government may, by notification in the Official Gazette, appoint.

CHAPTER 2. ESTABLISHMENT OF THE COMMISSION

4(b) The said Commission shall be a body corporate having perpetual succession and a common seal, and shall by the said name sue and be sued. 5. (1) The Commission shall consist of (i) a Chairman, (ii) a Vice-Chairman, and (iii) ten other members, to be appointed by the Central Government. (2) The Chairman shall be chosen from among persons who are not officers of the Central Government or of any State Government. (3) Of the other members referred to in clause (iii) of subsection (1) (a) two shall be chosen from among the officers of the Central Government, to represent that Government;

CONT
(b) not less than four shall be chosen from among persons who are, at the time when they are so chosen, teachers of Universities; and (c) the remainder shall be chosen from among persons (i) Who have knowledge of, or experience in, agriculture, commerce, forestry or industry; (ii) who are members of the engineering, legal, medical or any other learned profession; or (iii) who are Vice-Chancellors of Universities or who, not being teachers of Universities, are in the opinion of the Central Government, educationists of repute or have obtained high academic distinctions: Provided that not less than one-half of the number chosen under this clause shall be among persons who are not officers of the Central Government or of any State Government.

7. Meetings of the Commission The Commission shall meet at such times and places and shall observe such rules of procedure in regard to the transaction of business at its meetings as may be provided by regulations made under this Act. 9. Temporary association of persons with the Commission for particular purposes (1) The Commission may associate with itself, in such manner and for such purposes as may be determined by regulations made under this Act, any person whose assistance or advice it may desire in carrying out any of the provisions of this Act. (2) A person associated with it by the Commission under sub-section (1) for any purpose shall have a right to take part in the discussions relevant to that purpose, but shall not have a right to vote at a meeting of the Commission, and shall not be a member for any other purpose. 10. Staff of the Commission Subject to such rules as may be made by the Central Government in this behalf, the Commission may appoint a Secretary and such other employees as it may think necessary for the efficient performance of its functions under this Act and the terms and conditions of service of the employees shall be such as may be determined by the Commission.

CHAPTER 3. POWERS AND FUNCTIONS OF THE COMMISSION

It may take steps for the promotion and co-ordination of University education and for the determination and maintenance of standards of teaching, examination and research in Universities, and for the purpose of performing its functions under this Act. The Commission may(a) inquire into the financial needs of Universities; (b) allocate and disburse, out of the Fund of the Commission, grants to Universities established or incorporated by or under a Central Act for the maintenance and development of such Universities or for any other general or specified purpose; (c) allocate and disburse, out of the Fund of the Commission, such grants to other Universities as it may deem 1[necessary or appropriate for the development of such Universities or for the maintenance, or development, or both, of any specified activities of such Universities] or for any other general or specified purpose:

CONT

(d) recommend to any University the measures necessary for the improvement of University education and advise the University upon the action to be taken for the purpose of implementing such recommendation; (e) advise the Central Government or any State Government on the allocation of any grants to Universities for any general or specified purpose out of the Consolidated Fund of India or the Consolidated Fund of the State, as the case may be. (f) advise any authority, if such advice is asked for, on the establishment of a new University or on proposals connected with the expansion of the activities of any University; (h) collect information on all such matters relating to University education in India and other countries as it thinks fit and make the same available to any University; (i) require a University to furnish it with such information as may be needed relating to the financial position of the University or the studies in the various branches of learning undertaken in that University together with all the rules and regulations relating to the standards of teaching and examination in that University respecting each of such branches of learning.

13. INSPECTION

(1) For the purpose of ascertaining the financial needs of a University or its standards of teaching, examination and research, the Commission may, after consultation with the University, cause an inspection of any department or departments thereof to be made in such manner as may be prescribed and by such person or persons as it may direct. (2) The Commission shall communicate to the University the date on which any inspection under sub-section (1) is to be made and the University shall be entitled to be associated with the inspection in such manner as may be prescribed. (3) The Commission shall communicate to the University its views in regard to the results of any such inspection and may, after ascertaining the opinion of the University, recommend to the University the action to be taken as a result of such inspection. (4) All communications to a University under this section shall be made to the executive authority thereof and the executive authority of the University shall report to the Commission the action, if any, which is proposed to be taken for the purpose of implementing any such recommendation as is referred to in subsection (3).

15. Payment to the Commission The Central Government may, after due appropriation made by Parliament by law in this behalf, pay to the Commission in each financial year such sums as may be considered necessary for the performance of the functions of the Commission under this Act. 16. Fund of the Commission (1) The Commission shall have its own Fund; and all sums which may, from time to time, be paid to it by the Central Government and all the receipts of the Commission (including any sum which any State Government or any other authority or person may hand over to the Commission) shall be carried to the Fund and all payments by the Commission shall be made there from. (2) All moneys belonging to the Fund shall be deposited in such banks or invested in such manner as may, subject to the approval of the Central Government, be decided by the Commission. (3) The Commission may spend such sums as it thinks fit for performing its functions under this Act, and such sums shall be treated as expenditure payable out of the Fund of the Commission. 17. Budget The Commission shall prepare, in such form and at such time each year as may be prescribed, a budget in respect of the financial year next ensuing showing the estimated receipts and expenditure, and copies thereof shall be forwarded to the Central Government.

18. Annual report The Commission shall prepare once every year, in such form and at such time as may be prescribed, an annual report giving a true and full account of its activities during the previous year, and copies thereof shall be forwarded to the Central Government and the Government shall cause the same to be laid before both Houses of Parliament.

19. Account and audit (1) The Commission shall cause to be maintained such books of account and other books in relation to its account in such form and in such manner as may, in consultation with the Comptroller and Auditor-General of India, be prescribed. (2) The Commission shall, as soon as may be after closing its annual accounts, prepare a statement of accounts in such form, and forward the same to the Comptroller and Auditor-General by such date, as the Central Governments may, in consultation with the Comptroller and Auditor-General, determine. (3) The accounts of the Commission shall be audited by the Comptroller and Auditor-General at such times and in such manner as he thinks fit.

(4) The annual accounts of the Commission together with the audit report thereon shall be forwarded to the Central Government and the Government shall cause the same to be laid before both Houses of Parliament and shall also forward a copy of the audit report to the Commission for taking suitable action on the matters arising out of the audit report.

A CASE STUDY
ON P&G FIASCO

BRIEF SUMMARY
The break- up of the joint venture between the American FMCG giant, P&G and the leading Indian business Group, Godrej in 1996 is a case which few would forget. It was a short lived marriage. The year was 1992 and the two firms announced the formation of a strategic alliance that seemed to hold great promise for both the companies. The two companies set up a marketing joint venture, P&GGodrej (PGG) in which P&G has a 51% stake. Modalities were worked out very well. P&G paid Godrej nearly Rs 50 crore to acquire its detergent brands- Trilo, Key and Ezee. P&G on its part, gave a commitment that it would utilize Godrejs soap making capacity of 80000 tpa. Godrej transferred 4oo of its salespeople to the joint venture. P&G gained access to the manufacturing facility of Godrej.

Godrej also had expertise in vegetable oil technology for making soaps. Godrej also had a network of retail outlets which were thrown open for P&G. Godrej has excess manufacturing capacity. It also hoped to access superior technology and managerial skills of P&G. The alliance became operational in April 1993. As soon as the alliance became operational, P&G engineers introduced new systems such as good manufacturing practices and materials resource planning in Godrej plants. For about a year, it looked as though things were going fine. Thereafter, elements of distrust began to surface and the two firms found the differences in management styles too significant to be brushed aside. By December 1994, rumors were rife that P&G and Godrej did not see eye to eye on many key issues.

One reason why the relationship soured was that the performance did not match expectations. In 1992, godrej has sold 29000 tones of soap. This increased to 46000 in 1994 but fell sharply to 38000 tonnes in 1995. While sales did not rise as expected, cost were rising. Informed sources were of the opinion that Godrej was charging Rs 10000 more per tonne than the expected processing costs. Godrej expressed its dissatisfaction on the ground that P&G did not promote brands like Trilo and key. It was also unhappy with P&Gs methodical and analytical approach as opposed to its own intuitive method of launching brands at great speeds. P&G, on its part, felt that there was little logic or coordination in Godrej brand building exercises. The year 1996 as stated earlier, saw the termination of the alliance. The companies would have little to do with each other, except for Godrej continuing to make Camay for P&G for two more years and proving office space to P&G. PGG would be taken over by P&G, which would also retain the detergent brands, Trilo, Key and Ezee. Most of PGGs 550 people and the distribution network consisting of some 3000 stockists would stay with P&G. Godrej would absorb about 100 sales people and get back its 7 soap brands which had been leased to PGG .

QUESTIONS

What according to you, are the factors that favored the alliance between P&G and Godrej?

What went wrong with the joint venture? Why did it break up with in four years of its formation? What signals does this joint venture Fiasco sent to other foreign investors?