Legal Aspect of

Business
Tejpal sheth

Foreign Exchange
Management Act 1999
(FEMA)
FEMA
• 'Printex Computer' is a Singapore based
company having several business units all
over the world. It has a unit for manufacturing
computer printers with its Headquarters in
Pune. It has a Branch in Dubai which is
controlled by the Headquarters in Pune.
What would be the residential status under
FEMA, 1999 of printer units in Pune and that
of Dubai branch?
Case analysis
• Printex Computer being a Singapore based company
would be person resident outside India. Printex unit in
Pune, being a branch of a company would be a ‘person’.
• Person resident in India would include an office, branch
or agency in India owned or controlled by a person
resident outside India. Printex unit in Pune is owned or
controlled by a person resident outside India, and hence
it, would be a ‘person resident in India.’
• However, Dubai Branch though not owned is controlled
by Print unit in Pune which is a person resident in India.
Hence Dubai Branch is a person resident in India.
FEMA
• Mr. Ram had resided in India during the Financial
Year 1999-2000 for less than 183 days. He again
came to India on 1st May, 2000 for Higher studies
and business and stayed upto 15th July, 2001. State
under the Foreign Exchange Management Act, 1999.
(i) If Mr. Ram can be considered 'person
Resident in India' during the Financial year 2000-
2001 and
(ii) Is citizenship relevant for determining
such a status?
Case analysis
• (i) No. Mr. Ram cannot be considered 'Person
resident in India' during the financial year 2000-2001.
An individual has to be present in India for more than
182 days in the preceding financial year. Mr. Ram does
not satisfy this condition for the financial year 2000-
2001.
• (ii) No. Citizenship is no more relevant for
determining the status.
FEMA
• Examine whether the following branches can
be considered as a ‘Person resident in India’
under Foreign Exchange Management Act,
1999:
(i) ABC Limited a company incorporated in India
established a branch at London on 1st January,
2003.
(ii) M/s XYZ, a foreign company, established a
branch at New Delhi on 1st January, 2003. The
branch at New Delhi controls a branch at Colombo.
Case analysis
• (i) Any person or body corporate registered or
incorporated body in India is a resident in India. An
office, branches or agency outside India owned or
controlled by a person resident in India is a person
resident in India. London branch of ABC Ltd, is a ‘person
resident in India’.
• ii) Company registered out of india is person
resident outside India. M/s XYZ, foreign company is a
‘resident outside India. Branch at New Delhi owned by
M/s XYZ is a ‘resident in India’. The branch at Colombo
controlled by the branch at New Delhi is a person
‘resident in India’.
FEMA

• Mr. Sekhar resided for a period of 150

days in India during the Financial year
2003-2004 and thereafter went abroad.
He came back to India on 1st April, 2004
as an employee of a business
organization. What would be his
residential status during the financial
year 2004-2005?
Case analysis
• "Person Resident in India" in any financial year, must
reside in India for a period of more than 182 days during
the preceding financial year.
• In the given case, Mr. Sekhar has resided in India for a
period of only 150 days, i.e., less than 182 days, during
the financial year 2003-2004. Hence he cannot be
considered as a "Person Resident in India" during the
financial year 2004-2005 irrespective of the purpose or
duration of his stay.
FEMA
• Examine with the reference to the provisions of the
Foreign Exchange Management Act, 1999 the
residential status of the branches mentioned below:
– MKP Limited, an Indian company having its Registered
office at Mumbai, India established a branch at New York
U.S.A. on 1st April, 2004
– WIP Ltd., a company incorporated and registered in
London established a branch at Chandigarh in India on 1s
April 2004.
– WIP Ltd.'s Singapore branch which is controlled by its
Chandigarh branch controlled by its Chandigarh branch.
Case analysis
(i) FEMA states that an office, branch or agency outside India owned
or controlled by a person resident in India is a “Person resident in
India”.
In the light of the above provisions of FEMA, the residential status of
the New York branch of MKP Ltd is that of a “Person resident in
India”.
(ii) WIP Ltd. is a “Person resident outside India” and since it
owns a branch in Chandigarh, India, the residential status of the said
Chandigarh branch is that of a “Person resident in India”.
(iii) An office, branch or agency outside India owned or
controlled by a person resident in India is a “Person resident in
India”. Here, the Singapore branch of WIP Ltd. is controlled by its
Chandigarh branch which is a “Person resident in India”. Therefore,
the residential status of the Singapore branch of WIP Ltd. shall be
that of a “Person resident in India”.
FEMA
• Examine whether the following transactions are
permissible or not under the above act as Capital
Account transactions:
(i) Investment by person resident in India in Foreign
Securities.
(ii) Foreign currency loans raised in India and abroad by a
person resident in India.
(iii) Export, import and holding of currency / currency notes.
(iv) Trading in transferable development rights.
(v) Investment in a Nidhi Company.
Case analysis
• Among five capital account transaction of question first
three i.e. (i), (ii) and (iii) are permissible capital account
transactions and rest two i.e., (iv) and v are prohibited
capital transactions.
FEMA
• Mr. Basu desires to draw foreign exchange for
the following purposes:
(i) Payment related to "Call back services" of
telephones
(ii) USD 1,20,000 for studies abroad on the basis of
estimates given by the foreign university.
(iii) USD 25,000 for sending a cultural troupe on a
tour of Europe.
Advise him, whether he can get foreign exchange
and, if so, under what conditions
Case analysis
(i) Payment related to ‘call back services’ of telephone is
totally prohibited Current Account Transaction.
(ii) Remittance of Foreign Exchange for studies abroad may
be released for studies abroad up to a limit of USD 1,00,000
or the estimates from the institution abroad, whichever is
higher. Above this limit RBI’s approval is required. In this case
USD 1,20,000 is required on the basis of estimates of the
institution abroad. Hence no permission from RBI is required.
(iii) Any remittance for cultural tour involved prior approval of
Central Government, Ministry of HRD However no permission
is required in case of remittance out of Resident Foreign
Currency (RFC) Account or (Exchange Earner’s Foreign
Currency) EEFC Account.
FEMA
• Mr. Atul, an Indian National desires to obtain
Foreign Exchange for the following purposes:
(a) Remittance of US Dollar 10,000 for payment for
goods purchased from a party situated in Nepal.
(b) US Dollar 10,000 for remitting as commission to
his agent in U.S.A. for sale of commercial plot situated
near Banglore, consideration in respect of which was
received by Mr. Atul by way of foreign currency inward
remittance amounting to US Dollar 1,00,000. Advise
him, if he can get the Foreign Exchange and under
what conditions.
Case analysis
(a) Remittance to Nepal is prohibited under Current Account
Transactions. Mr. Atul cant withdraw Foreign Exchange for
this purpose.
(b) Withdrawing foreign Exchange exceeding 5% of the
inward remittance as commission to agent abroad for sale
of commercial plot in India Mr. Atul will require the prior
permission of the Reserve Bank of India.
– Now authorized persons (authorized dealers) are authorized to
allow freely such remittances ((i.e.) commission to agents abroad
for sale of commercial plots) up to USD 25000 or 5 per cent of
inward remittance per transaction, whichever is higher. As the
amount to be remitted is only USD 10,000, authorized person
(authorized dealer) may be approached for permission.
FEMA

Mr. Sane, an Indian National desires to obtain

Foreign Exchange for the following purposes.
• Remittance of US Dollar 50,000 out of winnings on
a lottery ticket.
• US Dollar 1,00,000 for sending a cultural troupe on
a tour of U.S. A.
• US Dollar 50,000 for meeting the expenses of his
business tour to Europe. Advise him whether he
can get Foreign Exchange and if so, under what
conditions?
Case analysis
(i) Remittance out of lottery winnings is prohibited and
the same is prohibited Current Account Transactions. Hence
Mr. Sane can not withdraw Foreign Exchange for this purpose.
(ii) Foreign Exchange for meeting expenses of cultural
tour can be withdrawn by any person after obtaining
permission from Government of India, Ministry of HRD. Mr.
Sane can withdraw the Foreign Exchange after obtaining such
permission.
(iii) Remittance for business tour is allowed by general
permission.
• In all the cases, where remittance of Foreign Exchange is
allowed, either by general or specific permission, the
remitter has to obtain the Foreign Exchange from an
Authorised Person.
FEMA
• State which kind of approval is required for the following
transactions under the Foreign Exchange Management Act, 1999:
(i) X, a Film Star, wants to perform alongwith associates in New York on
the occasion of Diwali for Indians residing at New York. Foreign Exchange
drawl to the extent of US dollars 20,000 is required for this purpose.
(ii) F International Ltd. has purchased the trade mark from a Foreign
Company to establish retail business chain in India as a joint venture at a
consolidated price of US dollars 500,000 which is to be paid in Foreign
currency of that country.
(iii) R wants to get his heart surgery done at UK. Up to what limit Foreign
Exchange can be drawn by him and what are the approvals required?
(iv) L wants to pursue a course in Fashion design in Paris. The Foreign
Exchange drawl is US dollars 20,000 towards tuition fees and US dollars
30,000 for incidental and stay expenses for studying abroad.
Case analysis
(i) Foreign Exchange drawals for cultural tours require prior
permission/approval of the Government of India irrespective of the
amount of foreign exchange required. X, the Film Star is required to seek
permission of the Government of India.
(ii) In this case prior permission/approval of RBI is required for
purchasing trade mark from a foreign company where purchase
consideration is to be paid in foreign currency. Therefore, F International
Ltd. needs prior permission of RBI.
(iii) Remittance in foreign exchange for medical treatment abroad
requires prior permission/approval of RBI when the expenditure in foreign
currency exceeds the estimate of hospital/doctor abroad or estimate from
doctor in India in that field of treatment. Therefore, R can draw foreign
exchange up to the estimate of hospital/doctor abroad or estimate from
doctor in India in that field of treatment and prior permission/approval of
RBI is required.
(iv) Release of foreign exchange for education abroad is permitted
up to US$ 1,00,000 on self declaration basis. Therefore, L can draw
foreign exchange on self declaration basis for pursuing a course in
fashion design in Paris.
FEMA

• State whether there are any restrictions

in respect of the following transactions:
– Drawal of Foreign Exchange for payments
due on account of amortisation of loans in
ordinary course of business.
– Purchase by a person resident outside India
of shares of a company in India engaged in
plantation activities.
Case analysis
(i) Amortisation of Loans:
FEMA permits drawal of foreign exchange for payments due on
account of amortisation of loans in ordinary course of business.
Hence, there is no restriction in FEMA in this regard.

(ii) Purchase of Shares of Company engaged in Plantation

activities:
FEMA completely prohibits certain capital account transactions.
One such transaction is foreign investment in India in any
company, firm or proprietary concern engaged in or proposed to
be engaged in agriculture or plantation activities. Hence,
purchase by a person resident outside India of shares of a
company in India engaged in plantation activities in not
permissible.
FEMA
• Mr. Loma, an Indian National desires to obtain
foreign exchange for the following purposes:
(a) Payment to be made for securing insurance for
health from a company abroad.
(b) Payment of commission on exports under Rupee
State Credit Route.
(c) Gift remittance exceeding US Dollars 10,000.
Advise him whether he can get foreign exchange and
if so, under what condition?
Case analysis
a. The payment required to be made for securing insurance for
health from a company abroad can be made after obtaining
permission from Central Government of. Mr. LOMA can draw foreign
exchange after obtaining such permission.
b. Payment of commission on export under Rupee State Credit
Route, such payment is prohibited Current Account Transaction.
Hence Mr. LOMA cannot withdraw for the said purpose.
c. Gift remittance exceeding USD 5,000 per beneficiary per
annum requires permission of RBI. Since the amount involved here
is more than USD 5000, Mr. LOMA can draw foreign exchange after
permission from RBI.

In all the cases, where remittance of foreign exchange is allowed

either by general or specific permission, the remitter has to obtain the
foreign exchange from an authorized person.