Economic, Commercial & Intellectual Property Laws (ECIPL)

Ans. The Foreign Exchange Management Act, 1999 was enacted 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. In fact it is the central legislation that deals with inbound investments into India and outbound investments from India and trade and business between India and the other countries.

Foreign Exchange Management Act, 1999 extends to the whole of India. It shall also apply to all branches, offices and agencies outside India owned or controlled by a person resident in India and also to any contravention thereunder committed outs ide India by any person to whom this Act applies.

Ans. Foreign Exchange Management Act, 1999 enacted 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. In fact it is the central legislation that deals with inbound investments into India and outbound investments from India and deal with trade and business between India and the other countries.

Foreign Exchange Management Act, 1999 makes provisions for dealings in foreign exchange. Broadly, all Current Account Transactions are free. However, Central Government can impose reasonable restrictions by issuing Rules. Capital Account Transactions are permitted to the extent specified by Reserve Bank of India (RBI) by issuing Regulations. Foreign Exchange Management Act, 1999 envisages that RBI shall have a controlling role in management of foreign exchange. Since RBI cannot directly handle foreign exchange transactions, it authorizes “Authorised Persons” to deal in foreign exchange.

Foreign Exchange Management Act, 1999 also makes provisions for enforcement, penalties, adjudication and appeal also contains only basic legal framework. The practical aspects are covered in Rules made by Central Government and Regulations made by RBI.

Ans. Foreign Exchange Management Act, 1999 (FEMA) makes provisions for dealings in foreign exchange. Broadly, all Current Account Transactions are free. However, Central Government can impose reasonable restrictions by issuing rules (Section 3 FEMA).Capital Account Transactions are permitted to the extent specified by RBI by issuing Regulations. (Section 6 of FEMA)

FEMA envisages that RBI shall have a controlling role in management of foreign exchange. Since RBI cannot directly handle foreign exchange transactions, it authorizes “Authorised Persons” to deal in foreign exchange. RBI has been empowered to issue directions to such “Authorised Persons” under Section 11.

FEMA also makes provisions for enforcement, penalties, adjudication and appeal. The FEMA contains only basic legal framework. The practical aspects are covered in Rules made by Central Government and Regulations made by RBI.

FDI Policy announced by Department for Promotion of Industry & Internal Trade, Ministry of Commerce and Industry is directly relevant to understanding the provisions of FEMA. Instructions/Guidelines etc. of Ministry of Finance and Securities and Exchange Board of India (SEBI) become relevant when (ECB) /ADR/GDR and capital market is involved.

1. Automatic Route

2. Government Route

3. Foreign Portfolio Investment

4. Foreign Portfolio Investor (June,23 – 4 marks)

Ans.

1. ‘Automatic Route’ means the entry route through which investment by a person resident outside India does not require the prior approval of the Reserve Bank of India or the Central Government.

2. ‘Government Route’ means the entry route through which investment by a person resident outside India requires prior Government approval and foreign investment received under this route shall be in accordance with the conditions stipulated by the Government in its approval.

3. ‘Foreign Portfolio Investment’ means any investment made by a person resident outside India through capital instruments where such investment is less than ten percent of the post issue paid-up share capital on a fully diluted basis of a listed Indian company or less than ten percent of the paid-up value of each series of capital instrument of a listed Indian company.

4. ‘Foreign Portfolio Investor’ (FPI)1 means a person registered in accordance with the provisions of Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, as amended from time to time.

Ans. The term authorised person is defined under Section 2(c) of the Foreign Exchange Management Act, 1999, to include an authorised dealer, money changer, offshore banking unit or any other person for the time being authorised under sub-section (1) of section 10 of the Act to deal in foreign exchange or foreign securities.

Authorised persons are required to comply with the directions of the Reserve Bank of India with regard to his dealing in foreign exchange or foreign security receipt with the previous permission of the Reserve Bank of India. However authorised person are required not to engage in any transaction involving any foreign exchange or foreign security which is not in conformity with the terms of his authorisation.

An authorised person, before undertaking any transaction on behalf of any person shall, require that person to make such declaration and give such information as will reasonably satisfy the authorised person that the transaction will not involve or is not intended to violate or contravene any provisions of the Act, rules, notification or directions.

In case, the person refuses to comply with such requirements or makes only unsatisfactory compliances, the authorised person is duty bound to refuse in writing to act on behalf of such person in such transaction and report the matter to Reserve Bank of India.

Ans. According to section 6(4) of the Foreign Exchange Management Act, 1999 read with Foreign Exchange Management (Acquisition and transfer of immovable property outside India) Regulations, 2015:

1. A resident can acquire immovable property outside India by way of gift or inheritance from:

   1. a person resident in India can hold, own, transfer or invest in any immovable property situated outside India if such property was acquired, held or owned by him/ her when he/ she was resident outside India or inherited from a person resident outside India.; or

   2. a person resident in India who had acquired such property on or before July 8, 1947 and continued to be held by him with the permission of the Reserve Bank.

   3. a person resident in India who has acquired such property in accordance with the foreign exchange provisions in force at the time of such acquisition.

2. A resident can purchase immovable property outside India out of foreign exchange held in his/ her Resident Foreign Currency (RFC) account.

3. A resident can acquire immovable property outside India jointly with a relative who is a person resident outside India, provided there is no outflow of funds from India.

Ans. According to Section 6(5) of the Foreign Exchange and Management Act, 1999, a person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

A Branch or office or any other place of business in India, other than a Liaison office, established by a person resident outside India, may acquire immovable property in India which is necessary for or incidental to the activity carried on in India by such branch or office.

Such a person is required to file with the Reserve bank a declaration in the form IPI (as given in the Master direction on Reporting), not later than 90 days from the date of such acquisition. The immovable property so acquired can be mortgaged to an Authorised Dealer as a security for any borrowing.

In the given case, Mr. Vinesh can do so and he has to file above compliance.

Ans. Prior approval of RBI is required for Transfer of capital instruments from resident to non-residents by way of sale where:

1. Transfer is at a price which falls outside the pricing guidelines specified by the Reserve Bank from time to time.

2. Transfer of capital instruments by the non-resident acquirer involving deferment of payment of the amount of consideration. Further, in case approval is granted for a transaction, the same should be reported in Form FC-TRS to an AD Category-I bank for necessary due diligence, within 60 days from the date of receipt of the full and final amount of consideration.

In view of the above provision the statement prior approval of RBI is not mandatory for transfer of capital instruments from resident to non-residents by way of sale is incorrect.

Ans. A Resident individuals can acquire/sell foreign securities without prior approval of Reserve Bank of India in the following cases:

1. As a gift from a person resident outside India;

2. By way of ESOPs issued by a company incorporated outside India under Cashless Employees Stock Option Scheme which does not involve any remittance from India;

3. By way of ESOPs issued to an employee or a director of Indian office or branch of a foreign company or of a subsidiary in India of a foreign company or of an Indian company irrespective of the percentage of the direct or indirect equity stake in the Indian company;

4. As inheritance from a person whether resident in or outside India;

5. By purchase of foreign securities out of funds held in the Resident Foreign Currency Account; and

6. By way of bonus/rights shares on the foreign securities already held by them.

7. Resident individuals are permitted to remit funds under general permission for acquiring qualification shares for holding the post of a Director in the overseas company to the extent prescribed as per the law of the host country where the company is located and the limit of remittance for acquiring such qualification shares shall be within the overall ceiling prescribed for the resident individuals under the Liberalized Remittance Scheme (LRS) in force at the time of acquisition.

Ans. The Reserve Bank of India as part of its liberalization measure to facilitate resident individuals to remit funds abroad for permitted current or capital account transactions or combination of both issues Liberalised Remittance Scheme. Liberalised Remittance Scheme permits the Authorised Dealers to freely allow remittances by resident individuals up to USD 2,50,000 per Financial Year (April-March) for any permitted current or capital account transaction or a combination of both.

Remittances under the Liberalised Remittance Scheme can be consolidated in respect of family members subject to individual family members complying with its terms and conditions. However, clubbing is not permitted by other family members for capital account transactions such as opening a bank account/investment/purchase of property, if they are not the co-owners/co-partners of the overseas bank account/ investment/property. Further, a resident cannot gift to another resident, in foreign currency, for the credit of the latter’s foreign currency account held abroad under LRS.

Ans. The limit of Current Account Transaction under the liberalized remittances scheme is USD 2,50,0000 per Financial Year (FY).

It may be noted that one release of foreign exchange in excess of USD 2, 50,000 requires prior permission from the Reserve Bank of India. The permitted areas are;

1. Private Visits - For private visits abroad, other than visit to Nepal and Bhutan, resident & individual can obtain foreign exchange up to an aggregate amount of USD 2, 50,000 from an authorized dealer in any one financial year, irrespective of number of visits undertaken during the year.

2. Gift/Donation - Any individual may remit up-to USD 2, 50,000 in one Financial Year as gift to a person residing outside India or as donation to an organization outside India.

3. Going Abroad on Employment - A person going abroad for employment can draw foreign exchange up to USD 2,50,000 in one Financial Year from an authorized dealer in India.

4. Emigration - A person wanting to emigrate can draw foreign exchange from AD Category I bank AD category II up to the amount prescribed by the country of emigration or USD 2,50,000.

5. Maintenance of Close Relatives Abroad - A resident individual can remit up-to USD 2, 50,000 in one Financial Year towards maintenance of close relatives.

6. Business Trip - Visits by individuals in connection with attending of an international conference, seminar, specialized apprentice training, etc., are treated as business visits. For business trips to foreign Countries individuals can avail of foreign exchange up to USD 2,50,000 in one Financial Year irrespective of the visits undertaken during the year.

7. Medical Treatment Abroad - Authorised Dealers may release foreign exchange up to an amount of USD 2, 50,000 in one Financial Year or its equivalent per financial year without insisting on any estimate from a hospital/doctor.

8. Foreign Studies - AD Category I banks and AD Category II, may release foreign exchange up to USD 2, 50,000 or its equivalent to resident individuals for studies abroad without insisting on any estimate from the foreign University.

Ans. Private visits : For private visits abroad, other than visit to Nepal and Bhutan, resident individual can obtain foreign exchange up to an aggregate amount of USD 2,50,000, from an Authorised Dealer, in any one financial year, irrespective of the number of visits undertaken during the year.

Further, all tour related expenses including cost of rail/road/water transportation; cost of Euro Rail; passes/tickets, etc. outside India; and overseas hotel/lodging expenses are to be subsumed under the Liberalised Remittance Scheme (USD 2,50,000 per Financial Year). The tour operator can collect this amount either in Indian rupees or in foreign currency from the resident traveller.

Emigration : A person wanting to emigrate can draw foreign exchange from AD Category I bank and AD Category II up to the amount prescribed by the country of emigration or USD 250,000. Remittance of any amount of foreign exchange outside India in excess of this limit may be allowed only towards meeting incidental expenses in the country of immigration and not for earning points or credits to become eligible for immigration by way of overseas investments in government bonds; land; commercial enterprise; etc.

1. Geeta gifts to her sister in New York USD 2,45,000.

2. Manav spends USD 3,50,000 as fees for an Academic Course in New Zealand.

3. Ishan spends USD 1,75,000 on European Tour.

4. Ashima is going to Australia for Emigration and she wants to draw USD 2,75,000.

Ans.

1. Within the limits of Liberalised Remittance Scheme (LRS) of USD 2,50,000 USD, any resident individual may remit up-to USD 2,50,000 in one Financial Year as gift to a person residing outside India. Hence, the RBI approval is not needed by Geeta.

2. AD Category I banks and AD Category II, may release foreign exchange up to USD 2,50,000 or its equivalent to resident individuals for studies abroad without insisting on any estimate from the foreign University. However, AD Category I bank and AD Category II may allow remittances (without seeking prior approval of the Reserve Bank of India) exceeding USD 2,50,000 based on the estimate received from the institution abroad. Hence RBI approval is not needed by Manav.

3. For private visits abroad, other than visit to Nepal and Bhutan, resident individual can obtain foreign exchange up to an aggregate amount of USD 2,50,000, from an Authorised Dealer, in any one financial year, irrespective of the number of visits undertaken during the year.

Further, all tour related expenses including cost of rail/road/water transportation; cost of Euro Rail; passes/ tickets, etc. outside India; and overseas hotel/lodging expenses are to be subsumed under the Liberalised Remittance Scheme (LRS) limit. The tour operator can collect this amount either in Indian rupees or in foreign currency from the resident traveler. Hence, RBI approval is not needed by Ishan.

A person wanting to emigrate can draw foreign exchange from AD Category I bank and AD Category II up to the amount prescribed by the country of emigration or USD 250,000. Remittance of any amount of foreign exchange outside India in excess of this limit may be allowed only towards meeting incidental expenses in the country of immigration and not for earning points or credits to become eligible for immigration by way of overseas investments in government bonds; land; commercial enterprise; etc. Hence, the RBI approval is needed by Ashima as the amount exceeds USD 2,50,000

1. Vikram Associates, a partnership firm in India wants to remit USD 2,000,000 for consultancy services procured from outside India for a project other than infrastructure Project.

2. Lakshay & Co., a partnership firm wants to remit USD 9,000,000 for consultancy services procured from outside India for an infrastructure project.

3. Mayank Pvt. Ltd., a Real Estate Company in India want to remit commission of USD 25,000 to an agent outside India for selling a residential flat in India for which he has remitted USD 400,000 in India

4. PQR Pvt. Ltd., a Real Estate Company in India want to remit commission of USD 25,000 to an agent outside India for selling a Commercial plot in India for which he has remitted USD 2,000,000 in India

5. Navya Ltd., an Indian company wants to remit USD 100,000 to a company outside India towards reimbursement of pre-incorporation expenses for investment of USD 2,000,000 in its company which is fully brought into India. (June, 25 – 5 Marks)

Ans.

1. Remittances exceeding USD 1,000,000 per project for any consultancy services in respect of a project other than infrastructure project require prior approval of RBI. In this case, prior approval of Reserve Bank of India is required as remittance is USD 2,000,000 which exceeds the prescribed limit.

2. Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of an infrastructure project require Prior approval of Reserve Bank of India. So, in this case no prior approval of Reserve Bank of India is required as it is within the limit.

3. Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or five percent of the inward remittance whichever is more require prior approval of Reserve Bank of India. In this case, 5% of inward remittance is USD 20000 which is within the limit. So, no prior approval of Reserve Bank of India is required.

4. Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or five percent of the inward remittance whichever is more require prior approval of RBI. In this case, 5% of inward remittance is USD 100000 which exceeds the prescribed limit. So, prior approval of Reserve Bank of India is required.

5. Remittances exceeding five per cent of investment brought into India or USD 100,000 whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses requires prior permission of Reserve Bank of India. In this case, 5% of investment brought into India is USD 100,000 which is within the limit. So, no prior approval of Reserve Bank of India is required.

Ans. Following documents to be submitted by a person resident in India for transfer of shares to a person resident outside India by way of gift:

1. Name and address of the transferor (donor) and the transferee (donee).

2. Relationship between the transferor and the transferee.

3. Reasons for making the gift.

4. In case of Government dated securities and treasury bills and bonds, a certificate issued by a Chartered Accountant on the market value of such security.

5. In case of units of domestic mutual funds and units of Money Market Mutual Funds, a certificate from the issuer on the Net Asset Value of such security.

6. In case of shares and convertible debentures, a certificate from a Chartered Accountant on the value of such securities according to the guidelines issued by Securities & Exchange Board of India or as per any internationally accepted pricing methodology on arm’s length basis for listed companies and unlisted companies, respectively.

7. Certificate from the concerned Indian company certifying that the proposed transfer of shares/convertible debentures by way of gift from resident to the non-resident shall not breach the applicable sectoral cap/ FDI limit in the company and that the proposed number of shares/convertible debentures to be held by the non- resident transferee shall not exceed 5 per cent of the paid up capital of the company.

8. An undertaking from the resident transferor that the value of security to be transferred together with any security already transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 50,000 during a financial year.

9. A declaration from the donee accepting partly paid shares or warrants that donee is aware of the liability as regards calls in arrear and consequences thereof.

Ans. Resident individuals can acquire/sell foreign securities without prior approval in the following cases:

1. As a gift from a person resident outside India;

2. By way of ESOPs issued by a company incorporated outside India under Cashless Employees Stock Option Scheme which does not involve any remittance from India;

3. By way of ESOPs issued to an employee or a director of Indian office or branch of a foreign company or of a subsidiary in India of a foreign company or of an Indian company irrespective of the percentage of the direct or indirect equity stake in the Indian company;

4. As inheritance from a person whether resident in or outside India;

5. By purchase of foreign securities out of funds held in the Resident Foreign Currency Account maintained in accordance with the Foreign Exchange Management (Foreign Currency Account) Regulations, 2000; and

6. By way of bonus/rights shares on the foreign securities already held by them.

Ans. Under Regulation 3 of the Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2015, the Reserve Bank has specified following limits for possession or retention of foreign currency or foreign coins, namely:

1. Possession without limit of foreign currency and coins by an authorized person within the scope of his authority;

2. Possession without limit of foreign coins by any person;

Retention by a person resident in India of foreign currency notes, bank notes and foreign currency travelers cheques not exceeding US$ 2000 or its equivalent in aggregate, provided that such foreign exchange in the form of currency notes, bank notes and travelers cheques acquired during a visit to any place outside India by way of payment for services not arising from any business in or anything done in India; or from any person not resident in India and also who is on a visit to India, or as honorarium or gift or for services rendered or in settlement of any lawful obligation; or as a honorarium or gift while on a visit to any place outside India; or represents unspent amount of foreign exchange acquired from an authorised person for travel abroad.

Regulation 4 provides that a person resident in India but not permanently resident therein may possess without limit foreign currency in the form of currency notes, bank notes and travelers' cheques, if such foreign currency was acquired, held or owned by him when he was resident outside India and, has been brought into India in accordance with the law for the time being in force.

Ans. Pre-requisite for Compounding Process under Foreign Exchange Management Act, 1999:

• In respect of a contravention committed by any person within a period of three years from the date on which a similar contravention committed by him was compounded under the Compounding Rules, such contraventions would not be compounded and relevant provisions of the FEMA, 1999 shall apply. Any second or subsequent contravention committed after expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention.

• Contraventions relating to any transaction where proper approvals or permission from the Government or any statutory authority concerned, as the case may be, have not been obtained such contraventions would not be compounded unless the required approvals are obtained from the concerned authorities.

• Cases of contravention such as those having serious contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation or where the contravener fails to pay the sum for which contravention was compounded within specified periodin terms of the compounding order, shall be referred to the Directorate of Enforcement for further investigation and necessary action under FEMA, 1999 or to the authority instituted for implementation of the Prevention of Money Laundering Act 2002, or to any other agencies, for necessary action as deemed fit.

• In this connection, it is clarified that whenever a contravention is identified by the Reserve Bank or brought to its notice by the entity involved in contravention by way of a reference other than through the prescribed application for compounding, the Bank will continue to decide:

• whether a contravention is technical and/or minor in nature and, as such, can be dealt with by way of an administrative/ cautionary advice;

• whether it is material and, hence, is required to be compounded for which the necessary compounding procedure has to be followed or

• whether the issues involved are sensitive / serious in nature and, therefore, need to be referred to the Directorate of Enforcement (DOE). However, once a compounding application is filed by the concerned entity suo moto, admitting the contravention, the same will not be considered as ‘technical’ or ‘minor’ in nature and the compounding process shall be initiated in terms of section 15 (1) of Foreign Exchange Management Act, 1999 read with Rule 9 of Foreign Exchange (Compounding Proceedings) Rules, 2000.

Ans. An Exporter Importer Code (IEC) is a 10-digit number allotted to a person that is mandatory for undertaking any export / import activities. Now the facility for IEC in electronic form or e-IEC has also been operationalised. No export/import shall be made by any person without obtaining IEC number unless l specially exempted.

The procedure to obtain IEC is following:

1. Application for obtaining IEC can be filed manually and submitting the form in the office of Regional Authority (RA) of DGFT. Alternatively, Exporters/Importers shall file an application in ANF 2A Format for grant of e-IEC. Those who have digital signatures can sign and submit the application online along with the requisite documents. Others may take a printout of the application, sign the undertaking declaration, upload the same with other requisite documents and thereafter submit the signed copy of the online application form to concerned jurisdictional Regional Authorities (RA) either through post or by hand.

2. Deficiency in the application form has to be removed by re-logging onto 'Online IEC application on DGFT website and filling the form again by paying the requisite application processing charge.

3. When an e-IEC is approved by the competent authority, applicant is informed through e-mail that a computer-generated e-IEC is available on the DGFT website. By clicking on ‘Application Status' having filled and submitted the requisite details in ‘Online IEC Application webpage, applicant can view and print his e- IEC. Briefly, following are the requisite details/documents (scanned copies) to be submitted/ uploaded along with application for IEC;

1. Details of the entity seeking the IEC:

1. PAN of the business entity in whose name Import/Export would be done (Applicant individual in case of Proprietorship firms).

2. Address Proof of the applicant entity.

3. LLPIN/CIN/ Registration Certification Number (whichever is applicable).

4. Bank account details of the entity. Cancelled Cheque bearing entity's pre-printed name or Bank certificate in prescribed format ANF 2A (I).

Details of the Proprietor/ Partners/ Directors/ Secretary or Chief Executive of the Society/ Managing Trustee of the entity: (a) PAN (for all categories) (b) DIN/DPIN (in case of Company (LLP firm)

2. Details of the signatory applicant:

1. Identity proof

2. PAN

3. Digital photograph

In case the applicant has digital signature, the application can also be submitted online and no physical application or document is required. In case the applicant does not possess digital signature, a print out of the application filed online duly signed by the applicant has to be submitted to the concerned jurisdictional RA, in person or by post.

Ans. Rule 24 of Foreign Exchange Management (Non-debt Instruments) Rules, 2019 provides that a Non Resident Indian (NRI) may -

1. Acquire immovable property in India other than an agricultural land or farm house or plantation property.

Provided that the consideration, if any, for transfer, shall be made out of:

1. Funds received in India through banking channels by way of inward remittance from any place outside India; or

2. Funds held in any non-resident account maintained in accordance with the provisions of the Act, rules or regulations framed thereunder:

Provided further that no payment for any transfer of immovable property shall be made either by traveller’s cheque or by foreign currency notes or by any other mode other than those specifically permitted under this clause;

Acquire any immovable property in India other than agricultural land or farm house or plantation property by way of gift from a person resident in India or from an NRI or from an OCI, who in any case is a relative as defined in clause (77) of section 2 of the Companies Act, 2013;

2. Acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property:-

   1. in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these rules ;or

   2. from a person resident in India;

3. Transfer any immovable property in India to a person resident in India;

4. Transfer any immovable property other than agricultural land or farm house or plantation property to an NRI.

Ans. Transactions which are prohibited under Foreign Exchange Management (Current Account Transaction) Rules are as under:

1. Remittance out of lottery winnings.

2. Remittance of income from racing/riding etc. or any other hobby.

3. Remittance for purchase of lottery tickets, banned /proscribed magazines, football pools, sweepstakes, etc.

4. Payment of commission on exports made towards equity investment in Joint Ventures / Wholly Owned Subsidiaries abroad of Indian companies.

5. Remittance of dividend by any company to which the requirement of dividend balancing is applicable.

6. Payment of commission on exports under Rupee State Credit Route, except commission up to 10% of invoice value of exports of tea and tobacco.

7. Payment related to "Call Back Services" of telephones.

8. Remittance of interest income on funds held in Non-Resident Special Rupee (Account) Scheme.

Ans. Contravention is a breach of the provisions of any Act and rules/ regulations / notification / orders/ directions/ circulars issued there under. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal. The Reserve Bank of India empowered to compound any contraventions under section 13 of the Foreign Exchange Management Act, 1999 except the contravention under Section 3(a), for a specified sum after offering an opportunity of personal hearing to the contravener. It is a voluntary process in which an individual or a corporate seeks compounding of an admitted contravention. It provides comfort to any person who contravenes any provisions of Foreign Exchange Management Act, 1999 (except section 3(a) of the Act) by minimizing transaction costs. Willful, malafide and fraudulent transactions are, however, viewed seriously, which will not be compounded by the Reserve Bank.

Any person who contravenes any provision of the Foreign Exchange Management Act, 1999 except section 3(a) or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act or contravenes any condition subject to which an authorization is issued by the Reserve Bank, can apply for compounding to the Reserve Bank. Applications seeking compounding of contraventions under section 3(a) of Foreign Exchange Management Act, 1999 may be submitted to the Directorate of Enforcement.

Ans. Scope for Compounding of contravention under Foreign Exchange Management Act, 1999 are as under:

Any person who contravenes any provision of the FEMA, 1999 except section 3(a) or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act or contravenes any condition subject to which an authorization is issued by the Reserve Bank, can apply for compounding to the Reserve Bank.

Applications seeking compounding of contraventions under section 3(a) of FEMA, 1999 may be submitted to the Directorate of Enforcement. Wilful, malafide and fraudulent transactions are, however, viewed seriously, which will not be compounded by the Reserve Bank.

Procedure for Compounding of contravention under Foreign Exchange Management Act, 1999 are as under:

1. On receipt of the application for compounding, the Reserve Bank shall examine the application based on the documents and submissions made in the application and assess whether contravention is quantifiable and, if so, the quantifiable amount of contravention.

2. The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings. In case the contravener fails to submit the additional information/ documents called for within the specified period, the application for compounding will be liable for rejection.

3. The following factors, which are only indicative, may be taken into consideration for the purpose of passing compounding order and adjudging the quantum of sum on payment of which contravention shall be compounded:

• the amount of gain of unfair advantage, wherever quantifiable, made as a result of the contravention;

• the amount of loss caused to any authority/ agency/ exchequer as a result of the contravention;

• economic benefits accruing to the contravener from delayed compliance or compliance avoided;

• the repetitive nature of the contravention, the track record and/or history of non-compliance of the contravener;

• contravener’s conduct in undertaking the transaction and in disclosure of full facts in the application and submissions made during the personal hearing; and any other factor as considered relevant and appropriate.

Ans. Pre-requisite for Compounding Process under Foreign Exchange Management Act, 1999 are as under:

• In respect of a contravention committed by any person within a period of three years from the date on which a similar contravention committed by him was compounded under the Compounding Rules, such contraventions would not be compounded and relevant provisions of the FEMA, 1999 shall apply. Any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention.

• Contraventions relating to any transaction where proper approvals or permission from the Government or any statutory authority concerned, as the case may be, have not been obtained such contraventions would not be compounded unless the required approvals are obtained from the concerned authorities.

• Cases of contravention such as those having serious contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation or where the contravener fails to pay the sum for which contravention was compounded within the specified period in terms of the compounding order, shall be referred to the Directorate of Enforcement for further investigation and necessary action under FEMA, 1999 or to the authority instituted for implementation of the Prevention of Money Laundering Act 2002, or to any other agencies, for necessary action as deemed fit.

• In this connection, it is clarified that whenever a contravention is identified by the Reserve Bank or brought to its notice by the entity involved in contravention by way of a reference other than through the prescribed application for compounding, the Bank will continue to decide:

• Whether a contravention is technical and/or minor in nature and, as such, can be dealt with by way of an administrative/ cautionary advice;

• Whether it is material and, hence, is required to be compounded for which the necessary compounding procedure has to be followed or

• Whether the issues involved are sensitive / serious in nature and, therefore, need to be referred to the Directorate of Enforcement (DOE). However, once a compounding application is filed by the concerned entity suo moto, admitting the contravention, the same will not be considered as ‘technical’ or ‘minor’ in nature and the compounding process shall be initiated in terms of section 15 (1) of Foreign Exchange Management Act, 1999 read with Rule 9 of Foreign Exchange (Compounding Proceedings) Rules, 2000.

Ans. As per Regulation 3 of the Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2015, the Reserve Bank has specified following limits for possession or retention of foreign currency or foreign coins, namely:

1. possession without limit of foreign currency and coins by an authorised person within the scope of his authority;

2. possession without limit of foreign coins by any person;

3. retention by a person resident in India of foreign currency notes, bank notes and foreign currency travelers cheques not exceeding US $ 2000 or its equivalent in aggregate, provided that such foreign exchange in the form of currency notes, bank notes and travelers cheques acquired during a visit to any place outside India by way of payment for services not arising from any business in or anything done in India; or from any person not resident in India and also who is on a visit to India, or as honorarium or gift or for services rendered or in settlement of any lawful obligation; or as a honorarium or gift while on a visit to any place outside India; or represents unspent amount of foreign exchange acquired from an authorised person for travel abroad.

Ans. Section 18 of the Foreign Exchange Management Act, 1999 empowers the Central Government to establish an Appellate Tribunal, to hear appeals against the certain orders of Adjudication Authorities and the orders of the Special Director (Appeals).

The Central Government or any person aggrieved by the orders of Adjudicating Authority or Special Director (Appeals) may prefer an appeal to the Appellate Tribunal under Section 19 of the Act.

The procedure, powers, time period for disposal of the Appeals by the Appellate Tribunal etc. are specified under Section 19 and Section 28 of the Act.

Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court within the stipulated time on any question of law arising out of such order.

Old Syllabus

Ans. As per Section 2 (c) of the Foreign Exchange Management Act, 1999 "authorized person" means an authorized dealer, money changer, off-shore banking unit or any other person for the time being authorized under sub-section (1) of section 10 to deal in foreign exchange or foreign securities.

Section 11 of the Foreign Exchange Management Act, 1999 empowers the Reserve Bank of India to issue directions to the authorised person in regard to making of payment or doing or desist from doing any act relating to foreign exchange or foreign security. Reserve Bank has also been empowered to issue directions to the authorised persons to furnish such information in such manner as it deems fit. If any authorised person contravenes any direction given by the RBI or fails to file the return as directed by RBI, he may be liable to a fine not exceeding Rs. 10,000/- and in the case of continuing contravention, with an additional penalty which may extend to Rs. 2,000 for every day during which such contravention continues.

Ans. Yes, Alex is permitted to do so.

In terms of Regulation 5A of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations 2000, Foreign Embassy/ Diplomat/ Consulate General, may purchase/ sell immovable property (other than agricultural land/ plantation property/ farm house) in India provided–

1. Clearance from the Government of India, Ministry of External Affairs is obtained for such purchase/sale, and

2. The consideration for acquisition of immovable property in India is paid out of funds remitted from abroad through the normal banking channels.

Ans. In terms of Schedule III read with Rule 5 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, Individuals can avail of foreign exchange facility for Emigration purposes within the limit of USD 2, 50,000 or the amount prescribed by the country of emigration only.

Any additional remittance in excess of the above limit require to obtain prior approval of the Reserve Bank of India

Ans. According to Foreign Exchange Management (Capital Account Transactions) Regulations, 2000 followings are the Classes of Capital Account Transactions of Persons Resident in India

1. investment by a person resident in India in foreign securities.

2. foreign currency loans raised in India and abroad by a person resident in India;

3. transfer of immovable property outside India by a person resident in India;

4. guarantees issued by a person resident in India in favour of a person resident outside India;

5. export, import and holding of currency/currency notes;

6. loans and overdrafts by a person resident in India from a person resident outside India;

7. maintenance of foreign currency accounts in India and outside India by a person resident in India;

8. taking out of insurance policy by a person resident in India from an insurance company outside India;

9. loans and overdrafts by a person resident in India to a person resident outside India;

10. remittance outside India of capital assets of a person resident in India;

11. sale and purchase of foreign exchange derivatives in India and abroad and commodity derivatives abroad by a person resident in India.

Ans. It is the intent and objective of the Government of India to attract and promote foreign direct investment in order to supplement domestic capital, technology and skills, for accelerated economic growth. Foreign Direct Investment (FDI) is a category of cross border investment made by a resident in one economy (the direct investor) with the objective of establishing a ‘lasting interest’ in an enterprise (the direct investment enterprise) i.e. resident in an economy other than that of the direct investor.

Foreign Direct Investment (FDI) in India is undertaken in accordance with the FDI Policy which is formulated and announced by the Government of India. The FDI Policy governed by the provisions of the Foreign Exchange Management Act (FEMA), 1999 and prescribes amongst other things the mode of investments i.e. issue or acquisition of shares / convertible debentures and preference shares, manner of receipt of funds, pricing guidelines, sectorial cap and reporting of the investments to the Reserve Bank of India.

Ans. The term current account transaction has been defined under Section 2(j) of the Foreign Exchange Management Act, 1999, to mean a transaction other than a capital account transaction and includes payments due in connection with foreign trade, other current business, services and short term banking and credit facilities in the ordinary course of business; payments due as interest on loan and as net income from investments; remittances for living expenses of parents, spouse and children residing abroad and expenses in connection with foreign travel, education and medical care of parents, spouse and children, are all considered as part of current account transaction.

Under the Foreign Exchange Management Act, 1999 freedom has been granted for selling and drawing of foreign exchange to or from an authorized person for undertaking current account transactions. However, the Central Government has been vested with powers in consultation with Reserve Bank to impose reasonable restrictions on current account transactions. The Central Government has framed Foreign Exchange Management (Current Account Transactions) Rules, 2000 dealing with various aspects of current account transactions.

Ans. Pursuant to section 19 of the FEMA, 1999, being aggrieved by the orders of Adjudicating Authority or Special Director (Appeals), Central Government may prefer an appeal to the Appellate Tribunal established under Section 18 of the Foreign Exchange Management Ac, 1999.

The Appellate Tribunal is empowered to hear appeals against the orders of Adjudication Authorities and Special Director (Appeals).

Every appeal shall be filed within a period of forty-five days from the date on which a copy of the order made by the Adjudicating Authority or the Special Director (Appeals) is received by the Central Government and appeal shall be in prescribed form and fee.

The Appellate Tribunal may entertain an appeal after expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.

On receipt of an appeal the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

Ans. Where an exporter receives advance payment (with or without interest), from a buyer outside India, the exporter has been put under an obligation to ensure that -

1. The shipment of goods is made within one year from the date of receipt of advance payment;

2. The rate of interest, if any, payable on the advance payment does not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points, and

3. The documents covering the shipment are routed through the Authorised Dealer through whom the advance payment is received.

However, in the event of the exporter's inability to make the shipment, partly or fully, within one year from the date of receipt of advance payment, no remittance towards refund of unutilised portion of advance payment or towards payment of interest, shall be made after the expiry of the said period of one year, without the prior approval of the Reserve Bank of India.

In case the export agreement provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment, the exporter shall require the prior approval of the Reserve Bank of India.

Which kind of approval is essential for the following transactions, under the FEMA, 1999 :

1. Yusuf, a non-resident Indian wants to transfer his shares of a company to non-resident.

2. Karan, wants foreign exchange facility to visit England, for which he requires USD 3,50,000.

3. Nalini, wants to get USD 2,50,000 for brain tumor surgery at London.

(Dec,18 – 5 marks, Old Syllabus)

Ans. Contravention is a breach of the provisions of the Foreign Exchange Management Act (FEMA), 1999 and rules / regulations / notification / orders / directions / circulars issued there under.

(b)(ii)(a)

As per FEMA, 1999 Transfer of shares from a Non-Resident Indian to another Non- Resident requires prior approval of Reserve Bank of India.

In the present case, Yusuf has to take the prior approval of Reserve Bank of India.

(b)(ii)(b)

According to Rule 5 of the Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015 read with Schedule III, Individuals can avail of foreign exchange facility for Private visits to any country (except Nepal and Bhutan) within the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit shall require prior approval of the Reserve Bank of India.

In the present case, Karan has to take the prior approval of Reserve Bank of India because foreign exchange facility exceeds USD 2,50,000/-.

(b)(ii)(c)

According to Rule 5 of the Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015 read with Schedule III, Individuals can avail of foreign exchange facility for the expenses in connection with medical treatment abroad within the limit of USD 2,50,000 only. Any additional remittance in excess of the said limit shall require prior approval of the Reserve Bank of India.

In the present case, Nalini is not required to take the prior approval of Reserve Bank of India because foreign exchange facility does not exceed USD 2,50,000/-.

Ans. As per section 6(5) of Foreign Exchange Management Act, 1999, a person resident outside India can hold, own, transfer or invest in any immovable property situated in India if such property was acquired, held or owned by him/ her when he/ she was resident in India or inherited from a person resident in India. Further, a ‘Non-Resident Indian’ (NRI) and an ‘Overseas Citizen of India (OCI)’ can acquire by way of purchase any immovable property (other than agricultural land/ plantation property/ farm house) in India. Foreign Embassy/ Diplomat/ Consulate General, may purchase/ sell immovable property (other than agricultural land/ plantation property/ farm house) in India.

Repatriation of sale proceeds of immovable property

A person acquiring property in accordance with section 6(5) of Foreign Exchange Management Act, 1999 or his successor cannot repatriate outside India the sale proceeds of such immovable property without the prior permission of the Reserve Bank. However, if such a person is a Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India, he/ she can utilise the remittance facilities available under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016, as amended from time to time.

In the event of sale of immovable property other than agricultural land/ farm house/ plantation property in India by a PIO resident outside India or an NRI or an OCI, the Authorised Dealer may allow repatriation of the sale proceeds outside India, provided the following conditions are satisfied, namely:

1. the immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him;

2. the amount for acquisition of the immovable property was paid in foreign exchange received through banking channels or out of funds held in FCNR(B) account or NRE account;

3. in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties

Ans. As per Section 18 of the Foreign Exchange Management Act, 1999, the Central Government is empowered to establish an Appellate Tribunal, by a notification in the Official Gazette, to hear appeals against the orders of Adjudication Authorities and Special Director (Appeals).

Section 20 of the Act empowers the Central Government to appoint a Chairperson and as many members as it may deem fit to the Appellate Tribunal. The jurisdiction of the Appellate Tribunal may be exercised by benches. A bench may be constituted by the Chairperson with one or more member as the Chairperson deem fit. The Chairperson can also transfer member of one bench to another bench. The Appellate Tribunal shall sit ordinarily at New Delhi for hearing. The Central Government however may, in consultation with the Chairperson, notify the sitting of the Tribunal elsewhere as it may deem fit.

A person who is or has been or is qualified to be a judge of a High Court shall be eligible for the appointment as chairperson of Appellate Tribunal. A person who is or has been or is eligible to be a district judge shall be eligible for appointment as a member of Appellate Tribunal.

Ans. Registered Trusts and Societies engaged in manufacturing/educational sector are allowed to make investment in the same sector(s) in a Joint Venture or Wholly Owned Subsidiary outside India, with the prior approval of the Reserve Bank. Eligibility criteria to be satisfied before such overseas investment under Foreign Exchange Management Act, 1999 is as follows

Eligibility Criteria for Trusts:

• The Trusts should be registered under the Indian Trust Act, 1882;

• The Trust deed permits the proposed investment overseas;

• The proposed investment should be approved by the trustee/s;

• Authorised Dealer Bank is satisfied that the Trust is KYC (Know Your Customer) compliant and is engaged in a bonafide activity;

• The Trust has been in existence at least for a period of three years;

• The Trust has not come under the adverse notice of any Regulatory/ Enforcement agency like the Directorate of Enforcement, CBI etc.

Eligibility Criteria for Society

• The Society should be registered under the Societies Registration Act, 1860;

• The Memorandum of Association and rules and regulations permit the Society to make the proposed investment which should also be approved by the governing body/council or a managing/executive committee;

• The AD Category-I bank is satisfied that the Society is KYC (Know Your Customer) compliant and is engaged in a bonafide activity;

• The Society has been in existence at least for a period of three years;

• The Society has not come under the adverse notice of any Regulatory/ Enforcement agency like the Directorate of Enforcement, CBI etc.

1. John desires USD 2,00,000 for a private visit to any country excluding Nepal and Bhutan. (1 mark)

2. Jitesh has to maintain his close relative abroad, needs USD 50,000 per year. (1 mark)

3. Sohan desires to gift his sister USD 100,000 on her birthday. (1 mark)

4. A person who is resident, but not permanently resident in India, this a citizen of a foreign state other than Pakistan desires to remit his total net salary to his spouse without any limit and without being questioned about his expenses for survival in India. Can he do so or not ? Is there any limit ? (2 marks) (Jun,19 Old Syllabus)

Ans. (i) Yes, John can do so as the foreign exchange facility is within the limit of USD 2, 50,000 prescribed under the Liberalised Remittance Scheme read with Foreign Exchange Management (Current Account Transactions) Rules.

(ii) Yes, Jitesh can do so as the foreign exchange facility is within the limit of USD 2,50,000 prescribed under the Liberalised Remittance Scheme read with Foreign Exchange Management (Current Account Transactions) Rules.

(iii) Yes, Sohan can do so as the foreign exchange facility is within the limit of USD 2,50,000 prescribed under the Liberalised Remittance Scheme read with Foreign Exchange Management (Current Account Transactions) Rules.

(iv) Yes, he may make remittance up to his net salary (after deduction of taxes, contribution to provident fund and other deductions).

If an individual remits any amount under the Liberalised Remittance Scheme in a financial year, then the applicable limit for such individual would be reduced from USD 250,000 (US Dollars Two Hundred and Fifty Thousand Only) by the amount so remitted.

A person who is resident but not permanently resident in India and is a citizen of a foreign State other than Pakistan or is a citizen of India, who is on deputation to the office or branch of a foreign company or subsidiary or joint venture in India of such foreign company, may make remittance up to his net salary (after deduction of taxes, contribution to provident fund and

1. Tushar Mehta wishes to remit a sum of USD 50,000 as gift to his daughter in France. Whether he can do so ?

2. Deepa, a young girl aged 22 years, wishes to go to Poland for a private visit and she wishes to obtain USD 2,75,000/- for her private visit. Can she obtain ?

3. Akanksha, a software engineer is going for an employment in Budapest, requires a sum of USD 99,000 for her settlement abroad. Does she require prior approval of Reserve Bank of India ?

4. Sandeep Sharma VP in a Domestic Indian company is going to visit the company plant location in New York for 30 days. He estimated a sum of USD 3,00,000 as expenditure. This is his first visit during the FY 2024-2025. Can he do so ?

5. Parents of General Manager Sushant Agarwal from Delhi, is residing in Germany.

He seeks your consultancy in sending a sum of USD 2,02,500 to his parents for their maintenance ? (Dec, 24 – 5 Marks)

Ans.

(i) Under Liberalised Remittance Scheme, any resident individual may remit up-to USD 2, 50,000 in one financial year as gift to a person residing outside India or as donation to an organization outside India.

In light of the above, Tushar Mehta can remit a sum of USD 50,000 as gift to his daughter in France.

(ii) Under Liberalised Remittance Scheme, for private visits abroad, other than to Nepal and Bhutan, any resident Individual can obtain foreign exchange up to aggregate amount of USD 2, 50,000 from an Authorized Dealer (AD) or FFMC, in any one financial year, irrespective of the number of visits undertaken during the year.

Further, all tour related expenses including cost of rail/ road/ water transportation: cost of Euro rail: passes / tickets, etc. outside India and overseas hotel/ lodging expenses shall be subsumed under the LRS limit. The tour operator can collect this amount either in Indian Rupees or in Foreign Currency for the resident traveller.

Hence, Deepa cannot obtain a sum of USD 275,000 from any Authorized Dealer (AD) or FFMC in any one FY (April- March). She can obtain only a sum of USD 2,50,000.

(iii) Under Liberalised Remittance Scheme, Person going abroad for employment can draw foreign exchange up to USD 2, 50,000 per financial year from any Authorized Dealer in India.

Akanksha, who is a software Engineer, going for an employment in Budapest can acquire USD 99,000 from any authorized dealer in India without the prior approval of Reserve Bank of India.

(iv) Under Liberalised Remittance Scheme, Visits by Individuals in connection with attending of International Conference, seminar, specialized apprentice training etc. are treated as business visits. For business trip to foreign countries, Individuals can avail of foreign exchange up to USD 2,50,000 in one financial year irrespective of the visits undertaken during the year.

In view of the above, Sandeep can acquire USD 250000 only.

(v) Under Liberalised Remittance Scheme, resident Individual can remit up-to USD 2, 50,000 per financial year towards maintenance of relatives. ‘Relative’ as defined U/s 2 (77) of the Companies Act, 2013 abroad.

In view of the above, Sushant Agarwal can easily send a sum of USD 2,02,500 to his parents for their maintenance in Germany in one FY (April-March).

Ans. Sky Heights Aviation Limited which wants to enter in Civil Aviation Sector by constructing airports and developing air transport services in India and abroad may avail the foreign direct investment as per the following Routs for investment and the percentage to receive such foreign investment:

AIRPORT

AIR TRANSPORT SERVICES

As per Schedule XI of Aircraft Rules, 1937, Air Operator Certificate to operate Scheduled air transport services (including Domestic Scheduled Passenger Airline or Regional Air Transport Service) may be granted to a company or a body corporate provided that:-

1. It is registered and has its principal place of business within India:

2. The Chairman and at least two-thirds of its Directors are citizens of India; and

3. Its substantial ownership and effective control is vested in Indian nationals.

Ans. Investments can be made by non-residents in the equity shares/fully, compulsorily and mandatorily convertible debentures/fully, compulsorily and mandatorily convertible preference shares of an Indian company, through the Automatic Route or the Government Route. Permissible FDI can be made under ““Automatic route” or “Government Route”.

Automatic Route: It means the entry route through which investment by a person resident outside

India does not require the prior approval of the Reserve Bank of India or the Central Government.

Government Route: It means the entry route through which investment by person resident outside India requires prior Government approval and foreign investment received under this route shall be in accordance with the conditions stipulated by the Government in its approval.

Besides the entry conditions on foreign investment, the investment/investors are required to comply with all relevant Sectoral Cap, Sectoral Laws, Rules & Regulations made thereunder, Security conditions, and State/Local Laws/Regulations. Proposals for foreign investment under Government Route are considered by respective Administrative Ministry/Department.

100% FDI can be received in space sector. For receiving FDI in advanced Satellite technology, 74% investment can be received through automatic route. Investment beyond 74% can be received through Government approval [i.e. through Department of Space.

Ans. Companies may not require fresh approval of the Government for bringing in additional foreign investment into the same entity, in the following cases:

• Entities, the activities of which had earlier required the prior approval of the Government and which had, accordingly, earlier obtained the prior approval of the Government for their initial foreign investment but subsequently such activities/ sectors have been placed under automatic route;

• Entities, the activities of which had sectoral caps earlier and which had, accordingly, earlier obtained the prior approval of the Government for their initial foreign investment but subsequently such caps were removed/ increased and the activities placed under the automatic route; provided that such additional investment along with the initial/original investment does not exceed the sectoral caps;

• Additional foreign investment into the same entity where the prior approval of the Government had been obtained earlier for the initial/original foreign investment due to requirements of Press Note 18 of 1998 or Press Note 1 of 2005 and the prior approval of the Government under the FDI policy is not required for any other reason/purpose; and

• Additional foreign investment up to cumulative amount of ₹ 5000 crore into the same entity within an approved foreign equity percentage/or into a wholly owned subsidiary.

Ans. Modes of payment allowed for receiving Foreign Direct Investment to an Indian company are as under:

1. Inward remittance through normal banking channels;

2. Debit to NRE/ FCNR (B) account of a person concerned maintained with an Authorised Dealer (AD) Category I bank;

3. Debit to non-interest bearing escrow account in Indian Rupees in India which is opened with the approval from AD Category – I bank and is maintained with the AD Category I bank on behalf of residents and non-residents towards payment of share purchase consideration;

4. Conversion of royalty/ lump sum/ technical know-how fee due for payment or conversion of ECB;

5. Conversion of pre-incorporation/ pre-operative expenses incurred by the a non- resident entity up to a limit of five percent of its capital or USD 500,000 whichever is less;

6. Conversion of import payables/ pre incorporation expenses/ can be treated as consideration for issue of shares with the approval of competent autority;

7. Against any other funds payable to a person resident outside India, the remittance of which does not require the prior approval of the Reserve Bank or the Government of India: and

8. Swap of capital instruments, provided where the Indian investee company is engaged in a Government route sector, prior Government approval shall be required.

Ans. Foreign Direct Investment (FDI) in Limited Liability Partnership (LLPs) is permitted subject to the following conditions:

1. FDI is permitted under the automatic route in Limited Liability Partnership (LLPs) operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI linked performance conditions.

2. An Indian company or an LLP having foreign investment, is also permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions.

3. FDI in LLP is subject to the compliance of the conditions of Limited Liability Partnership Act, 2008.

Ans. Foreign Investment in Limited Liability Partnerships (LLPs) is permitted subject to the following conditions:

1. Foreign Investment is permitted under the automatic route in Limited Liability Partnership (LLPs) operating in sectors activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions.

2. An Indian company or an LLP having foreign investment, is also permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions. Conversion of an LLP having foreign investment and operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions, into a company is permitted under automatic route. Similarly, conversion of a company having foreign investment and operating in sectors/ activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions, into an LLP is permitted under automatic route.

3. Foreign Investment in LLP is subject to the compliance of the conditions of LLP Act, 2008.

Ans. Non-Debt Instruments means the following instruments namely:

1. All investments in equity instruments in incorporated entities: public, private, listed, unlisted;

2. Capital participation in LLP;

3. All instruments of investment recognised in the FDI policy notified from time to time;

4. Investment in units of Alternative Investment Fund (AIFs), Real Estate Investment Trust (RElTs) and Infrastructure Investment Trust;

5. Investment in units of Mutual funds or Exchange Traded Funds (ETFs) which invest more than fifty per cent in equity;

6. Junior-most layer (i.e., equity tranche) of securitisation structure;

7. Acquisition, sale or dealing directly in immovable property;

8. Contribution to trusts; and

9. Depository receipts issued against equity instruments.

Ans. Foreign investment in Pension Funds is allowed as per the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013.

Foreign investment in Pension Fund will be subject to the condition that entities bringing in foreign equity investment as per Section 24 of the PFRDA Act shall obtain necessary registration from the Pension Fund Regulatory and Development Authority and comply with other requirements as per the PFRDA Act 2013 and rules and regulations framed under it for so participating in Pension Fund Management activities in India.

An Indian pension fund shall ensure that its ownership and control remain at all times in the hands of resident Indian entities as determined by the Government of India/ PFRDA as per the rules / regulations issued by them from time to time.

Ans. Companies may not require fresh approval of the Government for bringing in additional foreign investment into the same entity, in the following cases:

• Entities, the activities of which had earlier required the prior approval of the Government and which had, accordingly, earlier obtained the prior approval of the Government for their initial foreign investment but subsequently such activities/ sectors have been placed under automatic route;

• Entities, the activities of which had sectoral caps earlier and which had, accordingly, earlier obtained the prior approval of the Government for their initial foreign investment but subsequently such caps were removed/ increased and the activities placed under the automatic route; provided that such additional investment along with the initial/original investment does not exceed the sectoral caps;

• Additional foreign investment into the same entity where the prior approval of the Government had been obtained earlier for the initial/original foreign investment due to requirements of Press Note 18 of 1998 or Press Note 1 of 2005 and the prior approval of the Government under the FDI policy is not required for any other reason/purpose; and

• Additional foreign investment up to cumulative amount of Rs 5000 crore into the same entity within an approved foreign equity percentage/or into a wholly owned subsidiary.

Ans. Investments can be made by non-residents in the equity shares/fully, compulsorily and mandatorily convertible debentures/fully, compulsorily and mandatorily convertible preference shares of an Indian company, through the automatic Route or the Government Route.

• Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment.

• Under the Government Route, approval of the Government of India is required. Proposals for foreign investment under Government Route, are considered by respective Administrative Ministry/Department.

Foreign Investment in sectors/activities under government approval route will be subject to Government approval where:

1. An Indian company is being established with foreign investment and is not owned by a resident entity; or

2. An Indian company is being established with foreign investment and is not controlled by a resident entity; or

3. The control/ownership of an existing Indian company, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens, will be/is being transferred/passed on to a non-resident entity as a consequence of transfer of shares and/or fresh issue of shares to non-resident entities through amalgamation, merger/demerger, acquisition etc.;

4. Investment by NRIs, a company, trust and partnership firm incorporated outside India and owned and controlled by non-resident Indians, under Schedule IV of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 on non-repatriation basis will be deemed to be domestic investment at par with the investment made by residents.

Ans. Sector or activities where Foreign Direct Investment is prohibited are as under:

• Lottery Business including Government/private lottery, online lotteries, etc.

• Gambling and Betting including casinos etc.

• Chit funds

• Nidhi company

• Trading in Transferable Development Rights (TDRs)

• Real Estate Business or Construction of Farm Houses

• Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

• Activities/sectors not open to private sector investment e.g. (I) Atomic Energy and (II) Railway operations(other than permitted activities).

Ans.

Ans. According to Foreign Exchange Management (Overseas Investment) Rules, 2022, Overseas Direct Investment (ODI) means:

1. Acquisition of any unlisted equity capital or subscription as a part of the Memorandum of

Association of a foreign entity, or

Investment in 10% or more of the paid-up equity capital of a listed foreign entity, or

2. Investment with control where investment is less than 10% of the paid- up equity capital of a

listed foreign entity.

Overseas Portfolio Investment (OPI) means investment, other than ODI, in foreign securities, but not in any unlisted debt instruments or any security issued by a person resident in India who is not in an International a Financial Service Centre (IFSC).

Provided that OPI by a person resident in India in the equity capital of a listed entity, even after its delisting shall continue to be treated as OPI until any further investment is made in the entity. Debt instruments are:

1. Government bonds:

2. corporate bonds:

3. all tranches of securitisation structure which are not equity tranche:

4. borrowings by firms through loans, and

5. depository receipts whose underlying securities are debt securities.

Ans. “Financial Commitment” means the aggregate amount of investment made by a person resident in India by way of Overseas Direct Investment, debt other than Overseas Portfolio Investment in a foreign entity or entities in which the Overseas Direct Investment is made and shall include the non-fund-based facilities extended by such person to or on behalf of such foreign entity or entities;

“Indian Party” means a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under the Indian Partnership Act, 1932, or a Limited Liability Partnership (LLP), registered under the Limited Liability Partnership Act, 2008, making investment in a Joint Venture or Wholly Owned Subsidiary abroad, and includes any other entity in India as may be notified by the Reserve Bank. When more than one such company, body or entity makes investment in the foreign JV / WOS, such combination will also form an “Indian Party”.

Ans. The proposal for overseas direct investment (or financial commitment), by a proprietorship concern / unregistered partnership firm in India to be considered by the Reserve Bank under the approval route are subject to following terms and conditions:

1. The proprietorship concern / unregistered partnership firm in India is classified as ‘Status Holder’ as per the Foreign Trade Policy issued by the Ministry of Commerce and Industry, Government of India from time to time;

2. The proprietorship concern / unregistered partnership firm in India has a proven track record, i.e., the export outstanding does not exceed 10% of the average export realisation of preceding three years and a consistently high export performance;

3. The Authorised Dealer bank is satisfied that the proprietorship concern / unregistered partnership firm in India is KYC (Know Your Customer) compliant, engaged in the proposed business and has turnover as indicated;

4. The proprietorship concern / unregistered partnership firm in India has not come under the adverse notice of any Government agency like the Directorate of Enforcement, Central Bureau of Investigation, Income Tax Department, etc. and does not appear in the exporters’ caution list of the Reserve Bank or in the list of defaulters to the banking system in India; and

5. Any overseas investment by the sole proprietorship or unregistered partnership firms may be made by the proprietor concerned or the individual partners concerned within their limit available under the LRS in accordance with schedule III of the Foreign Exchange Management (Overseas Investment) Rules, 2022. If the proposed investment is in strategic sector, any application for making overseas investment in excess of the LRS limit may be made under the government approval route.

Ans. An Indian Party has been permitted to make investment / undertake financial commitment in oversea Ventures (JV) / Wholly Owned Subsidiaries (WOS), as per the ceiling prescribed by the Reserve from time to time.

The total financial commitment of the Indian Party in all the Joint Ventures / Wholly Owned Subsidiaries shall comprise of the following:

1. 100% of the amount of equity shares and/ or Compulsorily Convertible Preference Shares (CCPS);

2. 100% of the amount of other preference shares;

3. 100% of the amount of loan;

4. 100% of the amount of guarantee (other than performance guarantee) issued by the Indian Party;

5. 100% of the amount of bank guarantee issued by a resident bank on behalf of JV or WOS of the India Party provided the bank guarantee is backed by a counter guarantee/collateral by the Indian Party;

6. 50% of the amount of performance guarantee issued by the Indian Party provided that if the outflow on account of invocation of performance guarantee results in the breach of the limit of financial commitment in force, prior permission of the Reserve Bank is to be obtained before executing remittance beyond the limit prescribed for the financial commitment;

7. Funding for Overseas Direct Investment can be made by one or more of the permissible sources.

Ans. Permissible Sources for Funding of Overseas Direct Investment are as under:

• Drawal of foreign exchange from an Authorised Dealer(AD) bank in India;

• Capitalisation of exports;

• Swap of shares;

• Proceeds of External Commercial Borrowings (ECBs) / Foreign Currency Convertible Bonds (FCCBs);

• In exchange of American Depository Receipts(ADRs) / Global Depository

• Receipts(GDRs )issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, and the guidelines issued thereunder from time to time by the Government of India;

  • Balances held in Exchange Earners Foreign Currency ( EEFC) account of the Indian Party maintained with an authorised dealer and

  • Proceeds of foreign currency funds raised through ADR / GDR issues.

Ans. An Indian Party which has made direct investment outside India is required to comply with the following:-

1. Receive share certificates or any other documentary evidence of investment in the foreign Joint Venture(JV)/ Wholly Owned Subsidiary(WOS) as an evidence of investment and submit the same to the designated Authorised Dealer within 6 months;

2. Repatriate to India, all dues receivable from the foreign JV / WOS, like dividend, royalty, technical fees etc.

3. Submit to the Reserve Bank through the designated Authorized Dealer, every year, an Annual Performance Report in respect of each JV or WOS outside India set up or acquired by the Indian party.

Ans. Yes, an Indian Registered Trust or Society can make Overseas Direct Investment by following certain conditions. Eligibility Criteria for Overseas Direct Investment (ODI) by Registered Trust or Society:

Any person being a registered Trust or a registered Society engaged in the educational sector or which has set up hospitals in India may make ODI in a foreign entity with the prior approval of the Reserve Bank, subject to the following conditions, namely: -

1. the foreign entity is engaged in the same sector that the Indian Trust or Society is engaged in;

2. the Trust or the Society, as the case may be, should have been in existence for at least three financial years before the year in which such investment is being made;

3. the trust deed in case of a Trust, and the memorandum of association or rules or bye-laws in case of a Society shall permit the proposed ODI;

4. such investment has the approval of the trustees in case of a Trust and the governing body or council or managing or executive committee in case of a Society;

5. in case the Trust or the Society require special license or permission either from the Ministry of Home Affairs, Central Government or from the relevant local authority, as the case may be, the special license or permission has been obtained and submitted to the designated AD bank.

Ans. Indian Mutual Funds registered with SEBI are permitted to invest in oversees direct investment in the following:

1. American Depositary Receipts (ADRs) / Global Depositary Receipts (GDRs) of the Indian and foreign companies;

2. Equity of overseas companies listed on recognized overseas stock exchanges; initial and follow on public offerings for listing at recognized overseas stock exchanges;

3. Foreign debt securities- short term as well as long term with rating not below investment grade - in the countries with fully convertible currencies;

4. Money market investments not below investment grade; repos where the counter party is not below investment grade;

5. Government securities where countries are not rated below investment grade;

6. Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities;

7. Short term deposits with banks overseas where the issuer is rated not below investment grade; and

8. Units / securities issued by overseas Mutual Funds or Unit Trusts registered with overseas regulators.

Ans. Rule 19 of the Foreign Exchange Management (Overseas Investment) Rules, 2022 provides that unless otherwise provided in FEMA or these Rules, no person resident in India will make Overseas Direct Investment (ODI) in a foreign entity engaged in

1. real estate activity

2. gambling in any form and

3. Dealing with financial products linked to the Indian rupees without specific approval of Reserve Bank.

Any ODI in start-up recognised under the laws of the host country or host jurisdiction as the case maybe, shall be made by an Indian entity only from internal accruals whether from the Indian entity or group or associate companies in India and in case of resident individuals from own funds of such an individual.

No person resident in India shall make financial commitment in a foreign entity that has invested or invest into India, at the time of making such financial commitment or at any time thereafter either directly or indirectly, resulting in a structure with more than two layers of subsidiaries.

Ans. Any person being a registered Trust or a registered Society engaged in the educational sector or which has set up hospitals in India may make Overseas Direct Investment in a foreign entity with the prior approval of the Reserve Bank, subject to the following conditions, namely: —

1. the foreign entity is engaged in the same sector that the Indian Trust or Society is engaged in;

2. the Trust or the Society, as the case may be, should have been in existence for at least three financial years before the year in which such investment is being made;

3. the trust deed in case of a Trust, and the memorandum of association or rules or bye-laws in case of a Society shall permit the proposed Overseas Direct Investment;

4. such investment have the approval of the trustees in case of a Trust and the governing body or council or managing or executive committee in case of a Society;

5. in case the Trust or the Society require special licence or permission either from the Ministry of Home Affairs, Central Government or from the relevant local authority, as the case may be, the special licence or permission has been obtained and submitted to the designated AD bank.

Thus, Swarna Trust will not get approval from RBI to invest in a foreign entity because trust is in existence for less than 3 years.

Ans. Key Highlights of Foreign Trade Policy, 2023 are:

• Process Re-Engineering and Automation

• Towns of Export Excellence

• Recognition of Exporters

• Promoting export from the districts

• Streamlining SCOMET Policy

• Facilitating E-Commerce Exports

• Facilitating under Export Promotion of Capital Goods (EPCG) Scheme

• Facilitating under Advance authorization Scheme

• Merchanting trade

• Amnesty Scheme

Ans. Deemed Exports for the purposed of foreign Trade Policy (FTP) and Good and Services Tax (GST) are given below:

• “Deemed Exports” for the purpose of this FTP refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange. Supply of goods as specified in Foreign Trade Policy shall be regarded as “Deemed Exports” provided goods are manufactured in India.

• “Deemed Exports” for the purpose of Goods and Service Tax would include only the supplies notified under Section 147 of the CGST/SGST Act, 2017 on the recommendations of the GST Council. The benefits of GST and conditions applicable for such benefits would be as specified by the GST Council and as per relevant rules and notification.

Benefits for Deemed Exports are as follow:

Deemed exports shall be eligible for any/all of following benefits, in respect of manufacture and

supply of goods, qualifying as deemed exports, subject to terms and conditions as given in Hand

Book & Procedure and ANF-7A:

1. Advance Authorisation/Advance Authorisation for annual requirement/ DFIA.

2. Deemed Export Drawback for BCD (Basic Custom Duty).

3. Refund of terminal excise duty for excisable goods.

Ans. India’s Foreign Trade Policy (FTP) has, conventionally, been formulated for five years at a time and reviewed annually. The focus of the FTP has been to provide a framework of rules and procedures for exports and imports and a set of incentives for promoting exports. The FTP for 2015-2020 seeks to achieve the following main objectives:

• To provide a stable and sustainable policy environment for foreign trade in merchandise and services

• To link rules, procedures and incentives for exports and imports with other initiatives such as “Make in India”, “Digital India” and “Skills India” to create an “Export Promotion Mission” for India

• To promote the diversification of India’s export basket by helping various sectors of the Indian economy to gain global competitiveness with a view to promoting exports

• To create an architecture for India’s global trade engagement with a view to expanding its markets and better integrating with major regions, thereby increasing the demand for India’s products and contributing to the government’s flagship “Make in India” initiative

• To provide a mechanism for regular appraisal in order to rationalise imports and reduce the trade imbalance.

Ans.

1. Status Holders are business leaders who have excelled in international trade and have successfully contributed to country's foreign trade, Status Holder are expected to not only contribute towards India's exports but also provide guidance and handholding to new entrepreneurs.

2. All exporters of goods, services and technology having an import-export code (IEC) number shall be eligible for recognition as a status holder. Status recognistion depends upon export performance. An applicant shall be categorized as status holder upon achieving export performance during current and previous two financial years, as indicated in Foreign Trade Policy. The export performance will be counted on the basis of FOB value of export earnings in free foreign exchange.

3. For deemed export, for value of exports in Indian Rupees shall be converted in US$ at the exchange rate notified by CBEC, as applicable on 1^st April of each Financial Year.

4. For granting status, export performance is necessary in at least two out of three years.

Ans. Mandatory documents required for export of goods from India are as under:

• Bill of Landing/Airways Bill

• Commercial Invoice cum Packing List

• Shipping Bill/Bill of Export

Mandatory documents required for import of goods into India are as under:

• Bill of Landing/Airways Bill

• Commercial Invoice cum Packing List

• Bill of Entry

For export or import of specific goods or category of goods, which are subject to any restrictions/policy conditions or require NOC or product specific compliances under any statute, the regulatory authority concerned may notify additional documents for purposes of export or import.

In specific cases of export or import, the regulatory authority concerned may electronically or in writing seek additional documents or information, as deemed necessary to ensure legal compliance.

Ans.

1. Service Providers of notified services, located in India, shall be rewarded under Service Exports from India Scheme (SEIS), subject to conditions as may be notified. The notified services and rates of rewards are listed in Appendix 3D of Appendices and Aayat Niryat Forms of FTP 2015-2020. Following Services shall be eligible:

1. Supply of a ‘service’ from India to any other country; (Mode1- Cross border trade)

2. Supply of a ‘service’ from India to service consumer(s) of any other country; (Mode 2-Consumption abroad).

Such service provider should have minimum net free foreign exchange earnings of US$15,000 in preceding financial year to be eligible for Duty Credit Scrip. For Individual Service Providers and sole proprietorship, such minimum net free foreign exchange earnings criteria would be US$10,000 in preceding financial year.

2. Payment in Indian Rupees for service charges earned on specified services, shall be treated as receipt in deemed foreign exchange as per guidelines of Reserve Bank of India. The list of such services is indicated in Appendix 3E of Appendices and Aayat Niryat Forms of FTP 2015-2020.

3. Net Foreign exchange earnings for the scheme are defined as under:

4. Net Foreign Exchange = Gross Earnings of Foreign Exchange minus Total expenses/payment/ remittances of Foreign Exchange by the IEC holder, relating to service sector in the financial year.

5. If the IEC holder is a manufacturer of goods as well as service provider, then the foreign exchange earnings and Total expenses/payment/remittances shall be taken into account for service sector only.

6. In order to claim reward under the scheme, Service provider shall have to have an active IEC at the time of rendering such services for which rewards are claimed.

Ans.

1. Export Promotion Capital Goods (EPCG) scheme covers manufacturer exporters with or without supporting manufacturer(s), merchant exporters tied to supporting manufacturer(s) and service providers. Name of supporting manufacturer(s) shall be endorsed on the EPCG Authorisation before installation of the capital goods in the factory / premises of the supporting manufacturer(s). In case of any change in supporting manufacturer(s), the RA shall intimate suchchange to jurisdictional Customs Authority of existing as well as changed supporting manufacturer(s) and the Customs at port of registration of Authorisation.

2. EPCG Scheme also covers a service provider who is certified as a Common Service Provider (CSP) by the DGFT - HQs, Department of Commerce in a Town of Export Excellence or Prime Minister Mega Integrated Textile Region and Apparel Parks (PM MITRA) subject to provisions of Foreign Trade Policy/Handbook of Procedures with the following conditions:

   1. Common utility services like providing Electricity, Water, Gas, Sanitation, Sewerage, Telecommunication, Transportation etc. shall not be considered for benefit of CSP;

   2. Export by users of the common service shall be counted towards fulfilment of EO of the CSP provided the EPCG Authorisation details of the CSP is mentioned in the respective Shipping bills and concerned RA must be informed about the details of the users prior to such export;

   3. Such export will not count towards fulfilment of specific export obligation in respect of other EPCG Authorisations of the user;

   4. Authorisation holder shall be required to submit Bank Guarantee (BG) which shall be equivalent to the duty saved. BG can be given by CSP or by any one of the users or a combination thereof, at the option of the CSP; and

   5. Capital goods shall be installed within a Town of Export Excellence or PM MITRA.

Ans. The objective of the Export Promotion capital Goods (EPCG) Scheme is to facilitate import of capital goods for producing quality goods and services to enhance India's export competitiveness. EPCG Scheme provides for following:

1. EPCG scheme allows import of capital goods for pre-production, production and post production at Zero customs duty. Alternatively, the Authorization holder may also procure Capital Goods from indigenous sources. Capital goods for the purpose of the EPCG scheme shall include:

1. Capital Goods including in Completely Knocked down (CKD)/ Semi- Knocked Down (SKD) conditions thereof;

2. Computer software systems;

3. Spares, moulds, dies, jigs, fixtures, tools & refractories for initial lining and spare refractories; and

4. Catalysts for initial charge plus one subsequent charge.

Import of capital goods for Project Imports notified by Central Board of Excise and Customs is also permitted under EPCG Scheme.

2. Import under EPCG Scheme shall be subject to an export obligation equivalent to 6 times of duty saved on capital goods, to be fulfilled in 6 years reckoned from date of issue of Authorisation.

3. Authorisation shall be valid for import for 18 months from the date of issue of Authorisation. Revalidation of EPCG Authorisation shall not be permitted.

4. In case countervailing duty (CVD) is paid in cash on imports under EPCG, incidence of CVD would not be taken for computation of net duty saved, provided CENVAT is not availed.

5. Second hand capital goods shall not be permitted to be imported under EPCG Scheme. g. Authorisation under EPCG Scheme shall not be issued for import of any Capital Goods (including Captive plants and Power Generator Sets of any kind) for

1. Export of electrical energy (power),

2. Supply of electrical energy (power) under deemed exports,

3. Use of power (energy) in their own unit, and

4. Supply/export of electricity transmission services.

Import of items which are restricted for import shall be permitted under EPCG Scheme only after approval from EXIM Facilitation Committee (EFC) at DGFT Headquarters.

7. If the goods proposed to be exported under EPCG authorization are restricted for export, the EPCG authorization shall be issued only after approval for issuance of export authorization from EXIM Facilitation Committee at DGFT Headquarters.

Ans. Export should not merely be a function of marketable surplus but should also reflect an enhancement of economic capacity and development. It envisages:

• Employment creation in both manufacturing and services sectors through the generation of foreign trade opportunities

• Zero defect products with a focus on quality and standards

• A stable agricultural trade policy encouraging the import of raw material where required and export of processed products

• A focus on higher value addition and technology infusion

• Investment in agriculture overseas to produce raw material for the Indian industry

• Lower tariffs on Inputs and raw materials

• Development of trade infrastructure and provision of production and export incentives.

Note: Please note that Foreign Trade Policy has now changed. And these questions are for having an idea about the kind of questions being asked from this chapter.

Ans. India has ratified the World Trade Organization’s Trade Facilitation Agreement (TFA) in April 2016. To facilitate coordination and implementation of the TFA provisions, an inter-ministerial body i.e., National Committee on Trade Facilitation (NCTF) has been constituted. The aims to achieve the objects, NCTF has followed the four pillars of TFA as follows:

• Transparency: focus on improved access to accurate and complete information.

• Technology: development and use of digital and detection technologies to ease out trade bottlenecks and improve efficiency.

• Simplification: of procedures and Risk based Assessments. Simplified, uniform and harmonized procedures with increased adoption of a risk based management approach.

• Infrastructure Augmentation: enhancement of infrastructure, particularly the road and rail infrastructure leading to ports, and the infrastructure within ports, airports, ICDs, Land Customs Stations is a major enabler for growth in trade that cuts across all stakeholders.

National Trade Facilitation Action Plan aims to achieve: -

• Improvement in Ease of Doing Business through reduction in transaction cost and time

• Reduction in cargo release time

• A paperless regulatory environment

• A transparent and predictable legal regime

• Improved investment climate through better infrastructure.

Ans. Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs.

In order to give a long term and stable policy framework with minimum regulatory regime and to provide expeditious and single window clearance mechanism, the Government enacted Special Economic Zones Act, 2005.

The salient features and purposes of the Special Economic Zones Act, 2005 are as under:—

1. Matters relating to establishment of Special Economic Zone and for setting up of units therein, including requirements, obligations and entitlements;

2. Matters relating to requirements for setting up of off-shore banking units and units in International Financial Service Center in Special Economic Zone, including fiscal regime governing the operation of such units;

3. The fiscal regime for developers of Special Economic Zones and units set up therein;

4. Single window clearance mechanism at the Zone level;

5. Establishment of an Authority for each Special Economic Zone set up by the Central Government to impart greater administrative autonomy; and

6. Designation of special courts and single enforcement agency to ensure speedy trial and investigation of notified offences committed in Special Economic Zones.

Ans. Special Economic Zones (SEZ) are growth engines that can boost manufacturing, augment exports and generate employment. In order to give a long term and stable policy framework with minimum regulatory regime and to provide expeditious and single window clearance mechanism, the Government enacted Special Economic Zones Act, 2005.

The salient features of the Special Economic Zones Act, 2005 are as under :—

1. Matters relating to establishment of Special Economic Zone and for setting up of units therein, including requirements, obligations and entitlements;

2. Matters relating to requirements for setting up of off-shore banking units and units in International Financial Service Center in Special Economi Zone, including fiscal regime governing the operation of such units;

3. The fiscal regime for developers of Special Economic Zones and units set up therein;

4. Single window clearance mechanism at the Zone level;

5. Establishment of an Authority for each Special Economic Zone set up by the Central Government to impart greater administrative autonomy; and

6. Designation of special courts and single enforcement agency to ensure speedy trial and investigation of notified offences committed in Special Economic Zones.

Ans. According to Section 2(u) of the Special Economic Zones Act, 2005, “Offshore Banking Unit” means a branch of a bank located in a Special Economic Zone and which has obtained the permission under Section 23 (1)(a) of the Banking Regulation Act, 1949.

An application for setting up and operation of an Offshore Banking Unit in a Special Economic Zone may be made to the Reserve Bank, in the prescribed form and manner. The Reserve Bank may, by notification, specify the terms and conditions subject to which an Offshore Banking UnitF may be set up and operated in the Special Economic Zone.

Ans. As per Section 3 of the Special Economic Zones Act, 2005, Central Government, State Government, or any other person, jointly or severally, may establish a Special Economic Zone.

Any person who, intends to set up a Special Economic Zone, may, after identifying the area, make a proposal to the State Government concerned for the purposes of setting up a Special Economic Zone. It also allows a person, at his option to make a proposal directly to the Board for the purpose of setting up Special Economic Zone.

In case a State Government intends to set up the Special Economic Zone, it may after identifying the area, forward the proposal directly to the Board of Approval for setting up of Special Economic Zone. However, the Central Government has been empowered to set up and notify the Special Economic Zone without consulting the State Government concerned; without referring the proposal to the Board.

Ans. Section 9 of the Special Economic Zones Act, 2005 casts upon the Board the duty to promote and ensure orderly development of the Special Economic Zones. The powers and functions of the Board of Approval inter alia, include:

1. granting of approval or rejecting proposal or modifying such proposals for establishment of the Special Economic Zones;

2. granting approval of authorized operations to be carried out in the Special Economic Zones by the Developer;

3. granting of approval to the Developer or Units (other than the Developers or the Units which are exempt from obtaining approval under any law or by the Central Government) for foreign collaborations and foreign direct investments (including investments by a person resident outside India) in the Special Economic Zone for its development, operation and maintenance;

4. granting of approval or rejecting proposal for providing infrastructure facilities in a Special Economic Zone or modifying such proposals;

5. granting a license, notwithstanding anything contained in the Industries (Development and Regulation) Act, 1951, to an industrial undertaking referred to in section 3(d) of Industries Development & Regulation (IDR) Act, if such undertaking is established, as a whole or part thereof, or proposed to be established, in a Special Economic Zone;

6. Suspension of the letter of approval granted to a Developer and appointment of an Administrator under Section 10(1) of the Act;

7. disposing of appeals preferred under Section 15(4) & Section 16(4) of the Act;

8. Performing such other functions as may be assigned to it by the Central Government.

Section 9 (3) states that the Board may, if so required for the purposes of this Act or any other law for the time being in force relating to Special Economic Zones, by notification, decide as to whether a particular activity constitutes manufacture as defined in clause (r) of section 2 and such decision of the Board shall be binding on all Ministries and Departments of the Central Government

Section 9(4) empowers the Board of Approval to delegate such powers and functions as it may deem fit to one or more Development Commissioners for effective and proper discharge of the functions of the Board. Section 9(5) stipulates that the Board shall, in exercise of its powers and performance of its functions, be bound by such directions on questions of policy, as the Central Government may give in writing to it from time to time. The decision of the Central Government whether a question is one of policy or not shall be final.

Ans. Section 10 of the Special Economic Zone (SEZ) Act, 2005 empowers the Board of Approval to suspend the letter of approval granted to the Developer for a whole or part of his area established as Special Economic Zone for a period not exceeding one year. The suspension may be ordered by the Board, if in its opinion following circumstances exist:

1. the developer is unable to discharge the functions or perform the duties imposed on him; or

2. the developer has persistently defaulted in complying with the directions of the Board; or

3. the developer has violated the terms and conditions of the letter; or

4. the financial position of the developer is such that he is unable to fully and efficiently discharge the duties and obligations imposed on him by the letter of approval.

Ans. Section 10 of the Special Economic Zones Act. 2005 empowers the Board of Approval to suspend the letter of approval granted to the Developer (XYZ Ltd.in this case) for a whole or part of his area established as Special Economic Zone for a period not exceeding one year and appoint an Administrator to discharge the functions of the developer in accordance with the terms and conditions of the letter of approval and manage the Special Economic Zone accordingly. The suspension may be ordered by the Board, if in its opinion following circumstances exist:

• The developer is unable to discharge the function for performing the duties imposed on him.

• The developer has persistently defaulted in complying with the directions of the Board.

• The developer has violated the terms and conditions of the letter of approval.

• The financial position of the developer is such that he is unable to fully and efficiently

discharge the duties and obligations imposed on him by the letter of approval and

• the circumstances exist which render it necessary for it in public interest so to do, the Board may, on application, or with the consent of the Developer, or otherwise, for reasons to be recorded in writing, suspend the letter of approval, granted to the Developer for a whole or part of his area established as Special Economic Zone, for a period not exceeding one year and appoint an Administrator to discharge the functions of the Developer in accordance with the terms and conditions of the letter of approval and manage the Special Economic Zone accordingly.

Consequent upon appointment of an Administrator, the management of the Special Economic Zone of the Developer shall vest in the Administrator.

However, no letter of approval can be suspended unless the Board has given to the Developer not less than three months’ notice, in writing, stating the grounds on which it proposes to suspend the letter of approval, and has considered any cause shown by the Developer within the period of that notice, against the proposed suspension. It has been further provided that the Board may, instead of suspending the letter of approval, permit it to remain in force subject to such further terms and conditions as it thinks fit to impose.

Section 10(4) makes any further terms or conditions so imposed binding upon the Developer. These terms and conditions have the force and effect as if they were contained in the letter of approval. Where the Board has given notice for suspension of letter of approval the Developer may, after prior approval of the Board, transfer his letter of approval to any person who is found eligible by the Board for grant of such approval.

Ans. Appointment of Development Commissioner - Section 11 empowers the Central Government to appoint the Development Commissioner for one or more Special Economic Zones and such Officers and other employees as it considers necessary to assist every Development Commissioner.

Functions of Development Commissioner - Section 12 of the Special Economic Zones Act, 2005 deals with the functions of the Development Commissioner. The functions of the Development Commissioner include:

1. guide the entrepreneurs for setting up of Units in the Special Economic Zone;

2. ensure and take suitable steps for effective promotion of exports from the Special Economic Zone;

3. ensure proper coordination with the Central Government or State Government Departments concerned or agencies with respect to, or for above purposes;

4. monitor the performance of the Developer and the Units in SEZ;

5. discharge such other functions as may be assigned to him by the Central Government under this Act or any other law for the time being in force; and

6. any other functions as may be delegated to him by the Board of approval.

Ans. Section 13 of the Special Economic Zones Act, 2005 empowers the Central Government to constitute by notification, a Committee for every Special Economic Zone, to be called the Approval Committee to exercise the powers and perform the functions as specified. In the case of existing Special Economic Zones, the Approval Committee is required to be constituted within six months from the date of commencement of the Act and in case of other Special Economic Zones established after the commencement of the Act within six months from the date of establishment of such Special Economic Zone. This section also contains provisions relating to composition of meetings and its quorum and requires all orders and decisions and instructions of the Approval Committee to be authenticated by the signature of the Chairperson or any other Member as may be authorised by the Approval Committee.

Ans. Section 14 of the Special Economic Zones Act, 2005 empowers every Approval Committee to discharge the functions and exercise the powers in respect of the following matters:

1. approve, the import or procurement of goods from the Domestic Tariff Area, for carrying on the authorised operations by a Developer in the Special Economic Zone;

2. approve providing of services by a service provider from outside India or from the Domestic Tariff Area for carrying on the authorised operations by the Developer, in the Special Economic Zone;

3. monitor th2e utilisation of goods or services or warehousing or trading in the Special Economic Zone;

4. approve, modify or reject proposals for setting up Units for manufacturing or rendering of services or warehousing or trading in SEZ in accordance with the provisions of Section 15(8) of the Act;

5. allow on receipt of approval foreign collaborations and foreign direct investments, including investments by a person outside India for setting up a Unit;

6. monitor and supervise compliance of conditions subject to which the letter of approval or permission, if any, is granted to the Developer or entrepreneur; and

7. perform any other functions as may be entrusted to it by the Central Government or the State Government concerned, as the case may be.

Ans. Section 15 of the Special Economic Zones Act, 2005 entitles any person, who intends to set up a Unit for carrying on the authorised operations in a Special Economic Zone, to submit a proposal to the Development Commissioner concerned.

The Development Commissioner in turn place the proposal before the Approval Committee for its approval. The Approval Committee may, approve the proposal with or without modification, and subject to such terms and conditions as it may deem fit, or reject the same.

In case of modification or rejection of a proposal, the Approval Committee has been put under obligation to afford a reasonable opportunity of being heard to the person concerned and after recording the reasons therefor, either modify or reject the proposal.

A person aggrieved by an order of the Approval Committee, to make an appeal to the Board of Approvals, within the prescribed time and specified manner.

Section 15 empowers the Central Government to prescribe the requirements (including the period for which a unit may be set up) subject to which the Approval Committee may approve, modify or reject the proposal.

The Development Commissioner may, after the approval of the proposal, grant a letter of approval to the person concerned to set up a Unit and undertake in the Unit such operations which the Development Commissioner may authorise and every such operation so authorised is mentioned in the letter of approval.

Ans. Section 31 of Special Economic Zone Act,2005 empowers the Central Government to constitute by notification in the Official Gazette, Special Economic Zone Authority’ for every Special Economic Zone to exercise powers conferred on and discharge the functions assigned to it.

Section 31(9) of Special Economic Zone Act, 2005 stipulates that no act or proceedings of an authority shall be invalidated merely by reason of:

1. any vacancy in or any defect;

2. any defect in the appointment of a person as its member; or

3. any irregularity in the procedure of the authority not affecting the merits of the case.

Ans. Special Economic Zone Authority

Section 31 of the Special Economic Zones Act, 2005 dealing with the Constitution of Authority empowers the Central Government to constitute by notification in the Official Gazette, an Authority for every SEZ to exercise powers conferred on and discharge the functions assigned to it.

In the case of an existing SEZ established by the Central Government the Central Government has been empowered to establish such authority within six months from the date of commencement of the Act, it is further provided that the person or authority (including Development Commissioner) which is exercising control over on existing SEZ, shall Continue to do so till the authority is constituted. Section 31(2) provides that every authority shall be a body corporate by name as assigned, having perpetual succession and a common seal, with power to acquire, hold and dispose of property, both movable and immovable and to contract and shall sue and be sued. Section 31(9) stipulates that no act or proceedings of an authority shall be invalidated merely by reason of:

1. any vacancy in or any defect;

2. any defect in the appointment of a person as its member; or

3. any irregularity in the procedure of the authority not affecting the merits of the case.

Functions of Authority

Section 34 of the Special Economic Zones Act, 2005 casts upon the Authority a duty to undertake such measures as it thinks fit for the development, operation and management of the respective Special Economic Zone. Section 34(2) provides for following measures:

1. the development of infrastructure in the Special Economic Zone;

2. promoting exports from the Special Economic Zone;

3. reviewing the functioning and performance of the Special Economic Zone;

4. levy, user or service charges or fees or rent for the use of properties belonging to the Authority;

5. Performing such other functions as may be prescribed.

Ans. Section 34 of the Special Economic Zones Act, 2005 casts upon the Authority a duty to undertake such measures as it thinks fit for the development, operation and management of the respective Special Economic Zone.

Section 34(2) of the Special Economic Zones Act, 2005 provides for following measures:

1. development of infrastructure in the Special Economic Zone;

2. promoting exports from the Special Economic Zone;

3. reviewing the functioning and performance of the Special Economic Zone;

4. levy user or service charges or fees or rent for the use of properties belonging to the Authority;

5. performing such other functions as may be prescribed.

Ans. Section 40 of the Special Economic Zones Act, 2005 empowers the Central Government to supersede an Authority for a maximum period of six months if at any time, it is of the opinion that an Authority is unable to perform, or has persistently made default in the performance of the duty imposed on it or has exceeded or abused its powers, or has wilfully or without sufficient cause, failed to comply with any direction issued by it. However, before issuing a notification superseding an authority, the Central Government is required to give reasonable time to that Authority to make representation against the proposed suppression and consider the representations, if any, of the Authority.

Section 40(2) of the Special Economic Zones Act, 2005 dealing with the consequences of publication of the notification superseding the Authority provides that

1. the Chairperson and other Members of the Authority shall, notwithstanding that their term of office has not expired as from the date of supersession, vacate their offices as such;

2. all the powers, functions and duties which may, by or under the provisions of the Act, be exercised or discharged by or on behalf of the Authority shall, during the period of supersession, be exercised and performed by such person or persons as the Central Government may direct;

3. all property vested in the Authority shall, during the period of supersession, vest in the Central Government.

Section 40(3) also provides that on the expiration of the period of supersession specified in the notification, the Central Government may extend the period of supersession for such further period not exceeding six months or reconstitute the Authority in the prescribed manner.

Ans. The object of the Foreign Contribution (Regulation) Act, 2010 is to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto.

Section 3 of the Foreign Contribution (Regulation) Act, 2010, imposes restriction on acceptance of foreign contribution by candidate for election; correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper; Judge, Government servant or employee of any corporation or any other body controlled or owned by the Government; member of any Legislature; political party or office- bearer thereof; organisation of a political nature as may be specified by the Central Government; association or company engaged in the production or broadcast of audio news or audio visual news or current affairs programmes through any electronic mode, or any other electronic form.

In view of the above, the statement, the object of the Foreign Contribution (Regulation) Act, 2010 is to legalise foreign donations and hospitality to office bearers of political parties is incorrect.

Ans. The salient features of the Foreign Contribution (Regulation) Amendment Act, 2020 inter alia, are as under: —

1. Amended Section 3(1) (c) of the Act to include “public servant” also within its ambit, to provide that no foreign contribution shall be accepted by any public servant;

2. Amended Section 7 of the Act to prohibit any transfer of foreign contribution to any person;

3. Amended section 8(1) of the Act to reduce the limit for defraying administrative expenses from existing “fifty per cent.” to “twenty per cent.”

4. Insertion of new sub-section (1A) after sub-section (1) of section 12, sub- section (1A) provides that every person who makes an application under sub- section (1) shall be required to open ‘‘FCRA Account’’ in the manner specified in section 17 and mention details of such account in his application.’

5. Insertion of a new Section 12A empowering the Central Government to require Aadhaar number, etc., as identification document;

6. Insertion of a new Section 14A enabling the Central Government to permit any person to surrender the certificate granted under the Act.

7. Amended Section 17 of the Act to provide that every person who has been granted certificate or prior permission under section 12 shall receive foreign

contribution only in an account designated as "FCRA Account" which shall be opened by him in such branch of the State Bank of India at New Delhi, as the Central Government may, by notification, specify and for other consequential matters relating thereto.

Ans. According to Section 2(1)(h) the Foreign Contribution (Regulation) Act, 2010, Foreign Contribution means the donation, delivery or transfer made by any foreign source-

1. Of any article, not being an article given to a person as a gift for his personal use, if market value, in India, of such article, on the date of such gift, is not more than such sum as may be specified from time to time, by the Central Government by the rules made by it in this behalf.

2. Of any currency, whether Indian or Foreign currency.

3. Of any security as defined u/s 2 (h) of the Securities Contracts (Regulations) Act, 1956 and includes any foreign security as defined u/s 2(o) of FEMA, 1999.

Conditions to receive Foreign Contribution:

Any person can receive foreign contribution subject to the following conditions:

• It must have a definite cultural, economic, educational, religious or social programme

• It must obtain the FCRA registration/prior permission from the Central Government.

• It must not be prohibited under section 3 of FCRA, 2010.

It may be noted that “Person” includes-

1. An individual:

2. A Hindu undivided family:

3. An association;

4. A company registered under section 25/8 of the companies Act [Section 2(1)(m)]

Ans. According to the Foreign Contribution (Regulation) Act, 2010, Foreign Hospitality means any offer, not being a purely casual one, made in cash or kind by a foreign source for providing a person with the costs of travel to any foreign country or territory or with free board, lodging transport or medical treatment.

The following categories of persons require prior approval from the Ministry of Home Affairs before accepting Foreign Hospitality:

• Members of a Legislature

• Office bearers of political parties

• Judges

• Government servants, Public Servants

• Employees of any corporation or any other body owned or controlled by the Government.

Ans. Section 3 of the Foreign Contribution (Regulation) Act, 2010 prohibits the following person from accepting foreign contribution:

1. Candidate for election;

2. Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;

3. Public Servant, Judge, government servant or employee of any entity controlled or owned by the Government;

4. Member of any Legislature;

5. Political party or office bearers thereof;

6. Organisations of a political nature as may be specified;

7. Associations or companies engaged in the production or broadcast of audio news or audio-visual news or current affairs programmes through any electronic mode or form or any other mode of mass communication;

8. Correspondent or columnist, cartoonist, editor, owner of the association or company referred to in (g) above.

Ans. Section 3(1) of the Foreign Contribution Regulation Act, 2010 prohibits following person to accept foreign contribution:

1. candidate for election;

2. correspondent, columnist, cartoonist, editor, owner,

3. printer or publisher of a registered newspaper;

4. public servant, Judge, Government servant or employee of any corporation or any other body controlled or owned by the Government;

5. member of any Legislature;

6. political party or office-bearer thereof;

7. organisation of a political nature as may be specified by the Central Government;

8. association or company engaged in the production or broadcast of audio news or audio visual news or current affairs programmes through any electronic mode, or any other electronic form or any other mode of mass communication. (h) correspondent or columnist, cartoonist, editor, owner of the association or company referred to in clause (g).

Section 3(2) states that:

1. No person, resident in India, and no citizen of India resident outside India, shall accept any foreign contribution, or acquire or agree to acquire any currency from a foreign source, on behalf of any political party, or any person referred to in sub-section (1), or both.

2. No person, resident in India, shall deliver any currency, whether Indian or foreign, which has been accepted from any foreign source, to any person if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to any political party or any person referred to in sub- section (1), or both.

3. No citizen of India resident outside India shall deliver any currency, whether Indian or foreign, which has been accepted from any foreign source, to —

1. any political party or any person referred to in sub-section (1), or both; or

2. any other person, if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to a political party or to any person referred to in sub-section (1), or both.

According to Section 3(3) of the Act, no person receiving any currency, whether Indian or foreign, from a foreign source on behalf of any person or class of persons, referred to in section 9, shall deliver such currency—

1. to any person other than a person for which it was received, or

2. to any other person, if he knows or has reasonable cause to believe that such other person intends, or is likely, to deliver such currency to a person other than the person for which such currency was received.

Ans. According to Section 4 of the Foreign Contribution (Regulation) Act, 2010 prohibition regarding acceptance of foreign contribution does not apply to any foreign contribution where such contribution is accepted by a person specified under section 3 of the Act, subject to the provisions of section 10,—

1. by way of salary, wages or other remuneration due to him or to any group of persons working under him, from any foreign source or by way of payment in the ordinary course of business transacted in India by such foreign source; or

2. by way of payment, in the course of international trade or commerce, or in the ordinary course of business transacted by him outside India; or

3. as an agent of a foreign source in relation to any transaction made by such foreign source with the Central Government or State Government; or

4. by way of a gift or presentation made to him as a member of any Indian delegation, provided that such gift or present was accepted in accordance with the rules made by the Central Government with regard to the acceptance or retention of such gift or presentation; or

5. from his relative; or

6. by way of remittance received, in the ordinary course of business through any official channel, post office, or any authorised person in foreign exchange under the Foreign Exchange Management Act, 1999; or

7. by way of any scholarship, stipend or any payment of like nature:

Ans. According to section 5(1) of the Foreign Contribution (Regulation) Act, 2010, the Central Government may, having regard to the activities of the organisation or the ideology propagated by the organisation or the programme of the organisation or the association of the organizations with the activities of any political party, by an order published in the Official Gazette, specify such organisation as an organisation of a political nature not being a political party, referred to in clause (f) of sub section (1) of section 3. The Central Government may, by rules made by it, frame the guidelines specifying the ground or grounds on which an organisation shall be specified as an organisation of a political nature.

As per Section 5(2) of the Act, before making an order under sub- section (1), the Central Government shall give the organisation in respect of whom the order is proposed to be made, a notice in writing informing it of the ground or grounds, on which it is proposed to be specified as an organisation of political nature under that sub- section.

Section 5(3) states that the organisation to whom a notice has been served under sub- section (2), may, within a period of thirty days from the date of the notice, make a representation to the Central Government giving reasons for not specifying such organisation as an organisation under sub-section (1). The Central Government may entertain the representation after the expiry of the said period of thirty days, if it is satisfied that the organisation was prevented by sufficient cause from making the representation within thirty days.

Section 5(4) provides that the Central Government may, if it considers it appropriate, forward the representation referred to the sub-section (3) to any authority to report on such representation.

The Central Government may, after considering the representation and the report of the authority referred to in sub- section (4), specify such organisation as an organisation of a political nature not being a political party and make an order under sub-section (1) accordingly.

Every order under sub-section (1) shall be made within a period of one hundred and twenty days from the date of issue of Notice under sub-section (2). In case no order is made within the said period of one hundred and twenty days, the Central Government shall, after recording the reasons therefore make an order under sub-section (1) within the period of sixty days from expiry of the said period of one hundred and twenty days.

Ans. According to Section 9 of the Foreign Contribution (Regulation) Act, 2010, the Central Government may—

1. Prohibit any person or organisation not specified in section 3, from accepting any foreign contribution;

2. Require any person or class of persons, not specified in section 6, to obtain prior permission of the Central Government before accepting any foreign hospitality;

3. Require any person or class of persons not specified in section 11, to furnish intimation within such time and in such manner as may be prescribed as to the amount of any foreign contribution received by such person or class of persons as the case may be, and the source from which and the manner in which such contribution was received and the purpose for which and the manner in which such foreign contribution was utilised;

4. Without prejudice to the provisions of section 11(1), require any person or class of persons specified in that sub-section to obtain prior permission of the Central Government before accepting any foreign contribution;

5. Require any person or class of persons, not specified in section 6, to furnish intimation, within such time and in such manner as may be prescribed, as to the receipt of any foreign hospitality, the source from which and the manner in which such hospitality was received:

Provided that no such prohibition or requirement shall be made unless the Central Government is satisfied that the acceptance of foreign contribution by such person or class of persons, as the case may be, or the acceptance of foreign hospitality by such person, is likely to affect prejudicially—

1. The sovereignty and integrity of India; or

2. Public interest; or

3. Freedom or fairness of election to any Legislature; or

4. Friendly relations with any foreign State; or

5. Harmony between religious, racial, social, linguistic or regional groups, castes or communities.

Ans. Procedure for renewal of certificate under FCRA

1. Time Limit of making application - Every person who has been granted a certificate under section 12 of the Foreign Contribution (Regulation) Act, 2010 shall have such certificate renewed within six months before the expiry of the period of the certificate.

2. To whom & Manner of making application - The application for renewal of the certificate shall be made to the Central Government in such form and manner and accompanied by such fee as may be prescribed.

3. Time Limit for grant of Renewal - The Central Government shall renew the certificate, ordinarily within 90 days from the date of receipt of application for renewal of certificate subject to such terms and conditions as it may deem fit and grant a certificate of renewal for a period of five years:

4. Reasons for Non-renewal - In case the Central Government does not renew the certificate within the said period of ninety days, it shall communicate the reasons thereof to the applicant.

5. Refusal in case of violation - The Central Government may refuse to renew the certificate in case where a person has violated any of the provisions of this Act or rules made thereunder.

Ans. Section 14 of the Foreign Contribution (Regulation) Act, 2010 empowers the Central Government to Cancel the Certificate. Accordingly, the Central Government may if it is satisfied after making such inquiry as it may deem fit, by an order. Cancel the certificate if

• the holder of the certificate has made a statement in, or in relation to, the application for the grant of registration or renewal thereof, which is incorrect or false; or

• the holder of the certificate has violated any of the terms and conditions of the certificate or renewal thereof; or

• in the opinion of the Central Government, it is necessary in the public interest to cancel the certificate; or

• the holder of certificate has violated any of the provisions of this Act or rules or order made thereunder; or

• if the holder of the certificate has not been engaged in any reasonable activity in its chosen field for the benefit of the society for two consecutive years or has become defunct

Before passing an order of cancellation of Certificate, the person concerned would be given a reasonable opportunity of being heard. Any person, whose certificate has been cancelled, shall not be eligible for registration or grant of prior permission for a period of three years from the date of cancellation of such certificate.

Ans. Section 14 of the Foreign Contribution (Regulation) Act, 2010 provides that the Central Government may, if it is satisfied after making such inquiry as it may deem fit, by an order, cancel the certificate if.-

1. the holder of the certificate has made a statement in, or in relation to, the application for the grant of registration or renewal thereof, which is incorrect or false; or

   1. the holder of the certificate has violated any of the terms and conditions of the certificate or renewal thereof; or

   2. in the opinion of the Central Government, it is’ necessary in the public interest to cancel the certificate; or

   3. the holder of certificate has violated any of the provisions of this Act or rules or order

made there under; or

if the holder of the certificate has not been engaged in any reasonable activity in its chosen field for the benefit of the society for two consecutive years or has become defunct.

Ans. Section 15(1) of the Foreign Contribution (Regulation) Act, 2010 provides that the foreign contribution and assets created out of the foreign contribution in the custody of every person whose certificate has been cancelled under section 14 or surrendered under section 14A shall vest in such authority as may be prescribed.The authority referred to in section 15 (1) above may, if it considers necessary and in public interest, manage the activities of the person referred to in that sub-section for such period and in such manner, as the Central Government may direct and such authority may utilise the foreign contribution or dispose of the assets created out of it in case adequate funds are not available for running such activityThe authority referred to in section 15(1) shall return the foreign contribution and the assets vested upon it under that sub-section to the person referred to in the said sub- section if such person is subsequently registered under this Act.

Ans. Section 22 of Foreign Contribution (Regulation) Act 2010 provides that where any person who was permitted to accept foreign contribution under this Act ceases to exist or has become defunct, all the assets of such person shall be disposed of in accordance with the provisions contained in any law for the time being in force under which the person was registered or incorporated and in the absence of such law, the Central Government may having regard to the nature of assets created out of foreign contribution received under this Act by notification, specify that all such assets shall be disposed of by such authority, as it may specify, in such manner and procedure as may be prescribed.

Ans. Section 28 of the Foreign Contribution (Regulation) Act, 2010 provides that any article or currency or security which is seized under section 25 shall be liable to confiscation if such article or currency or security has been adjudged under section 29 to have been received or obtained in contravention of the Act.

Adjudication of Confiscation: According to Section 29(1) of the of the Foreign Contribution (Regulation) Act, 2010, any confiscation referred to in section 28 may be adjudged—

1. without limit, by the Court of Session within the local limits of whose jurisdiction the seizure was made; and

2. subject to such limits as may be prescribed, by such officer, not below the rank of an Assistant Sessions Judge, as the Central Government may, by notification in the Official Gazette, specify in this behalf.

Section 29(2) of the Foreign Contribution (Regulation) Act, 2010 provides that when an adjudication under sub-section (1) above is concluded by the Court of Session or Assistant Sessions Judge, as the case may be, the Sessions Judge or Assistant Sessions Judge may make such order as he thinks fit for the disposal by confiscation or delivery of seized article or currency or security, as the case may be, to any person claiming to be entitled to possession thereof or otherwise, or which has been used for the commission of any offence under this Act.

Procedure for Confiscation: Section 30 provides that order of adjudication of confiscation shall not be made unless a reasonable opportunity of making a representation against such confiscation has been given to the person from whom any article or currency or security has been seized.

Ans. Section 31 of the Foreign Contribution (Regulation) Act, 2010 deals with appeals and provides that any person aggrieved by any order made under section 29 of the Act may prefer an appeal, where the order has been made by the Court of Session, to the High Court to which such Court is subordinate; or where the order has been made by any officer specified, to the Court of Session within the local limits of whose jurisdiction such order of adjudication of confiscation was made, within one month from the date of communication to such person of the order.

Further the Appellate Court may, if it is satisfied that the appellant was prevented by sufficient cause from preferring the appeal within the said period of one month, allow such appeal to be preferred within a further period of one month, but not thereafter.

Every appeal preferred under this section shall be deemed to be an appeal from an original decree and the provisions of Order XLI of the First Schedule to the Code of Civil Procedure, 1908, shall, as far as may be, apply thereto as they apply to an appeal from an original decree.

Ans. Section 32(1) of Foreign Contribution (Regulation) Act, 2010 provides that the Central Government may, either of its own motion or on an application for revision by the person registered under this Act, call for and examine the record of any proceeding under this Act in which any such order has been passed by it and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon as it thinks fit. The Central Government shall not of its own motion revise any order under this section if the order has been made more than one year previously.

In the case of an application for revision under this section by the person referred to in sub-section (1), the application must be made within one year from the date on which the order in question was communicated to him or the date on which he otherwise came to know of it, whichever is earlier.

Central Government may, if it is satisfied that such person was prevented by sufficient cause from making the application within that period, admit an application made after the expiry of that period.

The Central Government shall not revise any order where an appeal against the order lies but has not been made and the time within which such appeal may be made has not expired or such person has not waived his right of appeal or an appeal has been filed under this Act. Every application by such person for revision under this section shall be accompanied by such fee, as may be prescribed.

Ans. Section 34 of the Foreign Contribution (Regulation) Act, 2010 prescribes for penalty on any person, on whom any prohibitory order has been served under Section 10 of the Act, pays, delivers, transfers or otherwise deals with, in any manner whatsoever, any article or currency or security, whether Indian or foreign, in contravention of such prohibitory order, he shall be punished with imprisonment for a term which may extend to three years, or with fine, or with both.

The Court trying such contravention may also impose on the person convicted an additional fine equivalent to the market value of the article or the amount of the currency or security in respect of which the prohibitory order has been contravened by him or such part thereof as the court may deem fit.

Section 35 of the Foreign Contribution (Regulation) Act, 2010 on the other hand provides for punishment with imprisonment for a term which may extend to five years, or with fine, or with both for accepting, or assisting any person, political party or organisation in accepting, any foreign contribution or any currency or security from a foreign source, in contravention of any provision of this Act or any rule or order made thereunder.

Section 39 deals with offences by companies and Section 41 provides for composition of certain offences.

Ans. According to Section 2(g) of the Foreign Contribution (Regulation) Act, 2010 “Foreign Company” means any company or association or body of individuals incorporated outside India and includes—

1. A foreign company within the meaning of the Companies Act, 1956/2013;

2. A company which is a subsidiary of a foreign company;

3. The registered office or principal place of business of a foreign company referred to in sub- clause (i) or company referred to in sub-clause (ii);

4. A multi-national corporation.

It may be noted that a corporation incorporated in a foreign country or territory shall be deemed to be a multi-national corporation if such corporation,

1. has a subsidiary or a branch or a place of business in two or more countries or territories; or

2. carries on business, or otherwise operates, in two or more countries or territories;

Any “Person” can receive foreign contribution subject to the following conditions:

• It must have a definite cultural, economic, educational, religious or social programme.

• It must obtain the FCRA registration/prior permission from the Central Government It must not be prohibited under Section 3 of FCRA, 2010.

It may be noted that “Person” includes (i) (i) (iii) (iv) an individual; a Hindu undivided family; an association; a company registered under section 25/8 of the Companies Act, 1956/2013 respectively.

Ans. The possible social, economic and political effects of money laundering, if left unchecked or dealt with ineffectively, are serious. Through the process of money laundering, organised crime can infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials and indeed governments. Thus, the economic and political influence of criminal organisations can weaken the social fabric, ethical standards and ultimately the democratic institutions of

society. There is a damping effect on foreign direct investment when a country’s commercial and financial sectors are perceived to be subject to the control and influence of organised crime.

Launderers are continuously looking for new routes for laundering their funds. Economies with growing or developing financial centres, but inadequate controls are particularly vulnerable as established financial centre countries implement comprehensive anti-money laundering regimes.

Differences between national anti-money laundering systems will be exploited by launderers; who tend to move their networks to countries and financial systems with weak or ineffective countermeasures.

Some might argue that developing economies cannot afford to be too selective about the sources of capital they attract. But postponing action is dangerous. The more it is deferred, the more entrenched organised crime can become.

As with the damaged integrity of an individual financial institution, there is a damping effect on foreign direct investment when a country's commercial and financial sectors are perceived to be subject to the control and influence, of organised crime. Fighting money laundering and terrorist financing is therefore a part of creating business friendly environment which is a precondition for lasting economic development.

Ans. According to Section 2(1) (p) of the Prevention of Money Laundering Act, 2002 "money-laundering" has the meaning assigned to it in section 3 of the Act.

Section 3 of the Prevention of Money Laundering Act, 2002 states that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it is an untainted property shall be guilty of offence of money laundering.

Section 4 provides that any person who commits the offence of money laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and also liable to fine. However, where the proceeds of crime involved in money laundering relates to any offence specified under the Narcotic Drugs and Psychotropic Substances Act, the punishment may extend to rigorous imprisonment for ten years.

Ans. Section 3 of the Prevention of Money Laundering Act, 2002 states that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it is an untainted property shall be guilty of offence of money laundering.

Money laundering is the processing of criminal proceeds to disguise its illegal origin. The process of money laundering can be classified into three stages, namely, placement, layering and integration.

Ans. Section 4 of the Prevention of Money Laundering Act, 2002 provides that any person who commits the offence of money laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and also liable to fine.

However, where the proceeds of crime involved in money laundering relates to any offence specified under the Narcotic Drugs and Psychotropic Substances Act, the punishment may extend to rigorous imprisonment for ten years.

Ans. According to Section 3 of the Prevention of Money Laundering Act, 2002, whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering.

Punishment: Section 4 of the said Act provides for the punishment for Money-Laundering. Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than 3 years but which may extend to 7 years and shall also be liable to fine. But where the proceeds of crime involved in money-laundering relate to any offence specified under paragraph 2 of Part A of the Schedule, the maximum punishment may extend to 10 years instead of 7 years.

As per the provisions of the Prevention of Money Laundering Act, 2002 Mr. X has Committed an offence under Section 3 and Section 23 of this Act and he may be punished as per the aforesaid provisions of section 4 of the Prevention of Money Laundering Act, 2002.

Ans. As per Section 6 of the Foreign Contribution Regulation Act, 2010 following person cannot receive foreign hospitality visiting any country without prior permission of the Central Government:

1. Members of a legislature

2. Office bearers of political parties.

3. Judges

4. Government Servants, Public Servants

5. Employees of any Corporation or any other body owned or controlled by the Government

Since Directors of Public Company are not covered under Section 6 of the Foreign Contribution Regulation Act, 2010. Therefore, Amit can accept foreign hospitality and as such he or the company has not contravened the provisions of the Foreign Contribution Regulation Act, 2010.

Ans. The obligations which have been imposed upon banks to remain cautious under the Prevention of Money Laundering Act, 2002 are:

1. In terms of the provisions of Prevention of Money-Laundering Act, 2002 and the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, banks are required to follow certain customer identification procedures (KYC procedures) while undertaking a transaction either by establishing an account-based relationship or otherwise and monitor their transactions.

2. Banks should keep in mind that the information collected from the customer for the purpose of opening of account is to be treated as confidential and details thereof are not to be divulged for cross selling or any other like purposes. Banks should, therefore, ensure that information sought from the customer is relevant to the perceived risk, is not intrusive, and is in conformity with the guidelines issued in this regard. Any other information from the customer should be sought separately with his/her consent and after opening the account.

3. Banks should ensure that the provisions of Foreign Contribution (Regulation) Act, 2010 and the Foreign Exchange Management Act, 1999 as amended from time to time, wherever applicable are strictly adhered to.

4. Banks should take appropriate steps to evolve a system for proper maintenance and preservation of account information in a manner that allows data to be retrieved easily and quickly whenever required or when requested by the competent authorities.

5. Banks should ensure that records pertaining to the identification of the customer and his address (e.g. copies of documents like passports, identity cards, driving licenses, PAN card, utility bills etc.) obtained while opening the account and during the course of business relationship, are properly preserved. The identification records and transaction data should be made available to the competent authorities upon request.

6. Banks have been advised to pay special attention to all complex, unusual large transactions and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose. It is further clarified that the background including all documents/office records/memorandums pertaining to such transactions and purpose thereof should, as far as possible, be examined and the findings at branch as well as Principal Officer Level should be properly recorded.

Ans. Reserve Bank of India issued Master Circular on Know Your Customer(KYC) Guidelines under Prevention of Money Laundering Act, (PMLA), 2002 and Banks were advised to follow certain customer identification procedure for opening of accounts and monitoring transactions of a suspicious nature for the purpose of reporting it to appropriate authority.

The objective of Know Your Customer (KYC) Norms/Anti-Money Laundering (AML) Measures/Combating of Financing of Terrorism (CFT) guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC procedures also enable banks to know/ understand their customers and financial dealings better which in turn help banks manages their risks prudently.

The 4 key elements of the KYC Policy include

• Customer Acceptance Policy,

• Customer Identification Procedures,

• Monitoring of Transactions and

• Risk Management.

Ans. According to the Prevention of Money Laundering Act, 2002 requires every Bank shall—

1. Maintain a record of all transactions, including information relating to transactions in such manner as to enable it to reconstruct individual transactions.

2. Furnish to the Director within such time as may be prescribed, information relating to such transactions, whether attempted or executed, the nature and value of which may be prescribed.

3. Maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.

4. Preserved information such as the nature of the transactions; the amount of the transaction and the currency in which it was denominated; the date on which the transaction was conducted; and the parties to the transaction.

Every information maintained, furnished or verified, save as otherwise provided under any law for the time being in force, shall be kept confidential. The records shall be maintained for a period of five years from the date of transaction between a client and the reporting entity.

Q, Explain in brief the role of the Financial Action Task Force (FATF) in the prevention of money laundering under The Prevention of Money Laundering Act, 2002? (June,23 – 4 marks)

Ans. The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions.

The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

The FATF is a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

The FATF has developed a series of Recommendations that are recognised as the international standard for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction. They form the basis for a co-ordinated response to these threats to the integrity of the financial system and help ensure a level playing field.

The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally.

In collaboration with other international stakeholders, the FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.

OLD SYLLABUS

Ans. Money laundering is the processing of criminal proceeds to disguise its illegal origin.

As per section 2(1)(p) of the Prevention of Money Laundering Act, 2002 "money- laundering" has the meaning assigned to it in section 3.

Section 3 of the Prevention of Money Laundering Act, 2002 states that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it is an untainted property shall be guilty of offence of money laundering.

Economies with growing or developing financial centers, but inadequate controls are particularly vulnerable to money laundering, as against the established financial center countries, which implement comprehensive anti-money laundering regimes. The gaps in a national anti-money laundering system are exploited by launderers, who tend to move their networks to countries and financial systems with weak or ineffective countermeasures. As with the damaged integrity of an individual financial institution, there is a damping effect on foreign direct investment when a country’s commercial and financial sectors are perceived to be subject to the control and influence of organised crime.

In times of decelerating growth, an infusion of hard currency can bolster a country’s foreign reserves; ease the hardship associated with budget tightening policies and moderate foreign indebtedness. While these are short-term benefits associated with an inflow of criminal monies, the long-term effects are mostly negative. One difference between official borrowing and laundered funds is that the former can be controlled by Government, whereas the funds owned by criminals escape the governments ability to control and regulate the economy.

The possible social, economic and political effects of money laundering, if left unchecked or dealt with ineffectively, are serious. Through the process of money laundering, organised crime can infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials and indeed governments. Thus, the economic and political influence of criminal organisations can weaken the social fabric, ethical standards and ultimately the democratic institutions of society.

Ans. The process of money laundering can be classified into three stages, namely, placement, layering and integration.

In the initial or placement stage of money laundering, the launderer introduces his illegal profits into the financial system, by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments that are later collected and deposited into accounts at another location.

After the funds are entered into the financial system, the layering takes place. In this stage, the launderer engages in a series of conversions or movements of the funds to distance them from their source. The funds might be channeled through the purchase and sale of investment instruments, or the launderer might simply wire the funds through a series of accounts at various banks across the globe.

After successful processing of criminal profits through the first two phases of the money laundering process, the launderer moves them to integration. In this stage the funds re-enter the legitimate economy. The launderer might choose to invest the funds into real estate, luxury assets, or business ventures.

Ans. The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is therefore a “policy- making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally. In collaboration with other international stakeholders, the FATF works to identify national- level vulnerabilities with the aim of protecting the international financial system from misuse.

Ans. Section 45 of the Prevention of Money Laundering Act, 2002 declares every offence punishable under this Act to be cognizable and non-bailable. It provides that notwithstanding anything contained in the Code of Criminal Procedure, 1973, a person accused of an offence punishable for a term of imprisonment of more than three years under Part A of the Schedule shall not be released on bail or on his own bond unless the Public Prosecutor has been given an opportunity to oppose the application for such release; and where the Public Prosecutor opposes the application, unless the Court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while in bail.

The Special Court in this respect shall not take cognizance of any offence punishable under Section 4, except upon a complaint in writing made by (i) the Director or (ii) any officer of the Central Government or State Government authorised in writing in this behalf by the Central Government by a general or special order made by that Government.

Ans. According to the Prevention of Money Laundering Act, 2002, Banks are required to maintain all necessary information in respect of transactions to permit reconstruction of individual transaction, including the following information:

1. the nature of the transactions;

2. the amount of the transaction and the currency in which it was denominated;

3. the date on which the transaction was conducted; and

4. the parties to the transaction.

Further, Banks are required to maintain the records containing information of all transactions. Banks should take appropriate steps to evolve a system for proper maintenance and preservation of account information in a manner that allows data to be retrieved easily and quickly whenever required or when requested by the competent authorities.

Banks should ensure that records pertaining to the identification of the customer and his address (e.g. copies of documents like passports, identity cards, driving licenses, PAN card, utility bills etc.) obtained while opening the account and during the course of business relationship, are properly preserved.

Banks have been advised to pay special attention to all complex, unusual large transactions and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose. It is further clarified that the background including all documents/ office records/memorandums pertaining to such transactions and purpose thereof should, as far as possible, be examined and the findings at branch as well as Principal Officer Level should be properly recorded.

Ans. The Financial Action Task Force (FATF) is an inter-governmental body established by the Ministers of its Member jurisdictions.

The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

The FATF has developed a series of Recommendations that are recognised as the international standard for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction.

The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter- measures, reporting of suspicious transactions, and promotes the adoption and implementation of appropriate measures globally.

In collaboration with other international stakeholders, the FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.

Ans. Section 21 of the Prevention of Money Laundering Act, 2002 deals with retention of records.

1. Section 21(1) states that where any records have been seized under section 17 or section 18 or frozen under section 17(1A) and the Investigating Officer or any other officer authorised by the Director in this behalf has reason to believe that any of such records are required to be retained for any inquiry under this Act, such records may if seized, be retained or if frozen, may continue to remain frozen, for a period not exceeding one hundred and eighty days from the day on which such records were seized or frozen, as the case may be.

2. The person, from whom records seized or frozen, shall be entitled to obtain copies of records.

3. On the expiry of the specified period, the records shall be returned to the person from whom such records were seized or whose records were ordered to be frozen unless the Adjudicating Authority permits retention or continuation of freezing of such records beyond the said period.

4. The Adjudicating Authority, before authorising the retention or continuation of freezing of such records beyond the specified period shall satisfy himself that the records are required for the purposes of adjudication under section 8.

5. After passing of an order of confiscation under section 8 (5) or section 8 (7), the Adjudicating Authority shall direct the release of the records to the person from whom such records were seized.

6. Where an order releasing the records has been made by the Court under of section 8(6) or by the Adjudicating Authority under section 58B or under section 60(2A), the Director or any officer authorised by him in this behalf may withhold the release of any such record for a period of ninety days from the date of such order, if he is of the opinion that such record is relevant for the appeal proceedings under the Prevention of Money Laundering Act, 2002.

Ans. The first major initiative in the prevention of money laundering was the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances in December 1988 (popularly known as Vienna Convention). This convention laid the groundwork for efforts to combat money laundering by obliging the member states to criminalize the laundering of money from drug trafficking. It promotes international cooperation in investigations and makes extradition between member states applicable to money laundering. The convention also establishes the principle that domestic bank secrecy provisions should not interfere with international criminal investigations.

Ans. Money Laundering

Money laundering is the processing of criminal proceeds to disguise its illegal origin. In the Prevention of Money Laundering Act, 2002, money laundering has been defined as “any process or activity connected with proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property”.

Provisions of the Prevention of Money Laundering Act, 2002 regarding the obligations of banking companies, financial institutions and intermediaries:

1. Section 12 of the Prevention of Money Laundering Act, 2002 requires every banking company, financial institution and intermediary to maintain a record of all transactions covered as per the nature and value of which may be prescribed, in such manner as to enable it to reconstruct individual transactions;

2. They shall furnish to the Director, Financial Intelligence Unit-India (FIU) within such time as may be prescribed information relating to such transactions, whether attempted or executed, the nature and value of which may be prescribed;

3. They shall verify the identity of its clients in such manner and subject to such conditions as may be prescribed;

4. They shall identify the beneficial owner, if any, of such of its clients, as may be prescribed;

5. They shall maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients for a period of five years in case of record and information relating to transactions; and

6. They shall maintain the same for a period of five years after the business relationship between a client and the reporting entity has ended or the account has been closed, whichever is later.

Ans. As per Section 60(1) of the Prevention of Money-laundering Act, 2002, Where the Director has made an order for attachment of any property under section 5 or for freezing under sub-section (1A) of section 17 or where an Adjudicating Authority has made an order relating to a property under section 8 or where a Special Court has made an order of confiscation relating to a property under sub-section (5) or sub section (6) of section 8, and such property is suspected to be in a contracting State, the Special Court, on an application by the Director or the Administrator appointed under sub-section (1) of section 10, as the case may be, may issue a letter of request to a court or an authority in the contracting State for execution of such order.

Section 60(2) prescribe that when a letter of request is received by the Central Government from a court or an authority in a contracting State requesting attachment, seizure, freezing or confiscation of the property in India, derived or obtained, directly or indirectly, by any person from the commission of an offence under a corresponding law committed in that contracting State, the Central Government may forward such letter of request to the Director, as it thinks fit, for execution in accordance with the provisions of this Act.

Ans. The objective of Know Your Customer (KYC) Norms/Anti-Money Laundering (AML) Measures/Combating of Financing of Terrorism (CFT) guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC procedures also enable banks to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently.

Following elements should be incorporated in KYC Policy:

• Customer Acceptance Policy;

• Customer Identification Procedures;

• Monitoring of Transactions; and

• Risk Management.

The following person(s)/entity(s) may be treated as customer for the purpose of KYC Policy:

• a person or entity that maintains an account and/or has a business relationship with the bank;

• one on whose behalf the account is maintained (i.e. the beneficial owner);

• beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and

• any person or entity connected with a financial transaction which can pose significant reputational or other risks to the bank, say, a wire transfer or issue of a high value demand draft as a single transaction.

Ans. According to Section 17 of the Prevention of Money Laundering Act, 2002 , where the Director or any other officer not below the rank of Deputy Director authorised by him on the basis of information in his possession, has reason to believe (the reason for such belief to be recorded in writing) that any person— (i) has committed any act which constitutes money-laundering, or (ii) is in possession of any proceeds of crime involved in money-laundering, or (iii) is in possession of any records relating to money-laundering, or (iv) is in possession of any property related to crime.

Then Enforcement Director and his authorized officers has authority to exercise following powers: (i) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;(b) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available;(c) seize any record or property found as a result of such search;(d) place marks of identification on such record or property, if required or] make or cause to be made extracts or copies therefrom;(e) make a note or an inventory of such record or property;(f) examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation .

Preconditions for exercising powers of search and seizure are:-

1. Search can be conducted in relation to the scheduled offence.

2. A report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973, or a complaint has been filed by a person, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or

3. In cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorised to investigate a scheduled offence to an officer not be low the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be, or any other officer who may be authorised by the Central Government.

4. The authority, who has been authorised shall, immediately after search and seizure or upon issuance of a freezing order, forward a copy of the reasons so recorded along with material in his possession to the Adjudicating Authority in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period, as may be prescribed.

Ans. The “Regulated Entities” (REs) under the protection of Money-Laundering Act, 2002 means:

1. all Scheduled Commercial Banks (SCBs), Regional Rural Banks (RRBs)/ Local Area Banks (LABs)/ All Primary (Urban) Co-operative Banks (UCBs)/ State and Central Co-operative Banks (StCBs/CCBs) and any other entity which has been licenced under Section 22 of Banking Regulation Act, 1949, which as a group shall be referred as ‘banks”.

2. All India Financial Institutions (AIFIs).

3. All Non-Banking Finance Companies (NBFCs), Miscellaneous Non- Banking Companies (MNBCs) and Residuary Non-Banking Companies (RNBCs).

4. All Payment System Providers (PSPs), System Participants (SPs) and Prepaid Payment Instrument Issuers (PPI Issuers).

5. All authorised persons (APs) including those who are agents of Money Transfer Service Scheme (MTSS), regulated by the Regulator.

Ans. Yes, this money can be regarded as Proceeds of Crime’ under the Prevention of Money Laundering Act, 2002.

In the case of Directorate of Enforcement {Appellant(s)} vs. Padmanabhan Kishore {Respondent(s)} (Arising out of SLP (Crl.) No. 2668 of 2022) Judgement dated October 31, 2022, Supreme Court of India inter-alia observed that the definition of “proceeds of crime” in PML Act, inter alia, means any property derived or obtained by any person as a result of criminal activity relating to a scheduled offence. The offences punishable under Sections 7, 12 and 13 are scheduled offences, as is evident from paragraph 8 of Part-A of the Schedule to the PML Act. Any property thus derived as a result of criminal activity relating to offence mentioned in said paragraph 8 of Part-A of the Schedule would certainly be “proceeds of crime”. Section 3 states, inter alia, that whoever knowingly assists or knowingly is a party or is actually involved in any process or activity connected with proceeds of crime including its concealment, possession, acquisition or use shall be guilty of offence of money-laundering.

The Defence that Ravinder could submit is:

It is true that so long as the amount is in the hands of a bribe giver, and till it does not get impressed with the requisite intent and is actually handed over as a bribe, it would definitely be untainted money. If the money is handed over without such intent, it would be a mere entrustment. If it is thereafter appropriated by the public servant, the offence would be of misappropriation or species thereof but certainly not of bribe. The crucial part therefore is the requisite intent to hand over the amount as bribe and normally such intent must necessarily be antecedent or prior to the moment the amount is handed over. Thus, the requisite intent would always be at the core before the amount is handed over. Such intent having been entertained well before the amount is actually handed over, the person concerned would certainly be involved in the process or activity connected with “proceeds of crime” including inter alia, the aspects of possession or acquisition thereof. By handing over money with the intent of giving bribe, such person will be assisting or will knowingly be a party to an activity connected with the proceeds of crime. Without such active participation on part of the person concerned, the money would not assume the character of being proceeds of crime. The relevant expressions from Section 3 of the PML Act are thus wide enough to cover the role played by such person.

Further, Supreme Court of India held that on a bare perusal of the complaint made by the Enforcement Directorate, it is quite clear that the respondent was prima facie involved in the activity connected with the proceeds of crime.