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Management Of Foreign Exchange


The Parliament has enacted the Foreign Exchange Management Act,1999 to replace the Foreign Exchange Regulation Act, 1973. This Act came into force on the 1st day of June, 2000. The Central Govt. have established the Directorate of Enforcement with Director and other officers, for the purpose of taking up investigations of cases under the said Act.

The object of the Act is to consolidate and amend the law relating to foreign exchange with objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.

This Act extends to the whole of India and also apply applies to all branches, offices and agencies outside India owned or controlled by a person resident in India. It is also applicable to any contravention committed outside India by any person to whom this Act is applicable.


SECTION 3 - Prohibits dealings in foreign exchange except through an authorised person. This section states that no person can, without general or special permission of the RBI-

(a) Deal in or transfer any foreign exchange or foreign securities to any person not  being an authorized person.
(b) Make any payment to or for the credit of any person resident outside India in any manner.
(c) Receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner.
(d) Enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire any asset outside India by any person.

SECTION 4 - Restrains any person resident in India from acquiring, holding, owning, possessing or transferring any foreign exchange, foreign security or any immovable property situated outside India except as specifically provided in the Act. The terms "foreign exchange" and "foreign security" are defined in sections 2(n) and 2(o) respectively of the Act. The Central Govt. has made Foreign Exchange Management (Current Account Transactions) Rules, 2000.

SECTION 6 - deals with capital account transactions. This section allows a person to draw or sell foreign exchange from or to an authorised person for a capital account transaction. RBI in consultation with Central Govt. has issued various regulations on capital account transactions in terms of sub-section (2) and (3 ) of section 6.

SECTION 7 -  deals with export of goods and services. Every exporter is required to furnish to the RBI or any other authority, a declaration, etc.,  regarding full export value.

SECTION 8 - casts the responsibility on the persons resident in India who have any amount of foreign exchange due or accrued in their favour to get the same realised and repatriated to India within the specific period and the manner specified by RBI..

SECTIONS 10 and 12  - deals with duties and liabilities of the authorized persons. Authorised person has been defined in Sec.2(c) of the Act which means an authorised dealer, money changer, off shore banking unit or any other person for the time being authorized to deal in foreign exchange or foreign securities.

SECTIONS 13 and 15 - of the Act deal with penalties and enforcement of the orders of Adjudicating Authority as well power to compound contraventions under the Act.

SECTION 36 to 37 - pertains to the establishment of Directorate of Enforcement and the powers to investigate the violation of any provisions of Act, rule, regulation, notifications, directions or order issued in exercise of the powers under this Act. The Director of Enforcement and other officers of Enforcement not below the rank of Asstt. Director have been empowered to take up investigations.


The Directorate of Enforcement is mainly concerned with the enforcement of the provisions of the Foreign Exchange Management Act and Rules and Regulation issued there under to serve the objectives of the Act.  The officers of the Directorate perform adjudication function so as to impose penalty on persons for contravention of the Act.


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