Purpose of the FEMA :

The preamble to FEMA lays down the purpose of the Act is 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.

Broadly, the objectives of FEMA are to facilitate external trade and payments and to promote the orderly development and maintenance of foreign exchange market. The Act has assigned an important role to the Reserve Bank of India (RBI) in the administration of FEMA. The rules, regulations and norms pertaining to several sections of the Act are laid down by the Reserve Bank of India, in consultation with the Central Government. The Act requires the Central Government to appoint as many officers of the Central Government as Adjudicating Authorities for holding inquiries pertaining to contravention of the Act. There is also a provision for appointing one or more Special Directors (Appeals) to hear appeals against the order of the Adjudicating authorities. The Central Government also establishes an Appellate Tribunal for Foreign Exchange to hear appeals against the orders of the Adjudicating Authorities and the Special Director (Appeals). The FEMA provides for the establishment, by the Central Government, of a Director of Enforcement with a Director and such other officers or class of officers as it thinks fit for taking up for investigation of the contraventions under this Act.

There are certain distinctions in the features of FERA and FEMA. They are:

FOREIGN EXCHANGE REGULATION ACT 1973	FOREIGN EXCHANGE MANAGEMENT ACT 1999
To conserve foreign exchange and to prevent its misuse	To facilitate external trade and payments and also to develop foreign exchange markets in India
Violation of FERA was a criminal offence	Violation of FEMA is a civil offence
Offences under FERA were not compoundable	Offences under FEMA are compoundable
While many restrictions were part of FERA in respect of transfer of funds	Almost all current account transactions are free except a few
FERA was draconian criminal law	FEMA is a civil law

FEMA extends to whole of India. It also has some extra territorial jurisdiction i.e., it applies to all branches, offices and agencies outside India owned and controlled by a person resident in India. The provisions of FEMA are also applicable to any contravention committed outside India by any person.

Reserve Bank of India has overall control over the foreign exchange transactions; however, the enforcement of FEMA has been entrusted to the “Directorate of Enforcement’ formed for this purpose

FEMA – Important aspects:

FEMA allows free flow of transactions on current account subject to certain reasonable restrictions

FEMA has control over realization of export proceeds

FEMA allows RBI to have control over capital account transactions

FEMA provides for dealing in foreign exchange through ‘Authorised Persons’ like authorized dealer/money changer/ off-shore banking unit;