Overview of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000

CHAPTER 1 – INTRODUCTION

1.1 AIM

The aim is to understand the Foreign Exchange Management (Adjudication Proceedings and Appeals) Rules, 2000. This study also focuses on about appointment of Adjudicating Authority, the proceedings before Adjudicating Authority and Special Director.

Overview of Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000

1.2 STATEMENT OF PROBLEM

 RBI having a big role towards the foreign exchange market needs to balance both the import and export of foreign exchange reserves as well stability of the flow in the country so that it does not remain at lower level. After liberalisation in 1991 where foreign exchange had a huge flow in India the FERA made rigid rules towards it and so various rules had been brought into Foreign Exchange Management Act, where it will be managing foreign exchange. One of such rules which are Foreign Exchange Management (Adjudication Proceedings and Appeals) Rules, 2000 made for the adjudication of person who committed contravention before the respected authority.

1.3 ABSTRACT

Foreign Emergency Management Act, 1999 (FEMA) looks after the cross border funds, foreign exchange transactions and even trade between the resident and non-resident of India. FEMA is a short Act, having 49 sections and the functioning of FEMA is similar to any other commercial law. FEMA has various guidelines and also rules which need to be followed. If the guidelines are not followed or if the transactions fall outside the limit, one needs to obtain approvals for it. If there is any violation to the guidelines then the consequence is penalty. Prosecution can also take place if the penalty is not paid within the specified period of time. RBI controls the Capital Account transactions and reasonable limitations have been imposed.  All the transactions in foreign exchange can only be done through Authorised Person. And the Act has control over exports proceeds. Ruling is also given for any offenses done. The research paper will cover the rules of Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000 where the procedure of various authorities such as Adjudication Authority, Special Director & Appellate Tribunal will be studied in detail.

1.4 RESEARCH QUESTIONS/ HYPOTHESIS

What is the procedure which is followed by various Authorities during adjudication and is it bringing changes in the foreign exchange market by its strict rules?

1.5 RESEARCH METHODOLOGY

The research is a doctrinal study of Foreign Emergency Management (Adjudication Proceedings and Appeal) Rules, 2000. This project is based from various readings, observation from different authors, journal as well as research articles and analysing statutory provisions. The Library-based Research method will be followed for deriving the Hypothesis. The search will be conducted on the basis of primary sources such as statutes secondary sources such as books, online articles available freely as well as on legal databases. The paper is based on pure theoretical research.

1.6 REVIEW OF LITERATURE

The Author[1] stresses on simplifying the meaning of Foreign Exchange Management Act, 1999 by explaining the foreign exchange and importance of foreign exchange reserves. The Author provides brief perspective on historical background as well as the applicability. The Author also places a good explanation on the current and capital account transactions classifying it with the permissible activity to person resident and person resident out of India. The research paper also focused on the various aspects of RBI which is a key regulator of FEMA also upon the machinery which are responsible in various aspects of FEMA such as Enforcement Directorate, Adjudicating Authority and tribunals. Various rules and regulations are mentioned to give a brief about FEMA.

CHAPTER 2 – PENALTIES AND PROCEEDINGS BEFORE ADJUDICATING AUTHORITY

2.1  ROLE OF AUTHORITIES

a. Enforcement Directorate – The Enforcement Directorate have the powers as per the contraventions[2] which are in Section 13. The function of Enforcement Directorate is to curb the malpractices which take places in foreign exchange. It is under the control of Department of Revenue for functioning related cases and with the Department of Economic Affairs with matter relating to policy or amendments. One more thing of Department of Economic Affairs is that it communicates with RBI any trades or banking part of the Act.

b. Adjudicating Authority[3] – Section 16 states that notice will be issued to a person who has violated regulations given by RBI or provisions of Foreign Exchange Management Act, rules. Authorities need to look into the matter carefully and dispose matter within a period of one year. The person who violated can appear either in person or can also appoint Chartered Accountants or Legal Practitioner.

c. Special Director[4] – As per Section 17 one or more special directors can be appointed for Appeal made against the orders of Adjudicating Authority. Further they need to mention in which places Special Director have right to exercise jurisdiction. The appeal can be made within forty five days.

d. Appellate Tribunal[5] – As per Section 18 the aggrieved person can prefer an Appeal against the order of Special Director or Adjudicating Authority in Appellate Tribunal for foreign exchange.

2.2  PENALTIES

FEMA is not a wholly independent law as RBI is making regulations and have a major role over it. Various penalties[6] are been for any contravention under FEMA which are monetary in nature. Under Section 13 (1), if any person tries to violate any rules, regulations will be imposed penalty 3 times of the total amount which is violated and if the penalty is not paid during a specified time it can even be raised up to Rupees two lakhs. And if the contravention goes on continuing the penalty which may be imposed be Rupees five thousand daily from day one from when the violation continues. The authorities have the right also to seize currency or property if any apart from penalty which is imposed. The limit to pay the penalty is 90 days and if the person does not pay than he will be liable to imprisonment. Provisions are also been made under Sec. 17 & 19[7] where at every stage appeal can be taken against the order from Adjudicating authority to Special Director and then if the order which is made by Special Director can be appealed to Appellate tribunal. Appeal can be made in High Court against the order of Appellate tribunal. Directorate of Enforcement is mainly appointed to prevent malpractices of foreign exchange.

2.3 PROCEEDINGS BEFORE ADJUDICATING AUTHORITY

a. By publishing an order in the Official Gazette, the Central Government may able to appoint officers[8] as the Adjudicating Authorities under the provisions of Chapter IV of the Foreign Exchange Management Act for holding enquiry.

b. When it is found that any person has committed contravention under Section 13 of the Act. The Adjudicating Authority will issue a notice to such person to appear and to show cause within a period which will be specified and to know why inquiry should not be held against him[9]. The period cannot be less than 10 days from the date when the notice is served. In that notice it needs to be added the nature of contravention which is committed by him.

c. The person needs to reply within the time specified and after that Adjudicating Authority by issuing a notice for appearance either alone or a Chartered Accountant or legal practitioner which will be authorized duly by him. On the date of appearance, he will be explained by the Authority about the contravention which have been committed by indicating the provisions of the Act or rules, regulations or any conditions to which an authorisation is issued by the Reserve Bank of India.

d. The next hearing will be kept for producing relevant documents or evidence which he will feel right to the inquiry and in such evidence Adjudicating Authority shall not be bound to observe under the Indian Evidence Act, 1872. The Adjudicating Authority will have the power to summon to any person whom he feel necessary with circumstances of the case for giving any evidence which is useful in the subject matter. And if any person refuses to appear than the Adjudicating Authority may proceed the proceedings after recording the reasons for doing so.

e. After the evidence is produced before the Adjudicating Authority and is satisfied that the person has committed contravention, he may by writing the order will impose penalty as he feel appropriate under the provisions of Section 13 of the Act. It needs to be dated and signed by the Adjudicating Authority. The copy of the order shall be given to the person free of charge and other copies of the proceedings will be supplied to him on payment of Rs. 2 per page.

f. The order of arrest can also be issued by the Adjudicating Authority if the person fails to pay the amount which is imposed within a period of ninety days and also if he is satisfied that the person is obstructing the recovery of property and so he is dishonestly transferring or removing any part of property.

 CHAPTER 3 – PROCEEDINGS BEFORE SPECIAL DIRECTOR & APPELLATE TRIBUNAL

3.1 SPECIAL DIRECTOR

The applicant needs to for presenting the appeal to Special Directors fill the Form 1 and signed by him[10]. Further appeal shall be accompanied by a fee of Rupees five thousand in cash or demand draft and also the appeal shall be filed along with three copies of order. The appeal can only be filed within a period of forty-five days and if period expired than it shall be accompanied by a petition with proper supported documents and for showing cause how the applicant was prevented for filing within the time period prescribed.

PROCEEDINGS[11]

  • On receipt, the Special Director will send a copy of appeal along with the order to the Director of Enforcement and a date will be fixed by issuing notice to both sides for appearing and hearing the appeal. On the date fixed both the parties will be heard i.e. the Appellant as well as the Presenting Officer of the Directorate of Enforcement and then the Special Director shall decide the case on merits. The case needs to be decided within a period of 180 days.
  • The order will be in writing along with reasons stating briefly for the ground of decision and also signed and dated.
  • A notice can be issued[12] under these rules which needs to be served to any person in the manner i.e. by delivering to that person or his duly authorised person or, by sending by registered post the notice either at his place of residence or where he carry on his business and also acknowledging or, by affixing it on the outer door of his place where he resides or to the place where he carries on business or, if neither of the previous option cannot be served than it can be published in leading newspaper both in vernacular as well as English which have vide circulation of area in which  he resides.

3.2 APPELLATE TRIBUNAL

The applicant needs to for presenting the appeal to Appellate Tribunal fill the Form II and signed by him[13]. Further appeal shall be accompanied by a fee of Rupees ten thousand in cash or demand draft and also the appeal shall be filed along with three copies of order. Further the applicant needs to deposit the amount of penalty[14] which was imposed by Adjudicating Authority or Special Directors with such authority which will be notified by the Central Government. The Appellate Tribunal also if he is of the opinion that it can cause undue hardship to that person may dispense with such deposit subject to some conditions. The appeal which will be set forth should be under distinctive head to the ground of objection in the order which is appealed. The appeal can only be filed within a period of forty-five days and if period expired than it shall be accompanied by a petition with proper supported documents and for showing cause how the applicant was prevented for filing within the time period prescribed.

PROCEEDINGS[15]

  • On receipt, the Appellate tribunal will send a copy of appeal along with the order to the Director of Enforcement and a date will be fixed by issuing notice to both sides for appearing and hearing the appeal. On the date fixed both the parties will be heard i.e. the Appellant as well as the Presenting Officer of the Directorate of Enforcement and then the Appellate tribunal shall decide the case on merits.
  • The order will be in writing[16] along with reasons stating briefly for the ground of decision and also signed and dated.
  • A notice can be issued[17] under these rules which needs to be served to any person in the manner i.e. by delivering to that person or his duly authorised person or, by sending by registered post the notice either at his place of residence or where he carry on his business and also acknowledging or, by affixing it on the outer door of his place where he resides or to the place where he carries on business or, if neither of the previous option cannot be served than it can be published in leading newspaper both in vernacular as well as English which have vide circulation of area in which  he resides.

3.3 Kanwar Natwar Singh Vs. Directorate of Enforcement and Ors.[18]

FACTS – Appellants along with others without special permission of Reserve Bank of India acquired Foreign Exchange of total US $8,98,027.79 with respect to two contracts which has been done with SOMO (State Organisation for Marketing of Oil) of Iraq. Without the required permission of RBI the Appellants transferred Foreign Exchange of US $7,48,550 with Jordan National Bank, Jordan to the persons outside India with respect to the precondition which was imposed by SOMO for allocation of oil, contravening the provisions of Foreign Exchange Management Act, 1999. Further, the Appellants again transferred Foreign Exchange of US $1,46,247.23 being the commission of the two contracts with SOMO with the Barclays Bank, London  contravening the provisions of Act. Failing to take reasonable steps to repatriate the Foreign Exchange within the specified period in contravention of provisions of Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. When the Adjudicating Authority received the said complaint, setting law in motion and issued a notice under Rule 4 (1) [19]requiring them to show cause why inquiry should not held against them. Instead of submitting the reply, the Appellants required the Adjudicating Authority to furnish them all the copies of the documents which is in possession of this case also including the 83000 documents which is procured by one Virender Dayal from USA. The Adjudicating Authority furnished all the documents which was relied upon and declined to furnish the other copies of documents and decided to hold inquiry with the provisions of FEMA and the Rules. The Appellants challenged the impugned order of Adjudicating Authority by filing writ petition under Article 226 [20] which was dismissed by Delhi High Court. Further, challenging the decision of Delhi High Court in Supreme Court.

ISSUES – Whether non-furnishing of all documents by the Adjudicating Authority leads to violation of principles of natural justice?

JUDGMENT – (BY B. SUDARSHAN REDDY, J)

  • The Adjudicating Authority needs to furnish copies of only documents on which issues was placed by him and for issuing show cause notice to the person who needs to explain as to why inquiry under Section 16 [21]should not be initiated. Only to this extent, the principles of natural justice are required to be read in Rule 4(1). The nature of inquiry and the consequences that a person can get after the inquiry should also be informed to the person while issuing show cause notice.
  • No Court can compel the Adjudicating Authority to diverge from the Act and exercise power in completely different manner than the one which is prescribed under the Act. Reasonable opportunity of being heard is a must which needs to provide by Adjudicating Authority in such manner for the purpose of imposing any penalty provided in the Act.
  • Principles of natural justice are not intended to function as roadblocks to obstruct statutory investigations. The only purpose of Appellant for supply of all documents was evidently to obstruct the proceedings and have been able to achieve because the inquiry which was initiated in the year 2006 did not commence yet.
  • Because of the unreasonable request of the Appellant, the Adjudicating Authority could not deal with the complaint which is required to dispose off within one year from the date of receipt. Further, The Supreme Court directed to dispose off the complaint as early as possible. Even though the Supreme Court did not express any opinion in the merits of the case. Also, the appellants are allowed to defend that are available in law.
  • Appeal dismissed with costs.

CHAPTER 4 – CONCLUSION

More than a decade the functioning of Indian foreign market brought good environment and developed at a huge scale. By liberalising foreign exchange careful and proper regulating method is monitored which is needed so that financial uncertainty would not affect. In some years Indian market which is a very big market will be developed economy and the foreign investment will be at a very higher level. RBI even though have strict provisions towards the regulation of FEMA but it is necessary for approvals at stages in specific sectors so that no contravention will arise and the work will be more systematic. The procedure followed by the respective authority at various levels are in a systematic way the proceedings which can be done so that no issues can be formed later regarding the process or the contravention which is committed by the person because he is informed well in advance about the nature of contravention which he has committed and also for giving him sufficient amount of time for appointing a legal practitioner or a chartered accountant for appearing in front of authority who has issued notice. There is also a provision made that if not satisfied with the order of Appellate tribunal than appeal can be filed against that order in High court within a period of sixty days.

The Indian economy is moving rapidly towards the capital account transactions, and a well incorporated foreign market should be of great importance for the development of the nation and because of this market the flow of import and export are focused to other markets globally. By replacing the old Act i.e. Foreign Exchange Regulations Act, 1973 (FERA) to Foreign Exchange Management Act, 1999 (FEMA) it aided in removing the defects i.e. provisions affecting the foreign market and also encouraging the investments in India and outside India. FEMA helped in boosting the Indian economy and as it is flexible as compared to FERA.

REFERENCE

A. PRIMARY SOURCES

  • Foreign Exchange Management Act, 1999
  • Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000

 B. SECONDARY SOURCES

ARTICLES

Mr. M. Govindarajan, “Adjudication and Appeal under ‘FEMA’” Tax Management India, (4th February, 2016) https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=6656

WEBSITES

  • https://indiankanoon.org/doc/27387306/#:~:text=(1)%20These%20rules%20may%20be,1st%20day%20of%20June%2C%202000.&text=(a)%20%E2%80%9CAct%E2%80%9D%20means,1999%20(42%20of%201999)%3B
  • http://www.eximguru.com/exim/reserve-bank/fema/fema-adjudication-proceedings-and-appeal-rules-2000.aspx
  • http://www.femaindia.in/ui/rules.aspx
  • manupatra.com
  • https://indiankanoon.org/doc/1321704/

[1] Rajkumar S. Adukia, “Fathoming FEMA (Overview of Provisions of Foreign Exchange Management Act, 1999 (FEMA) and Rules and Regulations there under) (A-418 – A-433) November 2011.

[2] Foreign Exchange Management Act, 1999, § 13, Act of Parliament, 1999, (India).

[3] Foreign Exchange Management Act, 1999, § 16, Act of Parliament, 1999, (India).

[4] Foreign Exchange Management Act, 1999, § 17, Act of Parliament, 1999, (India).

[5] Foreign Exchange Management Act, 1999, § 18, Act of Parliament, 1999, (India).

[6] Foreign Exchange Management Act, 1999, § 13 (1), Act of Parliament, 1999, (India).

[7] Foreign Exchange Management Act, 1999, § 17 & § 19, Act of Parliament, 1999, (India).

[8] Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000, Rule 3, Act of Parliament, 2000, (India).

[9] Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000, Rule 4, Act of Parliament, 2000, (India).

[10] Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000, Rule 5, Act of Parliament, 2000, (India).

[11] Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000, Rule 6, Act of Parliament, 2000, (India).

[12] Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000, Rule 9, Act of Parliament, 2000, (India).

[13] Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000, Rule 10, Act of Parliament, 2000, (India).

[14] Foreign Exchange Management Act, 1999, § 19 (1), Act of Parliament, 1999, (India).

[15] Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000, Rule 11, Act of Parliament, 2000, (India).

[16] Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000, Rule 12, Act of Parliament, 2000, (India).

[17] Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000, Rule 14, Act of Parliament, 2000, (India).

[18] Kanwar Natwar Singh Vs. Directorate of Enforcement and Ors., (2010)13SC C 255

[19] Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000, Rule 4(1), Act of Parliament, 2000, (India).

[20] India Const. art.226.

[21] Foreign Exchange Management Act, 1999, § 16, Act of Parliament, 1999, (India).

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