Foreign Exchange
Management Act, 1999
Twenty-two chapter notes covering the foreign exchange regulatory framework in India — the displacement of FERA 1973, current account convertibility and capital account regulation, the RBI’s rule-making power under Section 47, the compounding of FEMA offences, the Enforcement Directorate’s powers under FEMA, FDI policy and the Automatic and Government routes, and the FEMA-PMLA interface. Current vs. capital account first, RBI regulation second, contravention third.
FEMA — from prohibition to management of foreign exchange.
The Foreign Exchange Management Act 1999 replaced the Foreign Exchange Regulation Act 1973. The shift from FERA to FEMA was a fundamental policy change — from treating all foreign exchange transactions as criminal unless specifically permitted, to treating current account transactions as freely permitted and capital account transactions as regulated. FEMA is a civil statute — contraventions attract civil penalties, not imprisonment (except for wilful contravention adjudged by a court after compounding failure).
These notes anchor every chapter to its FEMA section. The most-tested provisions are Section 2(j) (capital account transaction), Section 2(l) (current account transaction), Section 3 (dealing in foreign exchange — the general prohibition), Section 4 (holding of foreign exchange), Section 5 (current account transactions — freely permitted subject to restrictions), Section 6 (capital account transactions — regulated by RBI), Section 13 (penalties), Section 15 (compounding), and Section 47 (RBI’s rule-making power).
Each chapter is designed to be read in twelve to fifteen minutes and to leave the reader with the FEMA section, the current or capital account classification, the RBI permission or restriction, the contravention and compounding framework, and the leading authority.
How to read these notes
Start with the account classification.
Every FEMA chapter begins with the account classification. Current account transaction (Section 2(l)) — a transaction other than a capital account transaction including payments for trade, services, and income. Freely permitted under Section 5 subject to Central Government restrictions. Capital account transaction (Section 2(j)) — a transaction that alters the assets or liabilities outside India. Regulated by RBI under Section 6. The classification determines the applicable permission or restriction.
Identify the contravention and remedy.
Every FEMA contravention question tests Section 13 (penalty of three times the amount or two lakh, whichever is higher) and Section 15 (compounding). Compounding means paying an agreed penalty to the RBI or the ED to close the proceedings without a formal adjudication. Compounding is available for most FEMA contraventions. The FEMA-PMLA interface is important — a FEMA contravention alone does not attract PMLA; there must be a scheduled offence and proceeds of crime.
Test on the leading case.
If you can restate the holding of Siddharth Chaturvedi v. SEBI, Enforcement Directorate v. Arya Abhi Travels Pvt Ltd, or B. Arvind Kumar v. Government of India in two sentences, you understand the chapter. If not, return to the statutory section and rebuild from there.
All 22 chapters, in 3 groups
Sequenced through the natural structure of the subject — every chapter sits in a doctrinal cluster.Definitions & Current Account Convertibility
Sections 2–5 — the framework
Section 2(j) capital account transaction, Section 2(l) current account transaction. Section 3 the general prohibition — no person shall deal in or transfer any foreign exchange or foreign security to any person not being an authorised person. Section 4 holding of foreign exchange by persons resident in India. Section 5 current account transactions — permissible subject to Central Government restrictions on Schedule I (prohibitions) and Schedule II (prior approval required) transactions.
Capital Account, FDI Policy & RBI Regulations
Sections 6–12 — the regulated flow
Section 6 capital account transactions regulated by RBI — the FEMA Capital Account Transactions Regulations, FDI policy under the FEMA NDI Rules 2019, Automatic Route (no prior Government approval) versus Government Route (prior approval from Foreign Investment Facilitation Portal / Ministry). Section 7 export of goods and services and the realisation of export proceeds. Section 10 authorised persons — banks and other authorised dealers.
Contravention, Compounding & PMLA Interface
Sections 13–47 + ED + FEMA-PMLA link
Section 13 penalties for contravention — three times the amount involved or two lakh rupees, whichever is higher; continuing contravention five thousand per day. Section 15 compounding of contraventions with the RBI or the Adjudicating Authority. Section 16 appeal to the Appellate Tribunal for Foreign Exchange (ATFE). Section 47 RBI’s rule-making power. The FEMA-PMLA interface — when does a FEMA violation become a PMLA predicate offence. The ED’s dual role under FEMA (civil enforcement) and PMLA (criminal investigation). The landmark Supreme Court and High Court decisions on FEMA.