International Financial Services Centres Authority (IFSCA): formula sheet

Key formulas

Meaning of IFSC (section 3(1)(g))

IFSC = centre set up under section 18 of the Special Economic Zones Act, 2005, before or after commencement of the IFSCA Act

Applies to the centres set up under that section (section 2). Do not define it by naming GIFT City alone.

Financial product (section 3(1)(d))

Securities + contracts of insurance + deposits + credit arrangements + foreign currency contracts (other than immediately settled currency exchange) + other notified products

Immediately settled exchange of one currency for another is excluded.

Financial institution (section 3(1)(c))

Unit set up in an IFSC + rendering financial services in respect of any financial product

Both conditions must be met.

Duty of the Authority (section 12(1))

Develop and regulate financial products, financial services and financial institutions in the IFSCs

Subject to the Act; by such measures as it deems fit.

Currency of transactions (section 20)

Every transaction of financial services in an IFSC is in the foreign currency specified by regulations in consultation with the Central Government

Not in rupees unless so specified.

Commencement dates (section 1)

27 April 2020: sections 1-11, 14, 15, 16, 27, 29, 30, 34. 21 August 2020: sections 12, 17-26, 28, 31, 32. 1 October 2020: sections 13, 33

Section 1(2) permits different dates for different provisions.

Establishment (Section 4)

Central Government + notification → Authority; body corporate + perpetual succession + common seal

It can contract, hold property and sue or be sued by its own name.

Head office and other offices

Head office: place decided by Central Government notification. Other offices: prior approval of Central Government

Offices may be in India or outside India.

Composition (Section 5(1))

1 Chairperson + 4 ex officio (RBI, SEBI, IRDAI, PFRDA) + 2 Finance Ministry officials + 2 Selection Committee Members = 9

All appointed by the Central Government. Only the last two come through a Selection Committee.

Status of Members (Section 5(2))

Chairperson: whole-time. Two Selection Committee Members: whole-time or part-time

The Central Government decides for those two.

Term (Section 6(1))

Three years from entering office; eligible for re-appointment

Chairperson: no office after age 65. Whole-time Member: none after age 62.

Resignation and cooling-off (Section 6(3), (4))

Resign by written notice of at least 3 months. Two years after leaving: no Central/State Government employment or IFSC financial institution appointment without prior Central Government approval

The cooling-off applies to Members other than ex officio Members.

Section 9

No act of the Authority invalid merely due to a vacancy or defect in constitution or appointment

Protects decisions taken by the Authority.

Functions (section 12)

Develop and regulate financial products, financial services and financial institutions in the IFSC

Includes regulating items permitted earlier, items notified by the Central Government, recommending new items, and other prescribed functions.

Powers (section 13(1))

Powers of appropriate regulators under First Schedule Acts are exercised by IFSCA in the IFSC

Only so far as they relate to regulating financial products, services or institutions. Operates notwithstanding any other law.

Amending the First Schedule (section 13(2)-(3))

Central Government notification; laid before each House of Parliament

It can include or omit a regulator or a law.

Procedure borrowed (section 13(4))

Procedural provisions of the First Schedule Acts apply mutatis mutandis

Covers filing, inspection, investigation, prosecution, settlement, compounding, adjudication, appeals, fees, fines and recovery.

Currency of penalties (section 13(5)-(6))

Collected in foreign currency equivalent; credited to Consolidated Fund of India in rupees

Exchange rate is the RBI-notified rate on the date of the order.

Fund (section 15)

Credit: grants, fees, charges, and sums from sources decided by the Central Government. Application: salaries and other expenses

Fund is called the International Financial Services Centres Authority Fund.

Accounts and audit (section 16)

Proper accounts and annual statement; audited by CAG; sent to Central Government and laid before each House of Parliament

Form of accounts is prescribed by the Central Government in consultation with the CAG.

Power under section 31(1)

Central Government + notification → provision of another Central Act (or its rules, regulations, notifications, orders, directions) either does not apply, or applies with exceptions, modifications and adaptations

Applies only to financial products, financial services or financial institutions in an IFSC.

Excluded matter

Provisions relating to the making of rules or regulations cannot be touched

This is the bracketed exception in section 31(1).

Parliamentary control, section 31(2)

Draft laid before each House for 30 days (one session or successive sessions) → both Houses disapprove: not issued; both Houses modify: issued only as modified

Both Houses must agree. One House alone cannot stop or change it.

Contrast with section 29

Section 29: rules and regulations made under the IFSCA Act are laid after they are made; Section 31(2): the draft notification is laid before it is issued

Do not mix the two laying procedures.

Section 13: enforcement powers

Powers of First Schedule regulators in IFSC → exercised by IFSCA; enforcement provisions apply mutatis mutandis

Covers application, inspection, investigation, prosecution, settlement, compounding, adjudication, appeals, fees and penalties.

Section 13(5) and (6): penalty currency

Collected in foreign currency equivalent (RBI rate on date of order); credited to Consolidated Fund of India in rupees

Two steps: collect in foreign currency, credit in rupees.

Section 13(2) and (3): First Schedule amendment

Central Government amends First Schedule by notification; notification laid before each House

It can include or omit a regulator and the law it administers.

Section 21: policy directions

Authority bound by written directions on questions of policy; Central Government decides finally if a question is policy

Authority gets an opportunity to express views as far as practicable.

Section 22: supersession

Maximum 6 months; grounds: (a) unable to function, (b) persistent default, (c) public interest

Reasons in the notification; reasonable opportunity to the Authority first; reconstitute by end of period.

Section 23: delegation

Delegate to Member or officer by written order, except powers under Section 28; committees of Members under sub-section (2)

The regulation-making power cannot be delegated.

Sections 27 and 28: subordinate legislation

Rules: Central Government (s.27). Regulations: Authority (s.28), consistent with the Act and rules

Both are laid before Parliament under Section 29.

Section 29: laying before Parliament

30 days in total, one session or successive sessions; both Houses may modify or annul

Modification or annulment does not affect anything previously done.

Section 31: modifying other Acts

Central Government notification: non-application or application with modifications; draft laid for 30 days

Provisions on making rules or regulations are excluded from this power.

Section 32: removal of difficulties

Order by Central Government, not inconsistent with the Act; no order after 5 years from commencement

Every order is laid before each House.

Quick revision

• The Act is called the International Financial Services Centres Authority Act, 2019.
• Under Section 4, the Central Government establishes the Authority by notification.
• The Authority is a body corporate with perpetual succession and a common seal, and it can sue and be sued.
• Its head office is where the Central Government decides by notification. Offices elsewhere in India or abroad need prior Central Government approval.
• Section 12: the Authority's duty is to develop and regulate financial products, services and institutions in IFSCs.
• Section 13: powers of regulators listed in the First Schedule are exercised by the Authority in an IFSC.
• Penalties and fines under Section 13 are collected in the foreign currency equivalent, at the RBI rate on the date of the order, and credited to the Consolidated Fund of India in rupees.
• Section 15: the IFSCA Fund holds grants, fees, charges and other sums decided by the Central Government, and pays salaries and expenses.
• Section 21: the Authority is bound by written policy directions from the Central Government, and the Government's decision on whether a question is one of policy is final.
• Section 22: the Central Government may supersede the Authority for not more than six months, after giving it a reasonable opportunity to make representations.
• Section 27 gives the Central Government rule-making power. Section 28 gives the Authority regulation-making power, consistent with the Act and rules.
• Section 31: by notification, the Central Government may disapply or adapt other Central Acts for an IFSC. The draft is laid before Parliament for thirty days.

Common mistakes

• Defining IFSC as GIFT City. Fix: Write that an IFSC is a centre set up under section 18 of the SEZ Act, 2005, and mention GIFT City only as an example.
• Treating all currency exchange contracts as financial products. Fix: Add that contracts to exchange one currency for another to be settled immediately are excluded.
• Saying the Authority is established by the Act itself or by Parliament. Fix: Section 4 says the Central Government establishes it by notification, for the purposes of the Act.
• Giving the wrong number of Members or leaving out PFRDA. Fix: Remember 1 + 4 + 2 + 2 = 9. The four regulators are RBI, SEBI, IRDAI and PFRDA.
• Saying IFSCA replaces SEBI, RBI, IRDAI and PFRDA entirely. Fix: Say IFSCA exercises their powers only in the IFSC and only for financial products, services and institutions there.
• Treating penalties as collected in rupees. Fix: Remember section 13(5): collected in foreign currency equivalent, at the RBI rate on the order date. Only after realisation are sums credited in rupees to the Consolidated Fund of India.
• Saying the IFSCA modifies other Acts under section 31. Fix: Remember that section 31 gives the power to the Central Government. The Authority exercises regulators' powers under section 13.
• Saying the notification is laid after it is issued. Fix: Section 31(2) speaks of a notification proposed to be issued, laid in draft. It is issued only after the process.
• Saying the IFSCA Act contains its own full penalty schedule. Fix: Say that Section 13 gives IFSCA the powers of the First Schedule regulators and applies their enforcement provisions mutatis mutandis.
• Saying penalties are collected in rupees. Fix: Collected in foreign currency equivalent at the RBI-notified rate on the date of the order; credited to the Consolidated Fund of India in rupees.

Exam tips

• Learn the section 3 definitions almost word for word; examiners often ask for them directly.
• Always give the section number with the definition, such as 3(1)(d) for financial product and 3(1)(e) for financial service.
• Remember the exclusion in the foreign currency limb and the 'notified by Central Government' catch-all limbs.
• For application-style questions, write provision, facts, then a one-line conclusion.
• Use GIFT City only as an illustration; base your answer on the SEZ Act link.
• Learn Sections 4, 5, 6 and 9 as a set. Questions often ask for composition or tenure in a few lines.
• When listing Members, give the count of each group and the total. Examiners reward a complete list.
• Use exact words: 'by notification', 'body corporate', 'perpetual succession', 'common seal', 'prior approval of the Central Government'.