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Corporate and Economic Laws · Foreign Exchange Management Act, 1999

Authorised Person under FEMA and Foreign Exchange Dealings

Updated 11 October 2026 · Fact-checked

An authorised person under FEMA is an authorised dealer, money changer, offshore banking unit or any other person the RBI authorises in writing under Section 10(1) to deal in foreign exchange or foreign securities. Such a person must follow RBI directions, stay within the authorisation, and take declarations from customers. To solve questions, identify the section, apply its condition, then state the consequence.

Understand Authorised Persons and Foreign Exchange Dealings

FEMA starts from a simple position. Under Section 3, no person may deal in or transfer foreign exchange or foreign security to anyone who is not an authorised person, unless the Act, rules, regulations or the RBI's general or special permission allow it. So ordinary people and businesses must route their foreign exchange dealings through authorised channels.

An authorised person is defined in Section 2(c) as an authorised dealer, money changer, off-shore banking unit or any other person for the time being authorised under Section 10(1) to deal in foreign exchange or foreign securities. The RBI grants this status on an application. The authorisation must be in writing and is subject to the conditions stated in it (Section 10(2)).

The RBI controls authorised persons in three ways. It gives them directions (Section 11(1)), it can ask for information (Section 11(2)), and it can penalise or revoke the authorisation if they break the rules (Section 11(3) and Section 10(3)).

Authorised persons are also gatekeepers. Before doing a foreign exchange transaction for a customer, they must obtain a declaration and information that reasonably satisfy them that the deal is not meant to contravene or evade FEMA (Section 10(5)). If the customer refuses or gives an unsatisfactory response, the authorised person must refuse in writing. If it suspects contravention or evasion, it must report to the RBI.

The Act does not itself split authorised dealers into categories. Categories such as Category I (banks) and Category II (certain non-bank entities) come from RBI's directions and the authorisation conditions, so mention them as RBI-prescribed classifications and not as statutory text.

Key rules to remember

Meaning of authorised person (Section 2(c))
Authorised person = authorised dealer + money changer + off-shore banking unit + any other person authorised under Section 10(1)
The test is authorisation by the RBI. Being a bank does not by itself make a person authorised for this purpose.
Grant of authorisation (Section 10(1)-(2))
RBI authorises on application; authorisation in writing; subject to conditions
The RBI may authorise a person as dealer, money changer, off-shore banking unit or in any other manner it thinks fit.
Revocation (Section 10(3))
Revoke if (a) public interest, or (b) breach of condition or contravention of Act, rule, regulation, notification, direction or order
For ground (b), a reasonable opportunity to make a representation must be given first. The proviso does not apply to ground (a).
Duty to comply and stay within authorisation (Section 10(4))
Follow RBI general or special directions; no transaction outside authorisation terms without prior RBI permission
Applies to all dealings in foreign exchange or foreign security.
Customer declaration (Section 10(5))
Before any foreign exchange transaction: obtain declaration and information; if unsatisfactory, refuse in writing; if contravention suspected, report to RBI
Report to RBI is required where there is reason to believe contravention or evasion is contemplated.
Misuse of purchased foreign exchange (Section 10(6))
Non-authorised person who does not use it for the declared purpose, does not surrender it within the specified period, or uses it for a non-permissible purpose = deemed contravention
This rule applies to customers, not to the authorised person.
RBI directions and information (Section 11(1)-(2))
RBI may direct payment, doing or desisting from any act; may direct furnishing of information in the manner it deems fit
Purpose: securing compliance with the Act and rules, regulations, notifications or directions.
Penalty on authorised person (Section 11(3))
Penalty up to ₹10,000 + continuing contravention: additional up to ₹2,000 per day
Applies for contravening an RBI direction or failing to file a return as directed. The RBI must first give a reasonable opportunity of being heard.

How to solve Authorised Persons and Foreign Exchange Dealings questions

Use this sequence for any question on authorised persons, whether it is a theory note, a short case or an MCQ.

  1. 1Identify who is involved: an authorised person (dealer, money changer, off-shore banking unit) or an ordinary customer. The rules differ for each.
  2. 2Check authorisation. Look for written authorisation from the RBI under Section 10(1) and note its conditions.
  3. 3Match the facts to the duty: following RBI directions and staying within authorisation (10(4)), declaration from customer (10(5)), or customer's use of funds (10(6)).
  4. 4If the RBI acts, identify the power: direction (11(1)), information (11(2)), penalty (11(3)) or revocation (10(3)).
  5. 5Check procedure: hearing before a penalty under 11(3), representation before revocation on ground (b).
  6. 6Compute any penalty: ₹10,000 maximum plus ₹2,000 maximum per day for continuing contravention. Say 'may extend to'.
  7. 7Conclude with a clear statement of the outcome and cite the section.

Quickest way: Section-hook method

When to use it: For MCQs and short case questions where you have under two minutes.

  1. Pick the hook word: 'authorised' means Section 2(c) or 10(1); 'direction' means 11(1); 'return' or 'information' means 11(2) or 11(3); 'declaration' means 10(5); 'revoke' means 10(3).
  2. Check who is at fault: the authorised person (Section 10 and 11(3)) or the customer (Section 10(6)).
  3. For penalty, recall the two numbers: ₹10,000 and ₹2,000 per day, both as upper limits.
  4. Eliminate options that say 'automatically' or 'without hearing'.

Common mistakes in Authorised Persons and Foreign Exchange Dealings

  • Stating the penalty under Section 11(3) as a fixed amount.

    Students remember the numbers but drop the words 'may extend to'.

    Fix: Always write 'up to ₹10,000, and up to ₹2,000 for every day of continuing contravention'. The RBI sets the amount within the cap after a hearing.

  • Saying the RBI can revoke authorisation without hearing the authorised person.

    Students confuse the public interest ground with the breach ground.

    Fix: Revocation for breach (ground (b)) needs a reasonable opportunity to make a representation. The proviso names only ground (b).

  • Treating Category I and Category II authorised dealers as statutory classes in the Act.

    Notes and RBI circulars use these terms widely.

    Fix: The Act speaks of authorised dealer, money changer and off-shore banking unit. Describe categories as RBI-prescribed, and avoid quoting a section for them.

  • Applying Section 10(6) to the authorised person.

    The section sits in the provision on authorised persons.

    Fix: Section 10(6) targets a person other than an authorised person who misuses foreign exchange bought on a declaration. It deems a contravention.

  • Forgetting the duty to refuse in writing and report to the RBI.

    Students remember only the declaration requirement.

    Fix: Learn the chain: declaration, then refusal in writing if unsatisfactory, then report to RBI where contravention or evasion is suspected.

  • Confusing Section 11(1) directions with Section 10(4) directions.

    Both mention RBI directions.

    Fix: Section 11(1) is the RBI's power to direct for securing compliance. Section 10(4) is the authorised person's duty to comply. Section 11(3) provides the penalty for breaking a direction.

Worked examples

Example 1

Surya Forex Services, an authorised money changer in Pune, did not file a return that the RBI had directed it to file. The default continued for 12 days after the due date. After giving a hearing, the RBI decides to impose the maximum penalty. Compute the maximum penalty.

Show the solution
  1. Failure to file a return as directed by the RBI falls under Section 11(3).
  2. The RBI gave a reasonable opportunity of being heard, so the procedural condition is met.
  3. Basic penalty: up to ₹10,000.
  4. Additional penalty for continuing contravention: up to ₹2,000 per day. For 12 days: 12 × ₹2,000 = ₹24,000.
  5. Maximum total = ₹10,000 + ₹24,000 = ₹34,000.

Answer: The maximum penalty is ₹34,000 (₹10,000 plus ₹24,000). The RBI may impose any amount up to this limit.

Example 2

Mehta Exports Ltd asks Bharat Bank, an authorised dealer, to remit foreign exchange abroad. The company refuses to give any declaration about the purpose of the remittance. The bank suspects the remittance may be designed to evade FEMA. State the bank's obligations.

Show the solution
  1. Bank is an authorised person under Section 2(c), so Section 10(5) applies.
  2. Before a foreign exchange transaction, it must require a declaration and information that reasonably satisfy it that the deal does not involve or is not designed for contravention or evasion.
  3. The customer refuses, so the bank must refuse in writing to undertake the transaction.
  4. The bank also has reason to believe evasion is contemplated, so it must report the matter to the RBI.
  5. If the bank went ahead anyway, it could breach its authorisation duties, and the RBI could act under Section 10(3) after giving a reasonable opportunity to represent.

Answer: Bharat Bank must refuse the transaction in writing and report the matter to the RBI. It cannot proceed without a satisfactory declaration.

Exam tips

  • Learn Sections 2(c), 10 and 11 as a set. Questions often combine them in one case.
  • In penalty questions, write the formula first (₹10,000 + ₹2,000 per day) and then multiply the days. Show the 'up to' wording.
  • For MCQs, watch for options that reverse who must be heard or who must report to whom.
  • In a theory answer, a short list of the five or six duties of an authorised person with section numbers earns marks quickly.
  • Link Section 3 to Section 10: Section 3 restricts dealing with persons who are not authorised, and Section 10 explains who is authorised.

Practice questions from Foreign Exchange Management Act, 1999

Authorised Persons and Foreign Exchange Dealings: frequently asked questions

Who is an authorised person under FEMA?

Section 2(c) defines it as an authorised dealer, money changer, off-shore banking unit or any other person authorised under Section 10(1) to deal in foreign exchange or foreign securities. The RBI grants authorisation in writing on an application.

Can the RBI cancel the authorisation of an authorised dealer?

Yes, under Section 10(3). It may revoke the authorisation in public interest, or for breach of conditions or contravention of the Act or related rules, directions or orders. For the breach ground, the person must first get a reasonable opportunity to make a representation.

What is the penalty if an authorised person ignores an RBI direction?

Under Section 11(3), the RBI may, after a reasonable hearing, impose a penalty up to ₹10,000. For continuing contravention, an additional penalty up to ₹2,000 per day may be imposed. The same applies to failing to file a return as directed.

Are Category I and Category II authorised dealers mentioned in the Act?

No. The Act refers only to authorised dealers, money changers and off-shore banking units. The category classification comes from RBI's directions and authorisation conditions, so describe it that way in answers.