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Economic, Commercial and Intellectual Property Laws · Law relating to Foreign Exchange Management

RBI Powers under FEMA 1999 and Authorised Persons

Updated 11 October 2026 · Fact-checked

Under FEMA, the Reserve Bank of India authorises persons (authorised dealers, money changers, offshore banking units) to deal in foreign exchange, directs them, seeks information, inspects them, penalises breaches and can revoke authorisation. The Central Government can give the RBI general or special directions, which the RBI must follow.

Understand Authorities and Reserve Bank Powers under FEMA

FEMA is administered mainly by the Reserve Bank of India (RBI). The Central Government sits above it in policy matters. To answer questions on this topic, you must know who can do what, and under which section.

Not everyone can deal in foreign exchange. Only an authorised person can. Section 2(c) defines it as an authorised dealer, money changer, off-shore banking unit or any other person authorised under section 10(1). The RBI grants this authorisation on an application. It must be in writing and subject to the conditions stated in it (section 10(2)).

Once authorised, the person is under RBI control. Section 10(4) says the person must follow the general or special directions or orders the RBI gives. Without the RBI's previous permission, the person cannot do any foreign exchange transaction that does not fit the terms of the authorisation. Section 10(5) adds a duty of care: before a transaction for a customer, the authorised person must get a declaration and information that reasonably satisfies it that the transaction is not meant to contravene or evade FEMA. If the customer refuses, the authorised person must refuse in writing. If it suspects evasion, it must report to the RBI.

The RBI also has tools to enforce this. Section 11 lets it give directions on payments and on doing or not doing acts relating to foreign exchange or foreign security, and call for information. It can penalise breach. Section 12 lets it inspect. Section 41 gives the Central Government power to direct the RBI.

Key rules to remember

Authorisation (s. 10(1)-(2))
RBI authorises on application; in writing; subject to conditions
Authorised person can be an authorised dealer, money changer, off-shore banking unit or another person as RBI deems fit.
Revocation (s. 10(3))
Public interest OR breach of condition/Act/rule/direction
For breach, a reasonable opportunity of making a representation must be given first. The proviso does not require this for the public interest ground.
Directions to authorised persons (s. 11(1))
RBI may direct on payments, doing or desisting from acts relating to foreign exchange or foreign security
Purpose: securing compliance with the Act and rules, regulations, notifications or directions.
Information (s. 11(2))
RBI may direct authorised person to furnish information in the manner it deems fit
Purpose: ensuring compliance.
Penalty on authorised person (s. 11(3))
Up to ₹10,000 + up to ₹2,000 per day for continuing contravention
Applies to contravening an RBI direction or failing to file a return as directed. RBI must first give a reasonable opportunity of being heard.
Inspection (s. 12)
RBI officer specially authorised in writing may inspect business at any time
Purposes: verify information, obtain information not furnished, secure compliance. Authorised person and its directors, partners or officers must produce books, accounts and documents.
Central Government directions (s. 41)
Central Government gives general or special directions to RBI; RBI shall comply
Applies in the discharge of RBI functions under the Act.

How to solve Authorities and Reserve Bank Powers under FEMA questions

Use this order for any question on RBI or Central Government powers under FEMA.

  1. 1Identify who acts and on whom: RBI on an authorised person, or Central Government on RBI.
  2. 2Name the power in issue: authorisation, direction, information, penalty, inspection or revocation.
  3. 3State the provision with its section: sections 10, 11, 12 or 41.
  4. 4Check the conditions: written authorisation, hearing or representation, special written authority for the inspecting officer.
  5. 5Apply the facts: note the amounts of penalty, days of default and nature of breach.
  6. 6Compute the penalty if asked: ₹10,000 maximum plus ₹2,000 per day maximum for continuing breach.
  7. 7Conclude clearly: say whether the RBI can act and what it must do before acting.

Quickest way: Section-to-power map

When to use it: Use when you have little time for a short-note or a fact-based question.

  1. Recall 10 = authorise and control; 11 = direct and penalise; 12 = inspect; 41 = Government directs RBI.
  2. Write one line of definition from section 2(c) if authorised person is involved.
  3. Add the procedural safeguard: hearing before penalty, representation before revocation on breach.
  4. End with a one-line conclusion tied to the facts.

Common mistakes in Authorities and Reserve Bank Powers under FEMA

  • Saying the Central Government issues directions to authorised dealers under section 11.

    Students merge the roles of the two authorities.

    Fix: Section 11 powers belong to the RBI. Section 41 is the Central Government's power to direct the RBI.

  • Claiming the RBI can revoke authorisation without hearing on every ground.

    The proviso is remembered loosely.

    Fix: Representation is a must where revocation rests on breach under section 10(3)(b). The public interest ground has no such proviso.

  • Quoting the wrong penalty under section 11(3).

    Mixing it with penalty figures in section 13.

    Fix: Remember up to ₹10,000 and up to ₹2,000 per day of continuing contravention, imposed after reasonable opportunity of being heard.

  • Treating authorised dealer and money changer as the same thing.

    Both deal in foreign exchange.

    Fix: The Act lists them separately in section 2(c), with off-shore banking units. Say the RBI authorises each in writing, with conditions fixing the scope of dealing. Do not add scope details that the Act does not state.

  • Forgetting the customer-declaration duty in section 10(5).

    Students focus only on RBI powers.

    Fix: Add that the authorised person must obtain a declaration, refuse in writing if unsatisfied, and report suspected evasion to the RBI.

  • Saying any RBI employee can inspect.

    Section 12 wording is skipped.

    Fix: The officer must be specially authorised in writing by the RBI.

Worked examples

Example 1

An authorised dealer fails to file a return as directed by the RBI and the default continues for 20 days. What is the maximum penalty the RBI can impose, and what must it do first?

Show the solution
  1. Provision: section 11(3) covers contravention of a direction or failure to file a return as directed.
  2. Basic penalty: up to ₹10,000.
  3. Continuing default: additional penalty up to ₹2,000 for every day. For 20 days: 20 × ₹2,000 = ₹40,000.
  4. Total maximum: ₹10,000 + ₹40,000 = ₹50,000.
  5. Procedure: the RBI must give a reasonable opportunity of being heard before imposing the penalty.

Answer: The RBI can impose a maximum of ₹50,000 under section 11(3), after giving the authorised dealer a reasonable opportunity of being heard.

Example 2

An authorised person has breached a condition of its authorisation. The RBI wishes to revoke the authorisation. Advise on the power and the procedure.

Show the solution
  1. Provision: section 10(3) allows the RBI to revoke an authorisation at any time.
  2. Grounds: public interest, or failure to comply with a condition of authorisation or contravention of the Act or any rule, regulation, notification, direction or order.
  3. Here the ground is breach of condition, so it falls under section 10(3)(b).
  4. Safeguard: the proviso bars revocation on this ground unless the person has been given a reasonable opportunity of making a representation.
  5. Further, the RBI may also inspect under section 12 to verify facts before acting.

Answer: The RBI can revoke the authorisation under section 10(3)(b), but only after giving the authorised person a reasonable opportunity of making a representation.

Exam tips

  • Write the section number beside every power. Examiners reward the provision first, then application, then conclusion.
  • For a distinction question on authorised dealer and money changer, rely on section 2(c) and section 10, and avoid adding unsupported detail.
  • Learn the numbers in section 11(3) cold: ₹10,000 and ₹2,000 per day.
  • Always state the procedural safeguard (hearing or representation) in penalty and revocation answers.
  • Mention section 41 when a question asks about control over the RBI.

Practice questions from Law relating to Foreign Exchange Management

Authorities and Reserve Bank Powers under FEMA in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Authorities and Reserve Bank Powers under FEMA: 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 by the RBI under section 10(1) to deal in foreign exchange or foreign securities.

Can the RBI cancel the authorisation of an authorised dealer?

Yes. Under section 10(3), it can revoke in public interest or for breach of conditions or of the Act and its rules, directions or orders. For breach, it must first allow a reasonable opportunity to make a representation.

Can the Central Government direct the RBI under FEMA?

Yes. Section 41 allows it to give the RBI general or special directions as it thinks fit. The RBI must comply with them in discharging its functions under the Act.

What is the difference between an authorised dealer and a money changer under FEMA?

Both are authorised persons listed in section 2(c), and both get RBI authorisation in writing under section 10 subject to conditions. The Act names them as separate categories. The extent of dealing depends on the conditions of each authorisation.