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CA Intermediate · Corporate and Other Laws · The Foreign Exchange Management Act, 1999

Ganga Textiles Pvt. Ltd., an Indian company, holds a foreign currency balance with an authorised bank in India for its export proceeds. The company wants to know who may deal in foreign exchange. Under FEMA, 1999, which statement correctly states the legal position?

Under FEMA, no one may deal in or transfer foreign exchange or foreign security to a person who is not an authorised person, unless the Act, rules or regulations allow it or the RBI grants general or special permission. Free dealing by anyone is not permitted.

  1. AAny person may deal in foreign exchange freely with any other person, as no permission is required
  2. BOnly the Central Government may deal in foreign exchange, and no private person may do so
  3. CAny person may sell foreign exchange to any person for any purpose without involving an authorised person
  4. DNo person may deal in or transfer foreign exchange or foreign security to any person not being an authorised person, except as provided in the Act, rules or regulations, or with general or special permission of the RBICorrect

Explanation

Section 3 of FEMA prohibits dealing in or transferring foreign exchange or foreign security to a person who is not an authorised person, unless the Act, rules or regulations made under it provide otherwise or the RBI gives general or special permission. Thus the rule is a general prohibition with exceptions, not free dealing. It is also not limited to the Central Government.

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