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CS Executive · Economic, Commercial and Intellectual Property Laws · Foreign Direct Investments - Regulations and Policy

Kaveri Textiles Ltd asks who determines which instruments are 'debt instruments' for the purposes of section 6 of FEMA, 1999, which in turn decides whether the Reserve Bank or the Central Government regulates a capital account transaction. Which is correct?

Debt instruments are those determined by the Central Government in consultation with the Reserve Bank, as stated in section 6(7). This determination decides whether a capital account transaction falls under the Reserve Bank's regulation-making power or under the Central Government's rule-making power.

  1. AThe Reserve Bank alone determines them by regulation
  2. BThe Central Government determines them in consultation with the Reserve BankCorrect
  3. CThe Appellate Tribunal determines them case by case
  4. DThe authorised person determines them at the time of the transaction

Explanation

Section 6(7) says debt instruments mean such instruments as may be determined by the Central Government in consultation with the Reserve Bank. Section 46(2)(aa) lets the rules provide for this. Option A reverses the roles.

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