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

Meera Textiles Ltd, an Indian company, wants to remit funds abroad to pay for imported machinery, which is a current account transaction. Which statement states the correct position under FEMA?

Current account transactions are freely permitted under FEMA. The Central Government, in consultation with the RBI, may impose reasonable restrictions in public interest. The default is freedom rather than prohibition, so Meera Textiles may remit funds through an authorised person for imported machinery, subject to any such restrictions.

  1. AEvery current account transaction is prohibited unless the RBI gives prior approval
  2. BCurrent account transactions are freely permitted, subject to reasonable restrictions the Central Government may impose in consultation with the RBICorrect
  3. CCurrent account transactions are permitted only through the Enforcement Directorate
  4. DCurrent account transactions are permitted only if the amount is below Rs 1 lakh

Explanation

FEMA provides that any person may sell or draw foreign exchange through an authorised person if it is for a current account transaction. The Central Government may impose reasonable restrictions in public interest, in consultation with the RBI. Option A reverses the general rule; C and D are not provisions of the Act.

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