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CS Executive · Setting Up of Business, Industrial and Labour Laws · Setting up of Business outside India and Issues Relating thereto

Meridian Components Pvt Ltd, an Indian company, wants to set up a subsidiary in Singapore and remit funds for it. Under the Foreign Exchange Management Act, 1999, an investment of this kind is a capital account transaction. Which statement correctly reflects the Act's position on how such transactions are regulated?

Any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction, subject to the permissible classes, limits and conditions specified under section 6. There is no blanket need for Enforcement Directorate approval and no general prohibition.

  1. AAny person may sell or draw foreign exchange to or from an authorised person for a capital account transaction, subject to the limits and conditions specified under the ActCorrect
  2. BCapital account transactions can be carried out only with the prior written approval of the Directorate of Enforcement in every case
  3. CCapital account transactions are completely prohibited unless the Competent Authority confirms them within 180 days
  4. DForeign exchange for capital account transactions may be drawn only from the Central Government and not from an authorised person

Explanation

Section 6(1) lets any person sell or draw foreign exchange to or from an authorised person for a capital account transaction, but this is subject to sub-section (2), under which limits and conditions are specified. The other options invent approvals or prohibitions that the section does not state; the Enforcement Directorate and Competent Authority roles relate to seizure under section 37A.

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