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

Nilgiri Ltd, an Indian company, is told by a foreign investor, Mr Chen, that the Reserve Bank can freely impose any restriction on drawal of foreign exchange needed for the following: (i) amortisation of a loan, (ii) depreciation of direct investment in the ordinary course of business. Under section 6 of FEMA, 1999, which is correct?

Neither the Reserve Bank nor the Central Government can impose restrictions on drawal of foreign exchange for such payments. The proviso to section 6(2) expressly protects payments due for amortisation of loans or depreciation of direct investments in the ordinary course of business, so consultation or limits do not permit restriction.

  1. AThe Reserve Bank or the Central Government cannot impose restrictions on drawal of foreign exchange for these paymentsCorrect
  2. BThe Reserve Bank may restrict them if the Central Government agrees
  3. COnly the Central Government may restrict them, not the Reserve Bank
  4. DThey may be restricted if the amount exceeds the limit specified under section 6(2)(b)

Explanation

The proviso to section 6(2) states that neither the Reserve Bank nor the Central Government shall impose any restrictions on drawal of foreign exchange for payment due on account of amortisation of loans or depreciation of direct investments in the ordinary course of business. Hence consultation or limits cannot justify restriction.

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