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

Sunrise Textiles Ltd, an Indian company, plans to hold foreign exchange received from exports in a bank account abroad. A director claims that any person resident in India may freely hold foreign exchange without any restriction whatsoever. Which statement reflects the legal position under FEMA, 1999?

Residents may hold, own or transfer foreign exchange only to the extent permitted by FEMA and the rules and regulations made under it. The freedom is not unrestricted, yet it does not require prior Central Government approval in every case.

  1. ACorrect, because FEMA places no limits on any holding of foreign exchange by residents
  2. BIncorrect, because residents may hold foreign exchange only with prior approval of the Central Government in every case
  3. CResidents may hold, own or transfer foreign exchange only as permitted by FEMA and the rules and regulations made under itCorrect
  4. DIncorrect, because only the RBI itself may hold foreign exchange in India

Explanation

FEMA permits dealing in, holding, owning and transferring foreign exchange or foreign security as provided in the Act, rules or regulations. It is not an unrestricted freedom, but nor does every holding need prior approval. The correct position is that such holding is allowed within the framework prescribed.

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