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

Vikram Ltd, an Indian company, buys foreign exchange from a person who is not an authorised person and is not otherwise permitted to deal in foreign exchange. Under FEMA, 1999, what is the legal position?

The dealing contravenes FEMA. Only an authorised person may deal in foreign exchange, unless the Reserve Bank has given general or special permission. Being a resident company, a small amount or a later intimation to the Central Government does not make the dealing valid.

  1. AThe dealing is valid because the company is a resident
  2. BThe dealing is contravening the rule that no person other than an authorised person shall deal in or transfer foreign exchange, except with general or special permission of the Reserve BankCorrect
  3. CThe dealing is valid only if the amount is below one lakh rupees
  4. DThe dealing is valid if the company informs the Central Government within 30 days

Explanation

FEMA prohibits any person from dealing in or transferring foreign exchange or foreign security to any person not being an authorised person, except as provided in the Act or with the general or special permission of the Reserve Bank. Residence of the company or a small amount does not cure the breach, and informing the Central Government does not create a permission.

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