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Arrest under the Foreign Exchange Management Act (FEMA) of 1999

 > Criminal Law  > Arrest under the Foreign Exchange Management Act (FEMA) of 1999

Arrest under the Foreign Exchange Management Act (FEMA) of 1999

The term “Foreign Exchange” means foreign currency and includes,
● Deposits, credits and balances payable in any foreign currency,
● Drafts, traveler’s cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any Foreign currency,
● Drafts, traveler’s cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency;

The Foreign Exchange Management Act (FEMA) was enacted in the year 1999, to facilitate external trade and payments and maintenance of foreign exchange in India.
Some common Contraventions in FEMA are:-

  1. Regulation 13.1(1) – Delay in reporting private payment received for issue of shares
  2. Regulation 13.1(2) – Delay in filing form FC(GPR) (Foreign Currency- Gross Provisional Return) after issuing of shares
  3. Regulation 13.1(3) – Delay in filing the Annual Return on Foreign Liabilities and Assets (FLA)
  4. Paragraph 2 of Schedule 1 – Delay in issue of shares/refund of share application money beyond 60 days, mode of receipt of funds etc.
  5. Regulation 11 – Violation of pricing guidelines for issue/transfer of shares
  6. Regulation 2(v) read with Regulation 5 – Issue of ineligible instruments
  7. Regulation 16.B – Issue of shares without the approval of RBI or Government, wherever required
  8. Regulation 13.1(4) – Delay in the submission of form FC-TRS (Foreign Currency Transfer) on the transfer of shares from Resident to Non-resident or vice-versa
  9. Regulation 4 – Receiving investment in India from non-resident or taking on record transfer of shares by the investee company

Any contravention under the FEMA invites three types of penalties which are mentioned in Section 13:-
● For Quantifiable Amount (Amount which can be measured), the penalty will be ‘three times’ the sum involved in the violation,
● For Non-Quantifiable Amount, the penalty may be imposed up to two lakhs,
● For Continuing Offence i.e. if the contravention continues, then penalty may extend to five thousand rupees for every day after the first day.
If a person fails to deposit the penalty, then he/she can be arrested within a period of 90 days from the date of notice of payment of penalty served on him.

Rights of the Arrested Persons under the Foreign Exchange Management Act (FEMA) of 1999

  1. The accused cannot be arrested until he is not served a show-cause notice from the Enforcement Directorate (ED), the notice must also include the date on which the accused is to appear before the Court.
  2. The Reasons for such arrest must be recorded in the case file.
  3. Arrest Warrant must be presented to the accused before the arrest.
  4. The detained person must be presented before the Adjudicating Authority within 24 hours from the time of the arrest.
  5. The detained person must be released as soon as he pays off the penalty amount and the costs of his arrest as due.
  6. The right to show cause why he should not be committed to prison.
  7. The initial term of custody under the officer arresting him shall not exceed fifteen days.
  8. The person can only be detained up to three years if the penalty amount exceeds rupees one crore, and in any other case, up to six months.
  9. The arrest under this act must comply with the provisions of the Code of Criminal Procedure, 1973.
  10. If a person has compounded the offences under this act then no further proceedings can be made against them.

In P. Giribabu vs. Deputy Director of Enforcement 2010 (254) ELT 63 6(Mad.) Hon’ble Madras High Court held that the petitioners had no right to take their counsels along with them at the time when their statement was recorded by the ED officials. However, during the preliminary stage of the investigation, the defaulter can be accompanied by an advocate.
Authored By: Adv. Anant Sharma & Chhatresh Kumar Sahu

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