Panel for changes in FEMA

Notwithstanding the ideological divide on how the foreign exchange laws should be framed in the post-liberalised environment, the Parliamentary Committee has proposed some significant changes in the the FEMA draft. As many as 18 clauses in the existing draft are now sought to be changed with a draft report ready to be submitted by the committee.

However, officials in the Ministry of Finance saythat given the wide spectrum and controversial nature of some of the proposed amendments, it was unlikely that FEMA and the complementary piece of legislation, the Prevention of Money Laundering Bill PMLB will be introduced in the current session of Parliament. It is expected that the proposed amendments will now be examined by the ministries of Finance and Law and then again will be sent to the Union Cabinet for approval.

Understandably, it was the decision on the repeal of FEMA which generated the most interest 8212; and controversy 8212; during meetings of the Standing Committee. The draft report states that the absence of any sunset clause would lead to an anomalous situation. In order to put an end to such a situation, the committee notes, its members were of a firm view that the provisions of FERA should not be made applicable in perpetuity and some sunset clause should be there in the proposed Bill.

Curiously enough, while some Left party MP8217;s insist that this meant that the 8220;retrospective8221; clausehad been inserted in the amendments, other members of the committee contest such an interpretation. Reason: the committee has recommended that following the repeal of FERA, only the offences committed under the repealed Act, in which prosecution proceedings have already been instituted, shall continue to be governed by it. The draft note states that some MPs on the committee were of the view that the retrospective clause should also apply to cases where show cause notices had been issued; a search conducted or a summon issued. This point, the committee has stated, needs further discussion.

An important addition to the FEMA draft is the introduction of a new clause to cover compensatory illegal foreign exchange payments, known as hawala transactions. It is to be recalled that Enforcement Director M K Bezboruah had given a written submission to the Standing Committee in which he had estimated that 28 per cent of the total cases investigated by them in two years could be categorised as hawala payments.Bezboruah had described hawala transactions as the 8220;most prevalent and major source8221; of leakage of foreign exchange.

Among the other important recommendations made by the Standing Committee is one for changing the definition of Non-Resident Indians, which again had led to a lot of quibbling among MPs. The Committee has noted that the existing definition in the FEMA Bill of an NRI being someone who spent more than 182 days during the course of the year immediately preceding the date of offence would give rise to 8220;impractical8221;situations and make the residential status of people subject to frequent changes. It has now been recommended that the definition be changed to to a person residing in India for more than 240 days, in aggregate, during the previous financial year.

In keeping with the larger objective of vesting the powers of administering provisions of FEMA with the Reserve Bank of India and not the Enforcement Directorate, the Committee has suggested that even the power to compound contraventionsshould also vest with the RBI. Besides this, the powers of the Enforcement Directorate are sought to be further curtailed with the suggestion that the power of search and seizure be limited to Enforcement officers not below the rank of Assistant Directors

In view of what the Committee has described as the possibility of 8220;inordinate delays8221; in dealing with cases of foreign exchange violations, a sub-clause is sought to be introduced after which applications for compounding contradictions should be disposed off within six months and a time limit of 12 months be introduced for any adjudication proceedings to be completed.