Current context:
The Enforcement Directorate (ED) has not found any violation under the Foreign Exchange Management Act (FEMA) during the inquiry of Paytm Payments Bank Limited (PPBL) transactions.
About current context:
- Recently, the RBI had issued a circular barring PPBL from taking further deposits, top-ups or undertaking credit transactions into its customer accounts, wallets, FASTags, and National Common Mobility Cards (NCMC) after 15th march.
What is PPBL issue ?
- Thousands of cases included the use of a single PAN to register several accounts, and PPBL had lakhs of non-KYC (Know Your Customer) compliant accounts.
- There have been cases when the entire transaction value in minimum KYC pre-paid instruments has exceeded regulatory limitations by crores, raising worries about money laundering.
Key Features of FEMA
- Empowering the Reserve Bank of India (RBI):
- FEMA grants the RBI the authority to formulate regulations related to foreign exchange.
- It enables the Indian government to establish rules in line with the country’s foreign trade policy.
Repealing FERA:
- FEMA replaced FERA, which was enacted in 1973.
- FERA aimed to regulate financial transactions involving foreign exchange and securities.
- However, FERA did not align with the post-liberalization policies of the Indian government.
Shift from Criminal Offences to Civil Offences:
- Unlike FERA, FEMA treats all criminal offenses related to foreign exchange as civil offenses.
- This change simplifies legal proceedings and ensures a more balanced approach.
Approval for Foreign Exchange Transactions:
- All financial transactions involving foreign securities or exchange require approval under FEMA.
- These transactions must be conducted through “Authorized Persons” designated by the RBI.
Flow of Payments to and from Abroad:
- FEMA empowers the Central Government to regulate payments to and from individuals situated outside India.
- It ensures that foreign exchange transactions adhere to national interests.
Restrictions on Authorized Individuals:
- In the public interest, the Indian government can restrict authorized individuals from conducting foreign exchange deals within the current account.
Capital Account Transactions:
- Even if carried out through authorized individuals, RBI has the authority to impose restrictions on capital account transactions.
Rights of Indian Residents:
- Under FEMA, Indian residents have the right to conduct foreign exchange and foreign security transactions.
- They can also hold or own immovable property abroad if acquired during their stay outside India or inherited from non-resident individuals.