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.

Also Read:

Current Account Deficit