Shri B. P. Kanungo,
Deputy Governor,
Reserve Bank of India,
Mumbai.
Dear Sir,
Sub: Representation on
FEMA provisions
We submit herewith a representation for some provisions under
FEMA which are causing difficulties and injustice for bonafide transactions.
We request for a personal meeting to explain the matter.
Thanking you,
Yours faithfully,
Bombay
Chartered Accountants’ Society, The
Chamber of Tax Consultants
Chetan
Shah Hitesh
Shah
President President
Cc:
Smt. Malvika Sinha, Executive Director
Shri Shekhar Bhatnagar, Chief
General Manager-in-charge
Shri
Jyoti Kumar Pandey, Chief General Manager
Representation under FEMA
Background for representation:
1. FEMA objective and reintroducing
prosecution– FEMA and the regulations were enacted in the year 2000. The
objective was to liberalise the law. The rules are provided and one has to
interpret and follow the same. Prosecution provisions were removed. In 2005,
Compounding rules were enacted “to provide comfort
to the citizens and corporate community by minimizing transaction costs,
while taking severe view of wilful, malafide and fraudulent transactions.”
However in 2015, prosecution has been
brought back in FEMA. Under sections 13(1A) and 37A, if an Indian resident is
found to have foreign assets in contravention of law, then based on mere
suspicion, equivalent Indian assets can be seized. Further there is
prosecution. Thus a civil law has become semi-criminal law. Under these provisions, even procedural violations
come within the semi-criminal scope.
2. Change
in interpretation by RBI without change in law – Another issue that we as
practitioners face is interpretation changes that occur when officials change.
This is often on account of the legal language used in the country. Over the
years however this is causing hardship to the people who have undertaken
bonafide transactions. And hardship is compounded when a view is changed all of
a sudden without a clear statutory document. One possible solution to this
problem is creating a library where interpretations of provisions are offered
at any level within the RBI.
We appreciate that changing
circumstances can change policies and regulations. It is RBI’s
prerogative to change policies. However the
change has to be prospective. We find that
today’s interpretations are being applied to past transactions. This is
causing grave injustice to people.
Further the change has to be spelt out
clearly in the law- especially if it restricts any facility. It cannot be just
a small phrase inserted somewhere in a regulation. The change in the policy has
to be made abundantly clear. We have given more details and illustrations
later.
3. In our submission, if there is any
ambiguity in the law, the interpretation has to be in favour of the investor.
If at all RBI considers that compounding is required, then a token penalty
should be levied.
Due to amendments in FEMA in 2015
wherein prosecution has been brought back, it is all the more necessary that a
liberal interpretation is taken by RBI.
4. Another issue is absence of definition for
certain terms and different interpretations adopted. By way of illustration,
meaning of some of the common terms like “portfolio investment”,
“acquiring” etc, as interpreted by RBI are different from the
meanings ascribed as per Company Law. The accepted market convention is that if
a meaning is not specified, then normally the meaning under the law closest to
the term (e.g. Company Law) will apply.
5. Our humble suggestion is that change in
interpretation of law without declaring the change in law – should be
minimised. This is of course a massive work. In
the meantime, past innocent transactions should not be considered as
violations.
If at all these are procedural lapses,
only a token Compounding fee should be levied. Ideally a general amnesty should
be declared for procedural breaches not involving black money.
For future transactions, abundant clarity
should be provided.
6. We clarify that our representation is for
bonafide transactions. In a society there will always be some people who will
deliberately violate the law. We are not representing their matters. Let the
law take its course.
However we submit that if some people
have violated the law, it cannot be a reason to have a blanket ban on everyone.
Executive summary of the representations
A. Liberalised
Remittance Scheme (LRS):
1. Investment in unlisted companies made
prior to 5th August 2013 should not be considered as a violation. The investor
should not be asked to unwind the investment and bring back the proceeds. At
the most, a token penalty may be levied.
2. Holding funds in foreign bank accounts
which are remitted under LRS, should not be considered as a violation.
3. Remittance made for any foreign asset like
Gold and loan should not be considered as a violation.
4. There should be no restriction under
Current Account transactions as stated in clause (ix) of Schedule III.
5. If a person has acquired any assets
outside India under LRS / ODI, he should be permitted to gift the same to
anyone.
B. Principal(?)
issues:
6. To route all applications and compliances
through the Authorised Dealer is not working out well. We suggest that one
should be able to file all applications or reports online. The AD should
provide his comments within a specified time limit. If AD does not respond, RBI
should consider the case on merits. Or if the matter is just compliance, it
should be accepted.
7. In case of violations, RBI should not
insist on unwinding a transaction without considering other laws. Only if the
transaction is fundamentally not permitted (e.g. foreign investment in
agricultural activities), then unwinding may be directed.
8. RBI prefers to meet the investor but not
the representatives. As a regulator, RBI should meet the bonafide
representatives based on authorisation if so desired.
C. Real Estate
leasing:
9. A
clarification may be issued that investment in Real estate leasing business is
permitted. The meaning of real estate business can be same for Foreign
investment and overseas investment
