Chapter 18

MRTP ACT, FERA & FEMA

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MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT (MRTP), 1969
This Act was enacted to prevent the concentration of economic power to
common detriment, control of monopolies, and prohibition of monopolistic and
restrictive trade practices (MRTP) and matters connected therewith.

Restrictive Trade Practices (RTPs)

Section 2(O) defines restrictive trade practices (RTPs), which may be
investigated by the MRTP Commission under Section 37 of the Act.
• RTPs include differential or discriminatory incentives based on quantities,
stipulation in agreement as to the prices that should be charged on resale,
territorial restrictions and restricting terms of guarantee, bumper prize
contests wherein the prices of goods are increased to cover the cost of
prizes, announcing loan facilities without a guarantor while charging
guarantor’s commission, sale of goods for a particular price and issue of cash
memos for a lesser sum, display of price lists indicating maximum
recommended rates, and absence of indication that a lower price could be
charged thus encouraging the consumer

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 FOREIGN EXCHANGE REGULATION ACT(FERA), 1973
In this Act, unless the context otherwise requires:
i. “Appellate Board” means the Foreign Exchange Regulation Appellate Board,
constituted by the Central government under sub-section (1) of Section 52.
ii. “Authorised dealer” means a person for the time being authorised under
Section 6 to deal in foreign exchange.
iii. “Bearer certificate” means a “certificate of title to securities” by the delivery of
which (with or without endorsement), the title to the securities is transferable.
iv. “Certificate of title to a security” means any document used in the ordinary
course of business as a proof of the possession or control of the security, or
authorising or purporting to authorise, either by an endorsement or by
delivery, the possessor of the document to transfer or receive the security
thereby represented.
v. “Currency” includes all coins, currency notes, bank notes, postal notes,
postal orders, money orders, cheques, draft s, travellers’ cheques, letters of
credit, bills of exchange, and promissory notes.
vi. “Foreign currency” means any currency other than Indian currency.

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Money Changers

The Reserve Bank may, on an application made to it in this behalf,

authorise any person to deal in foreign currency. An authorisation
under this Section shall be in writing and

i. may authorise dealings in all foreign currencies or may be

restricted to authorising dealings in specified foreign currencies
only;
ii. may authorise transactions of all descriptions in foreign currencies
or may be restricted to authorising specified transactions only;
iii. may be granted with respect to a particular place where alone the
moneychanger shall carry on his business;
iv. may be granted to be effective for a specified period, or within
specifi ed amounts;
v. may be granted subject to such conditions as may be specifi ed
therein.
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 Authorised Dealers in Foreign Exchange

The Reserve Bank may, on an application made to it in this behalf,

authorise any person to deal in foreign exchange. An
authorisation under this section shall be in writing and

i. may authorise transactions of all descriptions in foreign

currencies or may be restricted to authorising dealings in
specified foreign currencies only;

ii. may authorise dealings in all foreign currencies or may be

restricted to authorising specified transactions only;

iii. may be granted to be effective for a specified period, or within

specified amounts;

iv. may be granted subject to such conditions as may be specifi ed

therein.
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Restrictions on Dealing in Foreign Exchange

• Except with the previous general or special permission of the Reserve Bank,
no person other than an authorised dealer shall in India, and no PRI other
than an authorised dealer shall outside India, purchase or otherwise acquire
or borrow from, or sell, or otherwise transfer or lend to or exchange with, any
person not being an authorised dealer, any foreign exchange, provided that
nothing in this sub-section shall apply to any purchase or sale of foreign
currency effected in India between any person and a moneychanger. For the
purposes of this subsection, a person, who deposits foreign exchange with
another person or opens an account in foreign exchange with another
person, shall be deemed to lend foreign exchange to such other person.

• Except with the previous general or special permission of the Reserve Bank,
no person, whether an authorised dealer or a moneychanger or otherwise,
shall enter into any transaction which provides for the conversion of Indian
currency into foreign currency or foreign currency into Indian currency at
rates of exchange other than the rates for the time being authorised by the
Reserve Bank.

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Restrictions on Payments
a. make any payment to or for the credit of any PROI;
b. receive, otherwise than through an authorised dealer, any payment by order
or on behalf of any person who is a resident outside in India. For the
purposes of this Clause, where any person in, or a resident in, India receives
any payment by order or on behalf of any PROI through any other person
(including an authorised dealer), without a corresponding inward remittance
from any place outside India, then, such person shall be deemed to have
received such payment otherwise than through an authorised dealer;
c. draw, issue, or negotiate any bill of exchange or promissory note or
acknowledge any debt, so that a right (whether actual or contingent) to
receive a payment is created or transferred in favour of any PROI;
d. make any payment to, or for the credit of, any person by order or on behalf of
any PROI;
e. place any sum to the credit of any PROI;

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From FERA to FEMA

• In the wake of an acute shortage of foreign exchange in the country, the

Government of India enacted the Foreign Exchange Regulation Act (FERA) in
1973. Under this controversial piece of legislation, foreign exchange law
violators (which sometimes included big names in the Indian industry) were
treated as criminals and dealt with sternly.

• Realising that FERA was not in tune with the economic reforms initiated since
1991, the government replaced it with a new legislation—Foreign Exchange
Management Act (FEMA), 1999, which came into eff ect from June 1, 2000.
FERA remained a nightmare for 27 years for the Indian corporate world. FEMA
set out its objectives as “facilitating external trade and payment” and “promoting
the orderly development and maintenance of foreign exchange market in India”.

• Under FEMA, foreign exchange law violators are treated as civil off enders
rather than as criminals as was the case under FERA. Contravention of the
provisions of FEMA invites monetary penalties. Moreover, FEMA provides for a
number of appellate authorities which

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FOREIGN EXCHANGE MANAGEMENT ACT (FEMA), 1999
In this Act, unless the context otherwise requires
a. “Adjudicating Authority” means an officer authorised under sub- section (1) of
Section 16.
b. “Appellate Tribunal” means the Appellate Tribunal for Foreign Exchange
established under Section 18.
c. “Authorised person” means an authorised dealer, moneychanger, off -shore
banking unit, or any other person for the time being authorised under sub-
section (1) of Section 10 to deal in foreign exchange or foreign securities.
d. “Bench” means a Bench of the Appellate Tribunal.
e. “Capital account transaction” means a transaction which alters the assets or
liabilities, including contingent liabilities, outside India of persons who are
resident in India or assets or liabilities in India of persons who are resident
outside India, and includes transactions referred to in sub-section (3) of
Section 6.
f. “Chairperson” means the Chairperson of the Appellate Tribunal.

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Residential Status
One of the important changes in FEMA relates to the “Residential
Status of a Person”.
The terms “person” and “person resident in India (PRI)” are defined
under Sections 2(u) and 2(v) of FEMA, respectively.
Ironically, like FERA, FEMA, too, does not define the term “Non-
resident”. Section 2(w) defines “person resident outside India (PROI)”
as a person who is not a resident in India.
For all practical purposes, the term “person resident outside India” is
synonymous with the term “non-resident” and these terms are used
interchangeably in this book.) Let us look closely at these two
important definitions under FEMA, which are as follows:
Defi nition of “Person”
Section 2(u): Th e term “Person” includes
i. an individual,
ii. a Hindu Undivided Family (HUF),
iii. a company,
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Non-resident Indian (NRI)

Section 2 of the FEMA deals with various definitions. It defi nes a PRI and
a PROI.

However, Notification No. 5/2000-RB (dealing with various kinds of bank

accounts) defines the term “Non-resident Indian (NRI)” to mean a
person resident outside India (PROI), who is either a citizen of India or
is a “Person of Indian Origin” (PIO). The term PIO has been defined
differently in different Notifications; and therefore, the term NRI, in
turn, will have a different meaning. In short, one should bear in mind
that the definitions of NRI and PIO are contextual.

Person of Indian Origin (PIO)

The term “Person of Indian Origin” (PIO) is defined differently in different

Notifications and, therefore, the term NRI will have a different meaning
depending upon the Notification one applies. Therefore, when
applying provisions of FEMA, one must be careful about the reference
and context of such application.

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