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What is Forex Trading and the legal side of the same in India?

Starting from the root, we will begin with the discussion of which are the basic elements in Forex Trading that are mentioned in the Foreign Exchange Management Act, 1999.

Regulation And Management Of Foreign Exchange

As per the section 3 of the Foreign Exchange Management Act, 1999, which discusses the don�ts of the rules or regulations , or the general or special permissions of the Reserve Bank of India.
  1. Any person shall not transfer or deal in any kind of foreign security or foreign exchange to someone who is not authorized to do so.
  2. Any person shall not make payment for or to the credit of any non-residential Indian in whatsoever means.
  3. Any person shall not neither receive any payment other than the authorized person himself nor should it be received on behalf of any non-residential Indian in whatsoever means.
  4. Any person shall not by any means enter into any kind of monetary transactions in India as a mean of consideration in or for being associated with the creation or acquisition or transfer of any right to attain any asset outside of India.

Holding Of Foreign Exchange, Etc.

As per the section 4 of the Foreign Exchange Management Act, 1999, which discusses on the fact that no one who is a resident of India shall not Holding of Foreign exchange, security or immovable property outside India.

Current Account Transactions

As per the section 5 of the Foreign Exchange Management Act, 1999, which discusses on the element which states that anyone can draw or sell foreign exchange from or to the authorized person and in case of such sale or withdrawal it is said to be a current account transaction. We should also keep in mind that the Central Government may along with keeping the account of public interest and after consultation with the Reserve Bank of India, impose necessary restrictions for such transactions as may be prescribed.

Authorized person

As per the section 10 of the Foreign Exchange Management Act, 1999, which discusses on the topic of who and limitations of an authorized person:
  1. The Reserve bank of India might authorize anyone as an authorized person after receiving an application in order to allow someone to deal in foreign exchange or securities as the authorized dealer, off-shore banking or even money changer or in any manner that person feels right.
  2. The authorization shall be in paper and be subject to the terms laid down.
  3. The authorization can also be revoked by Reserve Bank of India if:
    1. It is in any way of public interest.
    2. The person doesn�t satisfy the rules and limitations mentioned in the act. Also this can�t be done instantly as the person shall be given an opportunity to rectify the mistake.
  4. The authorized person should keep in mind any kind of special directions or orders or general terms while dealing and shall not engage in anything that does not permit.
  5. The authorized person can ask for justification while dealing on behalf of someone from that person just to be sure that there are no intentions to go against the terms of the act and if he feels there is an intention then he shall report this to the Reserve Bank of India.
  6. If anyone other than the authorized person deals in any exchange and doesn�t surrender the same to any authorized person then that person is said to have committed contravention of the terms of the act.
Written by: Aniruddha Roy, BBA LLB, Roll 2082009, KIIT School of Law, Bhubaneshwar

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