QUESTIONING: Reserve Bank’s authority to amend FEMA Act to permit retail FDI questioned

New Delhi, November 9, 2012: The notification of the Central Government to allow FDI in Retail requires the amendment of the rules and regulations of the Foreign Exchange Management Act 1999 (FEMA).

This has been acknowledged by the Government which has directed the RBI to make the required amendment.

However, as per the clause (b) of sub section (3) of Section 6 and section 47 of the FEMA Act do not grant any power of amendment in rules and regulations of the said Act to RBI though it empowers the RBI to make any new rule or regulation, which are needed to be approved by both the Houses of Parliament under section 48 of the FEMA Act.

While pointing this out, B C Bhartia, National President of Confederation of All India Traders (CAIT) and a noted Chartered Accountant said, “We have sent a communication to the Governor of the Reserve Bank of India to clarify as to under which authority it has amended the rules and regulations of FEMA to facilitate the Notification of the Union Government issued on 20th September, 2012 allowing FDI in Retail.”

Praveen Khandelwal, Secretary General CAIT while addressing a press conference today at New Delhi added, “At best, the Reserve Bank of India can make a proposal of amendment for the consideration of the Parliament but certainly it has no authority to amend the rules and regulations of FEMA.”

The press conference was attended by CAIT Organising General Secretary Satish Garg, CAIT Delhi State President Narender Madan, Delhi State General Secretary Vijay Pal, CAIT National Secretary Ramesh Khanna.

Former MP and leading Trade Leader of UP Banwari Lal Kanchal and Pradeep Sharma, National Coordinator of Khudra FDI Virodhi Morcha and farmer leader Naresh Sirohi, CAIT National Headquarter In-charge Adarsh Gupta was also present at the press conference.

Clause (3) of section 6 of the FEMA Act states that “Without prejudice to the generality of the provisions of sub-section (2), the Reserve Bank may, by regulations, prohibit, restrict or regulate” whereas the Section 47 says that “The Reserve Bank may, by notification, make regulations to carry out the provisions of this Act and the rules made thereunder”. Therefore both these sections of the FEMA empowers RBI to make any regulation pertaining to prohibition, restriction or regulation of the provisions of the Act but not empower the RBI to make any amendment on its own in any existing rules and regulations.

Both Bhartia and Khandelwal further said that the word “make” define “to produce” whereas the word “amendment” defines “a change or addition”. Therefore, under the shelter of word “make”, the RBI cannot amend the existing rules and regulations of FEMA.

The amendments of RBI  are mere proposals and Notification of the Government is merely a policy announcement and cannot attain any legal sanctity till such proposal is passed by both the Houses of Parliament. Under section 48 of FEMA it has been explicitly mentioned that “the rule or regulation shall thereafter have effect only in such modified form or be to no effect, as the case may be” (as decided by the Parliament).