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Experts question Reserve Bank's authority to amend FEMA Act
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).

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.

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However, 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 is needed to be approved by both the Houses of Parliament under section 48 of the FEMA Act.

While pointing this out, Mr 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.”

Mr Praveen Khandelwal, Secretary General CAIT addressing a press conference said, “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.”

Clause (3) of section 6 of the FEMA Act states, “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 Mr. Bhartia and Mr. 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).

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