The judgments of the Delhi HC in Cruz City and SRM Exploration, discussed in Part 1, appears to ignore the earlier decision of the SC in Dropti Devi v Union of India, where the SC held (in the context of prosecution under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act) that the legislative objectives of FERA and FEMA are identical, namely, preservation of the foreign exchange resources of the country.Continue Reading Legislative gap between the Arbitration Act and FEMA: Should Parliament step in? – Part II
India is one of the few countries that still has exchange controls and does not have full capital account convertibility.
The Foreign Exchange Management Act, 1999 (“FEMA”), empowers the Reserve Bank of India (“RBI”) to frame regulations, master directions and issue circulars for the enforcement of the FEMA (“FEMA Regulatory Regime”). The FEMA Regulatory Regime contemplates prior RBI approval for certain categories of capital account transactions between residents and non-residents.
The enforcement of international arbitration awards in India, where there is going to be a remittance of foreign exchange from a resident to a non-resident, would invariably have FEMA implications. FEMA implications may also arise in situations where the foreign award provides for transfer of shares between residents and non-residents. If the foreign award is not in conformity with the FEMA Regulatory Regime, in such a situation, can the court, where the enforcement action is filed, decline enforcement on the ground that the foreign award would be contrary to the country’s ‘public policy’.Continue Reading Legislative gap between the Arbitration Act and FEMA: Should Parliament step in? – Part I