Section 3 of FEMA : Section 3: Dealing In Foreign Exchange, Etc

Explanation using Example

Here's an example illustrating the application of Section 3 of The Foreign Exchange Management Act, 1999:

Imagine a situation where Mr. Arjun, an Indian resident, wants to buy shares in a foreign company. He approaches his friend Mr. Bala, who lives in the United States, to purchase these shares on his behalf. Mr. Arjun sends the money to Mr. Bala's US bank account without involving any authorized dealer or bank in India.

In this scenario, Mr. Arjun is violating Section 3 of the FEMA Act because:

1. He is dealing in foreign exchange (the money sent to Mr. Bala for the shares) without going through an authorised person, such as a bank approved by the Reserve Bank of India.
2. He is making a payment to a person resident outside India (Mr. Bala) in a manner not permitted under the Act, as he has not used an authorized channel for the transaction.
3. He is indirectly involved in a financial transaction in India (transferring funds to Mr. Bala) that is associated with the acquisition of an asset outside India (the foreign shares), without the proper authorization or following the prescribed guidelines.

Mr. Arjun should have used an authorized dealer or bank to conduct the transaction legally, ensuring compliance with the FEMA regulations.