# Preamble, Extent, Application and Commencement — Section 1 of FEMA, 1999

## Preamble — the object of FEMA

FEMA is an Act to consolidate and amend the law relating to foreign exchange with the objective of —

(i) Facilitating external trade and payments, and

(ii) Promoting the orderly development and maintenance of foreign exchange market in India.

These two limbs are the keys to interpreting any provision of FEMA — trade facilitation and orderly forex market.

## Extent and Application — Section 1

1. FEMA extends to the whole of India.

2. Extra-territorial reach — it also applies to:

All branches, offices and agencies outside India owned or controlled by a person resident in India, AND
Any contravention committed outside India by any person to whom this Act applies.

### Why this matters

The scope is deliberately wide. The keywords are 'owned or controlled' — even if a foreign branch is technically a separate establishment, if it is owned or controlled by a resident, FEMA reaches it.

This prevents a resident from escaping the Act by routing transactions through an overseas branch.

## Commencement

FEMA, 1999 came into force with effect from 1st June, 2000 vide Notification G.S.R. 371(E) dated 1 May 2000.

## Summary box

Element	Position under FEMA
Preamble	Consolidate + amend; facilitate trade; orderly forex market
Extent	Whole of India
Extra-territorial	Branches/offices/agencies outside India owned or controlled by a resident
Outside contravention	Covered if committed by a person to whom the Act applies
Effective date	1 June 2000

Worked example

### Example 1

Example 1: ABC Ltd., an Indian company, has a branch in Dubai. The branch enters into a foreign exchange transaction in Dubai that violates FEMA rules. Will FEMA apply?

Answer: Yes. Section 1(3) extends FEMA to all branches outside India owned or controlled by a person resident in India. ABC Ltd. (resident in India) owns the Dubai branch, hence FEMA applies, and the contravention — though committed outside India — is covered.

### Example 2

Example 2: Mr X, an Indian resident, commits a forex contravention while on holiday in London. Does FEMA apply?

Answer: Yes. Section 1(3) covers 'any contravention committed outside India by any person to whom this Act applies'. Mr X being a person resident in India is covered.

⚠️ Common exam mistakes

Stating that FEMA applies only within India — its reach is extra-territorial.
Forgetting the words 'owned or controlled' — these are the trigger for extra-territorial application.
Stating the wrong commencement date — it is 1 June 2000, not the date of enactment in 1999.

Bare-Act text Section 1 · Foreign Exchange Management Act, 1999 · click to expand

Section 1, FEMA — (1) This Act may be called the Foreign Exchange Management Act, 1999. (2) It extends to the whole of India. (3) It shall also apply to all branches, offices and agencies outside India owned or controlled by a person resident in India and also to any contravention thereunder committed outside India by any person to whom this Act applies.

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Preamble, Extent, Application and Commencement of FEMA

Worked example

⚠️ Common exam mistakes