Capital Account Convertibility

Freedom of

currency conversion in relation to capital transactions in terms of inflows and outflows Concerned about the ownership changes in domestic or foreign financial assets and liabilities Represents the formation and liquidation of financial claims on or by the remaining world CAC in India
o Residents o Non-Residents o Instruments
Does

not serve the purposes of the real sectors of Indian economy

Case Studies

FERA Violations by ITC

By late 1960, Indian govt begun putting pressure on multinational companies to reduce there holding. Imperial divested its equity in 1969 through a public offer, which raised the shareholdings of Indian individual and institutional investors from 6.6% to 26% regular increases in excise duty on cigarettes started having a negative impact on the companys profitability. Chitalias deal marked the beginning of a series of events that eventually resulted in the company being charged for contravention of FERA regulations. Around $4 Million transferred to Swiss bank account than its transferred to Lokman establish and than to Chitalia company in US. The company, following the Bukhara deal, had set up various front companies (shell or bogus companies) with the help of the Chitalias. Some of the front companies were Hup Hoon Traders Pvt. Ltd., EST Fibers, Sunny Trading.

FERA Violations by ITC

Around $ 83 Million was transferred to India with the help of Chitalia group of companies. Bhukhara Deal JV ran in huge losses stll decided to pay 25% return on Investment to NRI doctor ITC also made payment to non-resident share holder without the permission of RBI. Over invoice export order through Chitalias. Money laundering. by 1995, ITC Global was on the verge of bankruptcy because of all its cash payments to the Chitalias. It registered a loss of US $ 16.34 million for the financial year 1995-96

RBI slapped Rs 125 Crores on Reliance Infrastructure.

Reliance Energy raised ECB $360 M (July 2006) Fund temporarily paked overseas in liquide asset (Nov 2006) $ 300 M repatriated back into India balance remained overseas in liquide asset Than invested in reliance mutual fund growth option and Reliance floating rate fund (Apr 2007) Next day, entire money withdrawn & invested in Reliance fixed horizone fund. 26 Apr 2007, $ 500 M (ECB fund included) withdraw and invested in foreign as JV capital. Company gain additional income of 124 crores, which turn as liablity to pay as fine. FEMA violation
A. Fund ECB borroed fund should parked abored till actual requirement in India. B. Fund can not be used for other purpose.