Foreign Exchange Management Act, 1999 - Chapter III

Section 12 FEMA 1999: RBI Power to Inspect Authorised Persons

Section 12 of the Foreign Exchange Management Act, 1999 gives the Reserve Bank of India power to inspect the business of an authorised person when an inspection appears necessary or expedient for specified regulatory purposes. It also places a corresponding duty on the authorised person and responsible officers to produce records and furnish information required during the inspection.

In simple terms: RBI may use Section 12 to check information supplied by an authorised person, obtain information that was not supplied when requested, and verify compliance with FEMA and subordinate rules, regulations, directions and orders.

Meaning of authorised person under FEMA

For this provision, the expression authorised person takes its meaning from Section 2(c) of FEMA. It includes an authorised dealer, money changer, off-shore banking unit, or another person authorised under Section 10(1) to deal in foreign exchange or foreign securities.

Text of Section 12 - Power of Reserve Bank to inspect authorised person

12. (1) The Reserve Bank may, at any time, cause an inspection to be made, by any officer of the Reserve Bank specially authorised in writing by the Reserve Bank in this behalf, of the business of any authorised person as may appear to it to be necessary or expedient for the purpose of-

  1. verifying the correctness of any statement, information or particulars furnished to the Reserve Bank;
  2. obtaining any information or particulars which such authorised person has failed to furnish on being called upon to do so;
  3. securing compliance with the provisions of this Act or of any rules, regulations, directions or orders made thereunder.

(2) It shall be the duty of every authorised person, and where such person is a company or a firm, every director, partner or other officer of such company or firm, as the case may be, to produce to any officer making an inspection under sub-section (1), such books, accounts and other documents in his custody or power and to furnish any statement or information relating to the affairs of such person, company or firm as the said officer may require within such time and in such manner as the said officer may direct.

When can RBI inspect an authorised person?

Section 12(1) permits RBI to cause an inspection at any time when it considers the inspection necessary or expedient for one or more of the statutory purposes. The inspecting officer must be an RBI officer specially authorised in writing for that purpose.

1. Verification of statements and information

RBI may inspect the business of an authorised person to verify whether statements, information or particulars already furnished to RBI are correct. This enables regulatory verification against the underlying books, accounts and records.

2. Obtaining information not furnished

If an authorised person has been called upon to provide information or particulars but has failed to furnish them, Section 12 expressly permits an inspection for obtaining that material.

3. Securing compliance with FEMA

The inspection power also supports compliance with FEMA itself and with rules, regulations, directions or orders made under the Act. Section 12 therefore operates alongside RBI's supervisory powers under Section 11.

Duty to produce books, accounts and documents

Under Section 12(2), every authorised person must cooperate with a lawful inspection. Where the authorised person is a company or firm, the duty also extends to every director, partner or other officer, as applicable. The inspecting officer may require production of books, accounts and other documents in the person's custody or power, and may require statements or information relating to the affairs of the person, company or firm.

The material must be produced, and the requested statement or information furnished, within the time and in the manner directed by the inspecting officer.

Related FEMA provisions

Section 10 deals with authorisation by RBI and the obligations of authorised persons. Section 11 deals with RBI directions and information requirements. Section 13 contains the general penalty framework for contraventions of FEMA and instruments issued under it.

Legal reference: The official consolidated text of the Foreign Exchange Management Act, 1999 should be checked together with applicable rules, regulations, notifications, directions and RBI instructions for the transaction or authorised-person category concerned.

This article is a general legal reference and does not substitute transaction-specific professional advice.