CBI Foreign Exchange Officer Scale-III 2026: 15 Questions & Answers

Capital Account: Impacts the Balance Sheet (Assets/Liabilities). Includes FDIs, ECBs, and immovable property. Current Account: Everything other than capital account (e.g., trade, short-term credit, family remittances). Historical Context: This definition is the “gatekeeper” clause. If a transaction fits this definition, it falls under the restrictive regime of Section 6. If it does not, it falls under the generally free regime of Section 5 (Current Account).

The 2015 Amendment created a Jurisdictional Split in Section 6: Non-Debt Instruments (NDI): Regulated by Central Govt (via Rules). Debt Instruments: Regulated by RBI (via Regulations). Historical Context: Prior to October 17, 2019, the RBI regulated almost all Capital Account transactions. The Finance Act 2015 shifted the policy control of “Equity/FDI” to the Central Government to align with the country’s strategic foreign investment policy, leaving “Debt” (which impacts monetary stability) with the RBI.

RBI Powers (Debt): Foreign securities (outbound), Borrowing/Lending (ECB), Deposits, Export/Import of currency. Govt Powers (NDI): All investments in equity instruments (FDI), REITs, InvITs, and contribution to capital of LLPs

The Declaration Rule: Under Section 10(5), an AP shall require a declaration from the person confirming that the transaction is lawful. Refusal Duty: If the person refuses to declare, or if the AP believes the transaction involves a contravention, the AP must refuse to handle the transaction

Quantifiable Amount: Penalty up to 300% (3x) of the amount involved. Unquantifiable Amount: Penalty up to ₹2 Lakhs. Continuing Default: Additional penalty of up to ₹5,000 per day. Historical Context: This quantum has remained stable. Note that this is the maximum; the Adjudicating Authority has discretion to levy less, but cannot exceed 3x.

RBI: The Regulator (Administers the Act/Compounding). ED: The Enforcer (Investigates contraventions, conducts raids, issues SCNs, and adjudicates penalties

Serious Offences: Contraventions suspected of Money Laundering (PMLA), Terror Financing, or affecting the “sovereignty and integrity of the nation” are strictly non-compoundable. These are referred to the ED for criminal/rigorous investigation. Technical Offences: Options A, C, and D are procedural/administrative in nature and are the primary candidates for compounding.

Civil Nature: The arrest is not for the crime, but for the default in payment. Procedure: The Adjudicating Authority issues a Show Cause Notice -> If unsatisfied, issues a Warrant of Arrest -> Defaulter is detained in Civil Prison. Release: The moment the penalty is paid, the person must be released (Proviso to Sec 14).

Assistant/Deputy Director Orders: Appeal to Special Director (Appeals). Special/Additional Director Orders: Appeal to Appellate Tribunal (SAFEMA). Tribunal Orders: Appeal to High Court.

What counts as FC? It is the sum of: 1. Amount of Equity/Compulsorily Convertible Preference Shares (CCPS). 2. Loan Amount provided to the foreign entity. 3. 100% of the amount of Corporate Guarantees issued. 4. 50% of the amount of Performance Guarantees. The Limit: The aggregate FC must be within 400% of the Net Worth of the Indian entity. Exception: Investments funded out of EEFC account balances or ADR/GDR proceeds are excluded from this 400% limit.

The Fiction: Although physically located in Gandhinagar (India), a unit in an IFSC is legally deemed to be “outside India” for exchange control purposes. Implication: Transactions between two IFSC units are in Foreign Currency (not INR). Transactions between an Indian resident (Domestic Tariff Area) and an IFSC unit are treated as Foreign Exchange transactions (Subject to LRS/ODI limits). Purpose: To create an offshore financial hub on Indian soil that competes with Dubai or Singapore without currency controls.