Compounding of offences under FEMA, 1999

Contravention and Penalties under FEMA, 1999

Section 13- Penalties

If any person contravenes any provisions of the act, or rule, regulation made their under or contravenes any order of the RBI be liable to be penalty as follow

Amount is quantifiable	Amount is not quantifiable
up to thrice the sum involved in such contravention	Up to 2 Lakh Rupees
If contravention is continuing one, further penalty which may extend to 5000/- for every day after the first day during which contravention continues.

Any adjudicating authority adjudging any contravention, if he think fit in addition to any penalty which may impose for such contravention direct that any currency, security or any other money or property in respect of which contravention has taken place shall be confiscated to the Central Government and further direct that the foreign exchange holding if any, of person committing the contraventions or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the Direction made in this behalf.

Section 14 – Enforcement of the orders of Adjudicating Authority

If any person fails to make full payment of the penalty imposed on him under section 13 within a period of 90 days from the date on which the notice for payment of such penalty is served on him, he shall be liable to civil imprisonment under this section.

A warrant for the arrest of the defaulter may be issued by the Adjudicating Authority if the Adjudicating Authority is satisfied, by the affidavit or otherwise, that with the object or effect of dealing the execution of the certificate the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Adjudicating Authority.

Section 15 – Power to compound contravention

Any contravention under section 13 may, on application made by the person committing such contravention, be compounded within one hundred and eighty days (180 Days) from the date of receipt of application by the Director Enforcement or such other officers of the RBI as may be authorized in this behalf by the Central government in such manner as may be prescribed.

Where a contravention has been compounded no proceeding or further proceeding, as the case may be shall be initiated or continued as the case may be, against the person committing such contravention under that section, in this respect of the contravention so compounded.

Compounding of Contravention under FEMA

In term of Rule 4 of the Foreign Exchange (Compounding Proceedings) Rules, 2000 – the power to compound the contravention have been prescribed for compounding authorities with regard to the sum involved in such contravention and no contravention shall be compounded unless the amount involved in the contravention is quantifiable.

Foreign Exchange (Compounding Proceedings) Rules, 2000, (Compounding Power)

Reserve bank of India (RBI)	Directorate of Enforcement (DOE)
Compound the contravention of all the sections of FEMA, 1999 except clause (a) of section 3 of the Act	Exercise power of compounding under clause (a) of Section 3 of FEMA, 1999 (dealing essentially with Hawala Transactions)

For effective implementation of compounding process under FEMA, 1999 the RBI has framed the procedure for compounding of contravention. Once a contravention has been compounded by compounding Authority, no proceeding of further proceeding will be initiated or continued, as the case may be, against the contravener.

Delegation of Powers to Regional Offices of the Foreign Exchange Department of RBI

As measure of customer service and in order to facilitate the operational convenience RBI has delegated more powers to its Regional offices. Henceforth regional Offices are empowered to compound the following contraventions of FEMA.

1.      Contravention falling under FEM (Deposit) regulation, 2000.

2.      Contraventions relating to acquisition and transfer of immovable property outside India.

3.      Issue of ineligible instruments such as Non Convertible Debentures, partly paid up shares, shares with optionally clause, etc.

4.      Issue of share without approval of RBI or FIPB respectively, wherever required.

5.      Taking on record transfer of shares by Invitee Company, in the absence of certified from FC – TRS.

6.      Violation of pricing guidelines for issue of shares.

7.      Delay in issue of shares/refund of share application money beyond 180 days, mode of receipt of fund.

8.      Delay in reporting inward remittance received for issue of shares.

9.      Delay in filing form FC (GPR) after issue of shares.

10.  Delay in submission of form FC – TRS on transfer of shares from resident to Non resident

11.  Delay in submission of form FC – TRS on transfer of shares from Non resident to resident.

12.  Contravention relating to acquisition and transfer of immovable properties in India.

13.  Contravention relating to establishment in India of Branch office, Liaison office or Project office.

Jurisdiction for Compounding of Contraventions under FEMA, 1999.

RBI has announced that it has transferred the work thrice division of Foreign Investment Division (FID)

·         Liaison/Branch/Project office (LO/BO/PO) division

·         Non Resident Foreign Account Division (NRFAD) and;

·         Immovable Property (IP) division.

(w.e.f. July 15, 2014)

To FED, CO Cell, RBI, 6,

Sansad marg, New Delhi – 110001

The power to compound the contravention at above have been delegated to all regional offices (except Kochi and Panaji) and FED, CO cell, New Delhi respectively without any limit on the amount of contravention.

Kochi and Panaji regional offices can compound the above Contravention for amount of Contravention below Rs. 1,00,00,000/-.

If amount of contravention is of Rs, 1,00,00,000/- or more then matter to be compounded by CEFA, Foreign Exchange Department, 5^th floor, Amar Building, Sir, PM Road, Fort, Mumbai – 400001

Process of Compounding

·         Application for compounding of contravention may be submitted to the compounding authority.

·         Application attached with annexure of the detail relating to

v  FDI

v  ECB

v  ODI and;

v  BO/LO as applicable, along with undertaking that they are not under investigation of any agency such as DOE, CBI, etc.

v  A Copy of MOA and AOA

v  Latest audited Balance Sheet

·         Fee for filing of application is of Rs. 5000/- by way of a demand draft drawn in favour “Reserve Bank of India” and payable at the concerned regional office.

·         On receipt of the application, proceeding should be concluded and order issued by the Compounding Authority within 180 days from the date of the receipt of the Application.

·         The disposal of the compounding application is made by issue of a Compounding order.

·         Where there is sufficient cause for further investigation, the RBI may refer the matter to the Directorate of Enforcement for further investigation and necessary action under FEMA, 1999, as deemed fit or to the Anti- Money Laundering Authority instituted under the PMLA, 2002 or to any other agencies, as deemed fit.

·         A Copy of undertaking which contain;

v  Company has not been compounded by RBI in Past.

v  They have not been investigated by any law enforcement authority.

v  They have not received any remittance after the last remittance for which compounding application has been made

v  They are not engaged in any activity not permitted under the FDI/FEMA guidelines.

v  The status of the overseas investor – whether Overseas Corporate Body or not (more than 60% directly or indirectly owned by NRI)

v  Not involved in Real Estate Activity

v  All the FDI remittance towards share capital received since inception by the Indian company have been reported to RBI and letter/s have been issued by RBI for having taken the respective FC GPRs on record. If not the details thereof may be furnished.

Personal Hearing for Compounding under FEMA –RBI Clarification

AP (DIR series) Circular Nos. 56 and 57 dated June28, 2010

The applicant opts for appearing for the personal hearing, the RBI would encourage the applicant to appear directly for it rather than being represented / accompanied by legal experts/consultant, as compounding is only for admitted contraventions. The RBI further stated that appearing for or opting out of personal hearing does not have any bearing whatsoever on the amount of penalty involved in the compounding order.

Refund of compounding fees;

To expedite the refund of compounding fees in cases of incomplete applications, RBI decided to credit the same to the applicant’s Bank Account through NEFT. Therefore applicant should furnish their mandate and detail of Bank Account as per prescribed format.