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.

Schedule V under Companies Act, 2013

Schedule V under Companies Act, 2013

Conditions for Appointment and payment of remuneration of managerial personnel

PART – I (APPOINTMENTS)

Appointment of Managing Director or Whole Time Director or a manager without the approval of the Central Government.

Person shall not be appointed as a Managing Director or Whole Time Director or a Manager of a Company unless he satisfied the following conditions;

A.      He had not been sentenced to imprisonment for any period, or to a fine exceeding Rupees 1000/- for the conviction of an offence under any of the following Acts,

1.       The Indian Stamp Act, 1899

2.       The Central Excise Act, 1944

3.       IDRA, 1951

4.       The essential commodities Act, 1955

5.       The prevention of Food Adulteration Act, 1954

6.       The Companies Act, 2013

7.       The Competition Act, 2002

8.       The Customs Act, 1962

9.       The Income Tax Act, 1961

10.   SCRA, 1956

11.   FEMA, 1999

12.   The SICA, 1985

13.   The SEBI Act, 1992

14.   PMLA, 2002

B.      He had not been detained for any period under the conservation of foreign exchange and prevention of smuggling Act, 1974

Provided where the central Government has given its approval to the appointment of a person convicted or detained above (A or B), as the case may be, no further approval of Central Government shall be necessary for the subsequent appointment of that person if he had not been so convicted or detained  subsequent to such approval.

C.      At least 21 years old and has not attend the age of 70 Years.

But company by passing special resolution in General Meeting appoint a person who attained the age of 70 Years, no further approval of Central Government shall be necessary for such appointment;

D.      If he is a Managerial person in more than One Company, draw remuneration from one or more companies subject to the ceiling provided in section V of Part II

E.       He is resident of India

Resident is India Includes a person who has been staying in India for a continuous period of not less than 12 Month immediately preceding the date of his appointment as a managerial person and who has come to stay in India;

i)                    For taking up employment in India or;

ii)                   For carrying on a business or vacation in India

Note: This condition shall not apply to companies in SEZ as notified by DOC from time to time.

I would like to discuss the provision of section 197 of the Companies Act, 2013 before starting the Part II of Schedule V

Overall Managerial Remuneration and Managerial remuneration in case of absence or inadequacy of profits 197(1).

197(3); In any financial year Company has no profit or its profits are inadequate, the company shall not pay to its Directors, including any MD, WTD, or Manager by way of remuneration any sum exclusive of any fees payable to Directors under sub section 5 i.e Sitting fees hereunder except in accordance with the provisions of SCHEDULE V and if it s not able to company to such provisions with the previous approval of CG in Form No – (MR – 2).

(PART - II REMUNERATION)

Section: 1 – Remuneration Payable by companies having Profits:

Subject to the Provisions of Section 197, a company having profit in a Financial Year may pay remuneration to managerial Person not exceeding the limit specified in section 197 of the Companies Act, 2013.

Section: II – Remuneration payable by Companies having no profit or inadequate profit without Central Government Approval:

Where in any Financial year during the currency of the tenure of a managerial Person, a company has no profits or its profits are inadequate, it may, without Central Government approval, pay remuneration to the managerial Person not exceeding the higher of the limit given below:-

(A):

	1	2
	Where the effective Capital is: (Means of Effective Capital: Aggregate of the Paid up Share capital + Share premium Account + reserve and Surplus (excluding revaluation reserve) + long term loans and deposit repayable after one Year (excluding working capital loans, over drafts, interest due on loans unless funded, bank Guarantee, etc. And other short term arrangement) – aggregate of the Investment (except investment company whose principle business is acquisition of shares, stock, debenture, or other securities), + Accumulated Loss + Preliminary Expenses not written off.	Limit of yearly remuneration payable shall not exceed (Rs.)
1	Negative or Less than 5 Crores	30 Lakhs
2	5 Crores and above but less than 100 Crores	42 Lakhs
3	100 Crores and above but less than 250 Crores	60 Lakhs
4	250 Crores and above	60 Lakhs + 0.01% of the effective capital in excess of Rs. 250 Crores:

Provided above limits shall be doubled if the resolution passed by the shareholders in General Meeting by Special Resolution.

(B). In the case of Managerial Person who was not a security holder holding security of the company of Nominal value of Rs. 500000/- or more or an employee or a director of the Company or not related to any director or promoter at any time during the two years prior to his appointment as a managerial person, - 2.5 % of the Current relevant Profit ( profit calculated under section 198 but without deducting the excess of expenditure over income referred to in subsection 4(I) of section 198 of Act  thereof in respect of those years during which the managerial person was not an employee, Director or shareholder of the company or its holding or subsidiary Companies)

Provided above limits shall be doubled if the resolution passed by the shareholders in General Meeting by Special Resolution.

Means of inadequate profit:-

Suppose profit of a company in F.Y 2014-15 Was Rs. 10,000,000/-

Remuneration of two M.D is Rs. 10,00,000/- (i.e. 10%) then remuneration is within limit so, everything is fine

Suppose in F.Y 2015-16 is Rs. 90,00,000/-

Remuneration of Two MD is Rs. 10,00,000/-  (i.e. 11.25%) then its exceed the limit so, we can say profit is inadequate.

Provided further that the limits specified under this section shall apply, if—

(i) Payment of remuneration is approved by a resolution passed by the Board and, in the case of a company covered under sub-section (1) of section 178 also by the Nomination and Remuneration Committee;

(ii) the company has not made any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon for a continuous period of thirty days in the preceding financial year before the date of appointment of such managerial person;

(iii) a special resolution has been passed at the general meeting of the company for payment of remuneration for a period not exceeding three years;

(iv) a statement along with a notice calling the general meeting referred to in clause (iii) is given to the shareholders containing the following information, namely:—

I. General Information:

(1) Nature of industry

(2) Date or expected date of commencement of commercial production

(3) In case of new companies, expected date of commencement of activities as per project approved by financial institutions appearing in the prospectus

(4) Financial performance based on given indicators

(5) Foreign investments or collaborations, if any.

II. Information about the appointee:

(1) Background details

(2) Past remuneration

(3) Recognition or awards

(4) Job profile and his suitability

(5) Remuneration proposed

(6) Comparative remuneration profile with respect to industry, size of the company, profile of the position and person (in case of expatriates the relevant details would be with respect to the country of his origin)

(7) Pecuniary relationship directly or indirectly with the company, or relationship with the managerial personnel, if any.

III. Other information:

(1) Reasons of loss or inadequate profits

(2) Steps taken or proposed to be taken for improvement

(3) Expected increase in productivity and profits in measurable terms.

IV. Disclosures:

The following disclosures shall be mentioned in the Board of Director’s report under the heading “Corporate Governance”, if any, attached to the financial statement:—

i.                     All elements of remuneration package such as salary, benefits, bonuses, stock options, pension, etc., of all the directors;

ii.                   Details of fixed component and performance linked incentives along with the performance criteria;

iii.                  Service contracts, notice period, severance fees;

iv.                 Stock option details, if any, and whether the same has been issued at a discount as well as the period over which accrued and over which exercisable.

Section III. — Remuneration payable by companies having no profit or inadequate profit without Central Government approval in certain special circumstances:

In the following circumstances a company may, without the Central Government approval, pay remuneration to a managerial person in excess of the amounts provided in Section II above:—

(a)  where the remuneration in excess of the limits specified in Section I or II is paid by any other company and that other company is either a foreign company or has got the approval of its shareholders in general meeting to make such payment, and treats this amount as managerial remuneration for the purpose of section 197 and the total managerial remuneration payable by such other company to its managerial persons including such amount or amounts is within permissible limits under section 197.

(b)  Where the company—

(i) Is a newly incorporated company, for a period of seven years from the date of its incorporation, or

(ii) Is a sick company, for whom a scheme of revival or rehabilitation has been ordered by the Board for Industrial and Financial Reconstruction or National Company Law Tribunal, for a period of five years from the date of sanction of scheme of revival, it may pay remuneration up to two times the amount permissible under Section II.

(c) Where remuneration of a managerial person exceeds the limits in Section II but the remuneration has been fixed by the Board for Industrial and Financial Reconstruction or the National Company Law Tribunal:

Provided that the limits under this Section shall be applicable subject to meeting all the conditions specified under Section II and the following additional conditions:—

(i) Except as provided in Para (a) of this Section, the managerial person is not receiving remuneration from any other company;

(ii) The auditor or Company Secretary of the company or where the company has not appointed a Secretary, a Secretary in whole-time practice, certifies that all secured creditors and term lenders have stated in writing that they have no objection for the appointment of the managerial person as well as the quantum of remuneration and such certificate is filed along with the return as prescribed under sub-section (4) of section 196.

(iii) The auditor or Company Secretary or where the company has not appointed a secretary, a secretary in whole-time practice certifies that there is no default on payments to any creditors, and all dues to deposit holders are being settled on time.

(d) A company in a Special Economic Zone as notified by Department of Commerce from time to time which has not raised any money by public issue of shares or debentures in India, and has not made any default in India in repayment of any of its debts (including public deposits) or debentures or interest payable thereon for a continuous period of thirty days in any financial year, may pay remuneration up to Rs. 2,40,00,000/- pa

Section IV. — Perquisites not included in managerial remuneration:

1.  A managerial person shall be eligible for the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in Section II and Section III:—

(a). Contribution to provident fund, superannuation fund or annuity fund to the extent these either singly or put together are not taxable under the Income-tax Act, 1961;

(b) Gratuity payable at a rate not exceeding half a month’s salary for each completed year of service; and

(c) Encashment of leave at the end of the tenure.

2. In addition to the perquisites specified in paragraph 1 of this section, an expatriate managerial person (including a non-resident Indian) shall be eligible to the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in Section II or Section III—

a. Children’s education allowance: In case of children studying in or outside India, an allowance limited to a maximum of Rs. 12,000 per month per child or actual expenses incurred, whichever is less. Such allowance is admissible up to a maximum of two children.

(b) Holiday passage for children studying outside India or family staying abroad: Return holiday passage once in a year by economy class or once in two years by first class to children and to the members of the family from the place of their study or stay abroad to India if they are not residing in India, with the managerial person.

(c) Leave travel concession: Return passage for self and family in accordance with the rules specified by the company where it is proposed that the leave be spent in home country instead of anywhere in India.

Section V. —Remuneration payable to a managerial person in two companies:

Subject to the provisions of sections I to IV, a managerial person shall draw remuneration from one or both companies, provided that the total remuneration drawn from the companies does not exceed the higher maximum limit admissible from any one of the companies of which he is a managerial person.

PART III (Provisions applicable to Parts I and II of this Schedule)

1. The appointment and remuneration referred to in Part I and Part II of this Schedule shall be subject to approval by a resolution of the shareholders in general meeting.

2. The auditor or the Secretary of the company or where the company is not required to appointed a Secretary, a Secretary in whole-time practice shall certify that the requirement of this Schedule have been complied with and such certificate shall be incorporated in the return filed with the Registrar under sub-section (4) of section 196.

PART IV

The Central Government may, by notification, exempt any class or classes of companies from any of the requirements contained in this Schedule.

Provisions of Appeal before NCLAT.

                                  
Any person who is aggrieved by the order of National Company Law Tribunal can file an Appeal before the NCLAT

First of all we have to understand the power and jurisdictions of NCLT before institutions of Appeal in NCLAT;

• Almost of the powers of the Company Law Board under the Companies Act, 1956/2013.

• All the powers of BIFR for revival and rehabilitation of sick industrial companies;

• Power of High Court in the matters of mergers, demergers, amalgamations, winding up, etc.;

• Power to order repayment of deposits accepted by Non-Banking Financial Companies

• Power to wind up companies;

• Power to Review its own orders.



NOW: PROCEDURE

                                                   Institution of Appeals – Procedure

Every appeal to the Appellate Tribunal shall be in English and where it is in some other language, a copy of English Translation of appeals shall be attached and;

Fairly and legibly type – written or printed in double spacing on one side of standard paper with an inner margin of about four centimetres, width on top and with a right margin of 2.5 CM, duly paginated and indexed.

Appeal shall be divided into paragraph and shall be numbered consecutively and each paragraph shall contain as nearly as may be, a separate fact or allegation or point.

Full name, parentage, description of each party and address and in case a party sue or being sued in a representative character, shall also be set out at the beginning of the appeal and need not be repeated in subsequent proceedings in the same appeal.

                                                       Manner of Presentation of Appeals

Any person who is aggrieved by the order of National Company Law Tribunal can file an Appeal before the NCLAT in Form No. – NCLAT – 1 in triplicate by the appellant / petitioner / respondent, as the case may be, in person or by his AR with fees of Rs. 5000/- (Five Thousands) Points should be kept in mind while filing of an Appeal;

Every appeal shall be accompanied by a certified copy of the impugned order.

 All documents filed in the Appellate Tribunal shall be accompanied by an index in triplicate containing their details and the amount of fee paid thereon.

 Sufficient number of copies of the appeal or petition or application shall also be filed for service on the opposite party as prescribed.

 In the pending matters, all other applications shall be presented after serving copy thereof in advance on the opposite side or his advocate or AR.

 The processing fee prescribed by the rules, with required number of envelopes of sufficient size and notice forms as prescribed shall be filed along with Memorandum of Appeal.

Endorsement and verifications;

At the foot of the every appeal or pleading there shall appear the name and signature of the AR and every appeal or pleading shall be signed and verified by the party concerned in the manner provided by the rules.

Endorsement and scrutiny of petition or appeal or document;

 The person in charge of the filing counter shall immediately on receipt of appeal or documents affix the date and stamp of the Appellate Tribunal thereon and also on the additional copies of the index and return the acknowledgement to the party and he shall also affix his initials on the stamped affixed on the first page of the copies and enter the particulars of the all such documents in the register after duly filing and assign a diary number which shall be entered below the date stamp and thereafter cause it to be sent for scrutiny.

 If on scrutiny, the appeal or document is found to be defective, such document shall, after notice to the party be returned for compliance and if there is failure to comply within seven days from the date of return, the same shall be placed before the registrar who may pass appropriate order.

 The registrar may for sufficient cause return the said documents for ratification or amendments to the party filing the same.

 Where party fails to take any step for the removal of the defect within the time fixed for the same, the registrar may, for reasons to be recorded in writing, decline to register the appeal or pleading or document.

Production of authorisation for and on behalf of an association;

Where an appeal purported to be instituted by or on behalf of association, the person who sign or verify the same shall produce along with such appeal, for verification by the registry, a true copy of the resolution of the association empowering such person to do so.

Provided that registrar may at any time call upon the party to produce such further materials as he deemed fit for satisfying himself about due authorisation:

Provided further that it shall set out the list of members for whose benefit the proceeding are instituted.

FEE

SCHEDULE OF FEES
Sr No.	Section of Companies Act, 2013 / Rules	Nature of Appeal	Fees (in Rs)
1	Section 218(3)	Protection of Employee during investigation	1000/-
2	Section 421(1)	Appeals to National Company Law Appellate Tribunal	5000/-

FORMS

Sr. N	Forms	Descriptions
1	NCLAT - 1	Memorandum of appeal preferred under section 421 of the Companies Act, 2013
2	NCLAT - 2	Interlocutory Applications; Every interlocutory application for stay, direction, condonation of delay, exemption from production of copy of order appalled against or extension of time prayed for in pending matter shall be in FORM NCLAT – 2 and the requirement prescribed in that behalf shall be complied with by the applicant, besides filing an affidavit supporting the applications.
3	NCLAT - 3	Application for Grant of Inspection; Application for inspection of record under rule 58 shall be in the Form NCLAT – 3 and presented at the filing counter of the registry between 10:30 AM and 3:00 PM on any working day and two days before the date on which inspection is sought, unless otherwise permitted by the Registrar.
4	NCLAT - 4	Form and contents of the affidavit; The affidavit as per Form NCLAT – 4 shall conform to the requirements of order XIX, Rule 3 of Civil Procedure Code, 1908
5	NCLAT - 5	Affidavit of illiterate, visually Challenged Person; Where an affidavit sworn or affirmed by any person who appear to be illiterate, visually challenged or unacquainted with the language in which the affidavit is written shall be in Form NCLAT – 5, the attestor shall certify that the affidavit was read, explained or translated by him or in his presence to the deponent and that he seemed to understand it, and made his signature or mark in the presence of attestor.
6	NCLAT - 6	Suo motu summoning of documents; Notwithstanding any thing contained in this rule, the appellate tribunal may, suo motu, issue summons for production of public documents or other documents in the custody of a public offer in form NCLAT - 6
7	NCLAT - 7	Recording of Deposition
8	NCLAT - 8	Grant of Discharge certificate
9	NCLAT - 9	Register of SLP/Appeal