Compounding of contravention under FEMA, 1999
Foreign Exchange Management Act, 1999 (‘FEMA’) is one of the key Indian legislations brought into force with the objective of facilitating external trade and payments and promoting the orderly development and maintenance of the foreign exchange market in India.
For the purpose of ease of doing business in India, Government has simplified the compliances under FEMA, 1999, apart from that due to lack of awareness, many persons fail to comply with the compliances of FEMA provisions and found themselves in the penal consequences made under FEMA.
When a person can apply for compounding?
One can make an application for compounding, either suo moto, on becoming aware of the contravention or a person is made aware of the contravention of the provisions of FEMA, 1999 by the Reserve Bank or the Foreign Investment Promotion Board (FIPB) or any other statutory authority or the auditors or by any other means, she/he may apply for compounding.
Compounding is governed through the provisions given under Section 13 & Section 15 of FEMA, 1999.
What is Contravention: It is a breach of the provisions of the Foreign Exchange Management Act (FEMA), 1999, and rules/ regulations/ notification/ orders/ directions/ circulars issued there.
What is Compounding: The process of voluntarily admitting the contravention, pleading guilty, and seeking redressal.
Eligibility for applying for compounding:
Any person can apply for compounding to the Reserve Bank of India which contravenes any provisions of FEMA, 1999.
Application may be submitted to the Directorate of Enforcement.
The application can be made at any time when a person is made aware of the contravention, application to be made in the prescribed format along with necessary documents and a demand draft for INR 5,000/-.
Before seeking compounding of contravention, all requisite approvals should be obtained and compliances should be completed. Compounding can be done only after rectifying the records by way of obtaining post-facto approvals or unwinding the transactions in cases where such transactions are not permissible under FEMA, 1999. Copies of approvals and other compliances should be enclosed along with the application.
Application can be made at any time when a person is made aware of the contravention, application to be made in the prescribed format along with necessary documents and a demand draft for Rs. 5000/-
Where to apply
The powers to compound contraventions have been vested with the Regional Offices of Foreign Exchange Department (FED), Reserve Bank.
What RBI does with the application:
The Reserve Bank makes scrutiny of the application to verify whether the required details and documents furnished by the applicant are prima-facie in order.
Applications with incomplete details or where the contravention is not admitted will be returned to the applicant.
On the admission of the application, the Reserve Bank will examine and decide nature of the contravention is
- technical;
- material; or
- sensitive.
If technical, the applicant will be issued a cautionary advice.
If the contravention is material, it will be compounded by imposing an amount after giving an opportunity to the contravener to appear before the compounding authority for a personal hearing.
If the contravention is sensitive in nature requiring further investigations, the same would be referred to the Directorate of Enforcement (DoE) for further investigation/ action.
In the below-mentioned matters, powers of the compound have been vested with the Regional Offices of Foreign Exchange Department(FED), Reserve Bank.
- Delay in reporting inward remittance for the issue of shares.
- Delay in filing form FC-GPR after issue of shares.
- Delay in issue of shares/refund of share application money beyond 180 days, mode of receipt of funds, etc.
- Violation of pricing guidelines for issue of shares.
- Issue of ineligible instruments such as non-convertible debentures, partly paid shares, shares with optionality clause, etc.
- Issue of shares without approval of RBI or FIPB respectively, wherever required.
- Delay in submission of form FC-TRS on the transfer of shares from Resident to Non-Resident.
- Delay in submission of form FC-TRS on the transfer of shares from Non-Resident to Resident
- Taking on record transfer of shares by investee company, in the absence of certification for form FC-TRS.
The work of three divisions of the Foreign Investment Division (FID) viz. Liaison/ Branch/ Project office (LO/ BO/ PO) division, Non-Resident Foreign Account Division(NRFAD), and Immovable Property (IP) Division has been transferred to Foreign Exchange Department, Central Office Cell, Reserve Bank of India, 6, Sansad Marg, New Delhi – 110001 with effect from July 15, 2014. Accordingly, the officers attached to the FED, CO, Cell at New Delhi office are now authorized to compound the contraventions as under:
Is it mandatory to appear for the personal hearing?
To appear for the personal hearing is optional. The applicant may enclose full information relating to the case with the application and may exercise his discretion with regard to appearing for a hearing. The Applicant can authorize some other person to attend the personal hearing on his behalf but only with proper written authority.
Dispose of compounding application
The amount of compounding announced by the authority should be paid within 15 days of the order by way of the demand draft on “Reserve Bank of India” and payable at the Regional Office. After submitting the amount, compounding shall be disposed off.
In case, if the same amount is not paid within 15 days then it will be treated as if the applicant has not made any compounding application to the Reserve Bank.
The Compounding process is completed within 180 days from the date of receipt of the application complete in all aspects, by the Reserve Bank.
Note:
Willful, malafide, and fraudulent transactions are, however, viewed seriously, which will not be compounded by the Reserve Bank.