PRESENTATION ON
CONTRAVENTION AN PENALTIES
UNDER FEMA , 1999.
By: ARVIND SALVI.
APRIL, 2013
Slide 1
Foreign Exchange Management Act, 1999
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FEMA came into force with effect from June 1, 2000.
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The objective of facilitating external trade and payments for
promoting the orderly development and maintenance of
foreign exchange market in India.
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There is a paradigm shift from objective under FERA viz.
controlling /conversation of foreign exchange for utilisation
of economic development of the country.
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With this shift in objective in mind there was also a shift in
dealing with the issue relating to penal provisions.
Slide 2
Offences and Penalties
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The objective of FEMA is to ease FE control and restrictions. The
freedom thus provided to the residents can be legitimately enjoyed by
them in respect of all their bonafide transactions, current or capital.
Reasonable restrictions are imposed on such rights to the extent
provided under the Act. Such restrictions are notified through the
Rules / Regulations. Contravention of such Rules / Regulations may
only attract monetary fines and penalties within the broad limits defined
under the Act.
The above freedom can only be enjoyed if resident Indians abide by
the law and undertake bonafide transactions through banking channels
or authorised dealers. Persons indulging in patently illegal transactions
must continue to attract stiff penalties.
Violation of FERA was a criminal offence, whereas of FEMA
provisions would be contravention of civil nature and would attract
monetary fines and penalties within the broad limits defined under the
Act.
Therefore, Chapter-IV consisting of sections 13 to 15 has been
incorporated in the Act, which deals with penalties under FEMA.
Slide 3
Salient Features of Penal Provisions under FEMA
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FEMA is civil law.
Penal provisions are exercised in two ways –
Compounding (Voluntary) & Adjudication (Govt)
Investigation & Adjudication segregated.
Prosecution to prove guilt of the contravener.
No arrest except non payment of penalty.
Time bound disposal.
Maximum penalty prescribed.
Absence of mensria.
Separate penal provisions for APs.
Slide 4
Compounding of Contravention
What does it mean ?
Settle an offence committed by the contravener
through imposition of a monetary penalty
without going in for litigation after
the contravener acknowledges voluntarily
having committed the contravention..
Slide 5
Meaning, scope & effect.
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Compounding means acceptance of satisfaction by
the person who has suffered injury in lieu of
punishment prescribed under law. Compounding of
offence enables the injured persona and the offender
to terminate the criminal proceedings against the
offender. Under the law, the injured person accepts
satisfaction in lieu of punishment to the offender.
Under this law, the public authorities who represent
the society at large, are empowered to accept
satisfaction in lieu of continuance of proceedings.
Generally courts are of the view that compounding is
not opposed to public policy. It does not amount to
hushing up either. Compounding enables restoring of
relationship in place of feud between the parties.
Slide 6
Meaning, scope & effect contd…
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Sec .15(2) of the Act provides that upon compounding
of offence, no proceedings or further proceedings shall
be initiated or continued in r/o offences compounded.
Sec.320(8) of the Cr.P.C. the effect of compounding is
brought out more clearly. “The composition of an
offence under this section shall have the effect of an
acquittal (i. e. discharge) of the accused with whom
the offence has been compounded”. Therefore, under
the law also, an offence is compounded, the order of
the compounding must clearly discharge the applicant.
Slide 7
Legal Position :
 Section
13 – Contravention of
 Act
 Rules,
 Regulations,
 Notifications,
 Directions or
 Orders
Slide 8
Legal position contd..
 Powers
to compound (Section 15) - any
contravention under Section 13 may, on
application made by the person committing
such contravention, be compounded within 180
days from the date of application by –
 Directorate of Enforcement.
 Reserve Bank of India.
Slide 9
Penalties – (prescribed under Sec.13)
 Up to thrice the sum involved in such contravention
where such amount is quantifiable.
 Or up to two lakh rupees where the amount is not
quantifiable.
 And where such contravention is a continuing one,
further penalty which may extend to five thousand
rupees for every day after the first day during
which the contravention continues.
Slide 10
Powers to compound….
RESERVE BANK :
 Sec.3 – Dealing in Foreign Exchange
 Sec.4 – Holding of foreign currency
 Sec.5 – Current account transactions
 Sec.6 – Capital account transactions
 Sec.7 – Export of goods and services
 Sec.8 – Realisation and repatriation of FE
 Sec.9 – Exemption from realisation & repatriation
 Sec.10.6 – Mis-utilisation of FE
DIRECTORATE OF ENFORCEMENT :
 Sec.3(a) i.e Hawala transactions.
Slide 11
Detection of contravention
 Voluntary
disclosure;
 Information
 Analysis
 Market
 RBI’s
from Ads;
of data;
Intelligence;
inspections;
 Others
– Media reporting / complaints.
Slide 12
Contravention done as per -
Foreign Exchange (Compounding Proceedings) Rules, 2000
notified by Government of India as amended from time to time.
 A.P. (DIR Series) Circular No.31 / 01.02.2005 issued by RBI to
implement Compounding Rules with a view to providing comfort to
the citizens and corporate community by minimising transaction
cost while taking serious view of the willful, malafide and fraudulent
transactions.
 Administrative Guidelines “Scheme of Compounding under FEMA”.
 Cir No. 31/2005has been superseded vide recent Circular No. 56
dated 28-06-2010 with the objective of rationalisation and
streamlining of the process and the procedure for compounding and
to enhance transparency and effect smooth implementation of the
compounding process.
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Slide 13
Compounding rules
FE (Com. Proceedings) Rules, 2000.
G.S.R. 383 (E) dated 03/05/2000 and amended on 02/11/2002,
13/09/2004 & 27/08/2008.
 Total 13 rules.
 Important Rules :
- No. 6 : no enquiry after compounding;
- No. 7 : AA to discharge the contravener;
- No. 8 : Opportunity of hearing by CA & disposal of
application in 180 days;
- No. 9 : The sum compounded to be paid within 15 days from the
date of order;
- No. 10: Non payment is treated as if not applied for compounding.
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Slide 14
Application Form
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Only 8 items;
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Must be completed in all respects;
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Accompanied with the fees of Rs.5000;
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Full details of the person authorised to handle the
application;
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Col. 5 specify the details of contravention, explicitly
and expressly;
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Specify/ describe the details/ facts, parties involved
etc.
Slide 15
Compounding Process -
Receipt of application;
 Receipt of fees;
 Examination by RBI;
 Calling for additional documents, if required;
 Opportunity of personal hearing;
 Passing of Compounding Order;
 Payment of penalty; and
 Issuance of Certificate for payment of penalty.
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Slide 16
Examination by RBI.. Points considered..
Whether the contravention is :
- technical and/or minor in nature and needs only an
administrative cautionary advice;
- serious and warrants compounding;
- prima-facie involves money-laundering, national and
security concerns involving serious infringements if the
regulatory frame work; and
- there is a sufficient cause for further investigation by
the DoE under FEMA or Anti-Money Laundering
Authority instituted under the AML Act 2002, or any
other agency.
- Press Release : 2010-2011/234 dt: 13/08/2010 RBI
has clarified the matter relating to clssification.
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Slide 17
Examination by RBI contd..
 The
compounding application is disposed of
on merits , upon consideration of records
and submissions made by the applicant in
the application as well as during the
personal hearing and at the absolute
discretion of the Compounding Authority.
 Compounding
Authority acts under the
supervision of the Governor of the RBI.
Slide 18
Examination by RBI contd..
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Indicative factors taken in to account by RBI while
deciding the sum for which the contravention is
compounded while passing compounding order :
- the amount of gain of unfair advantage, where
quantifiable, made as a result of contravention;
- the amount of loss caused to any authority/
agency/exchequer as a result of contravention;
-economic benefits accruing to the contravener from
delayed compliance or avoidance of compliance;
continued…
Slide 19
Examination by RBI contd..
- the repetitive nature of the contravention, the
track record and/or history of non-compliance
of the contravener;
- contravener’s conduct in undertaking the
transaction and disclosure of full facts in the
application and submission made during the
personal hearing; and
- any other factor as considered relevant and
appropriate.
Slide 20
Benefits -
 Comforts
to citizens and corporate community.
 Minimum
transaction cost.
 Time-bound
 Simple
disposal (180 days).
and hassle-free procedure.
 No
proceedings or further proceedings initiated
or continued.
 Absolutely
transparent.
Slide 21
Adjudication
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Govt. has appointed AA for holding an enquiry for the
purpose of imposing penalty Sec 16 ) for
contravention of Section 13.
AA is DoE.
FEM (Adjudication Rules) 2000.
Enforcement of adjudication order ( Sec 14 ).
Appeal to Special Director ( Sec 17 ).
Appeal to Appellate Tribunal ( Sec 19 ).
Appeal to High Court against the decision of AT
( Sec 35 ).
Slide 22
Contents of Compounding order ..
 The
provisions of FEMA, 1999 or any rule,
regulation, notification, direction or order issued
under FEMA, 1999 in r/o contravention has
taken place along with details of the alleged
contravention;
 The sum for which the contravention is
compounded; and
 The manner and time limit for payment of the
sum compounded – 15 days from the date of
the compounding order.
Slide 23
Legal position…
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Sec 34 :
No Civil Court shall have jurisdiction to entertain
any suit or proceedings in r/o any matter which
an Adj. Authority or the Appellate Tribunal or the
the Spl. Director ( Appeals) is empowered by or
under the Act to determine and no injunction
shall be granted by any Court or other authority
in r/o any action taken or to be taken in
pursuance of any power conferred by or under
this Act.
Slide 24
Legal position..
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Sec 35 :
Appeal to High Court : Any person aggrieved by
any decision or order of the Appellate Tribunal
may file an appeal to the High Court within 60
days from the date of the communication of the
decision or order of the Appellate Tribunal on
any question of law arising out of such order.
Slide 25
Violations under FERA 1973(Sec. 49 of FEMA)
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case no cognizance/action is taken within a
period of two years (i.e. sunset clause-up to
31/5/2002),then the offences do not subsist &
no Court or AA can take such cognizance after
31-05-2002.
 There can be three type of such cases-(i)
Cognizance taken within a period of two years
by Court, (ii) Cognizance taken by DoE (iii)
Cognizance not taken
[ Consistent with
the provisions of FEMA 1999 or not Consistent
with the provisions of FEMA 1999 ].
Slide 26
Contravention by the Authorised Person..
Sec. 11 (3) :
Where any authorised person contravenes any
direction given by the RB under this Act or fails
to file any return as directed by the RB, the RB
may, after giving reasonable opportunity of
being heard, impose on the AP a penalty which
may extent to the ten thousand rupees and in the
case of continuing contravention with an additional
penalty which may extent to two thousand rupees for
every day during which such contravention continues.
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Slide 27
Latest developments …
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As a measure to customer service and in order to
facilitate the operational convenience, it has been
decided to delegate the powers to the ROs of the RBI
mentioned below to compound the contraventions of
FEMA involving (i) delay in reporting of inward
remittance, (ii) delay in filing of form FC-GPR after
allotment of shares and (iii) delay in issue of shares
beyond 180 days (viz. paragraphs 9(1)(A),9(1)(B) and
8, respectively, of the Schedule I to FEMA.20/2000RB of 03.05.2000 (A.P.DIR-57/ 13.12.2011)
Slide 28
THANK
YOU
Slide 29
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