Compounding of Contraventions
Mr. Ashish
Foreign Exchange Department
RBI, Ahmedabad
FEMA - 1999
Preamble
To consolidate and amend the law relating to
foreign exchange with the objective of
facilitating external trade and payments and
for promoting the orderly development and
maintenance of foreign exchange market in
India
Meaning
• Meaning of the word ‘compound’ or
‘compounding’ not defined in the Act or in the
Rules.
• The expression ‘Compounding’ has been
explained in Law Lexicon as “arranging, coming
to terms; condone for money
• The Black’s Law Dictionary (6th Edition) defines
‘compound’ as : “to compromise; to effect a
composition with a creditor; to obtain discharge
from a debt by the payment of a smaller sum..”
Legal basis
• Section 15 of FEMA 1999 covers powers to
compound contraventions and empowers the
Compounding Authority to compound the
contraventions.
• Section 13 of FEMA covers penalties in respect
contraventions which are compounded
Compounding Rules, 2000
• The Government of India has, in consultation with
the Reserve Bank placed the responsibilities of
administering compounding of cases with the
Reserve Bank, except under Section 3(a) of FEMA,
1999.
• Accordingly, the Government notified Compounding
Rules, 2000 vide Notification No. G.S.R.383(E) dated
3rd May 2000.
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The Need
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The objective of FEMA
Need of the times
Changing dynamics of our economy
Provide comfort to the business community
by minimising transaction costs, while taking
serious view of malafide, fraudulent
transactions.
Compounding - A Voluntary Process
• Compounding refers to admitting a
contravention, pleading guilty and seeking
remedy
• Any contravention, on an application made by
the person committing such contravention, be
compounded within 180 days [Sec. 15(1) of FEMA,
1999]
• Contravention is admitted
• Application is made seeking compounding
Process
• Cell for Effective Implementation of FEMA (CEFA) has
been set up at Foreign Exchange Department, Central
Office, Mumbai for carrying out compounding
proceedings.
• The Regional Offices were given the powers to
compound certain cases.
• An application for compounding of a contravention
to be submitted to the Compounding Authority
either on being advised of a contravention through a
memorandum or suo moto on being made or
becoming aware of the contravention.
Process
• Application, along with fee and documents to
be submitted to The Compounding Authority,
Central Office or the Regional Office
concerned depending on the amount /
contravention.
• The application fee shall be paid by a DD in
favour of the “Reserve Bank of India” and
payable at Mumbai or the Regional Office
location.
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Process
• The proceedings would be concluded and order
issued by the Compounding Authority within 180
days from the date of receipt of the application for
compounding.
• This time limit would be from the date of receipt of
application for compounding to the date of issue of
compounding order.
• The Compounding Authority may call for any
information, record or any other documents relevant
to the compounding proceedings.
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Process
• Such additional information where ever called
for shall be submitted within the period as
specified by the CA.
• In case the contravener fails to submit the
additional information called for within
specified period, the application for
compounding will be liable for rejection.
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Process
Contraventions relating to any transaction under
FEMA but requiring approval or permission from the
Government Department concerned or any Statutory
Authority as the case may be, would not be
compounded UNLESS the required approval is
obtained from the authorities concerned.
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Compounding Order
• The Compounding Authority shall pass an
order after affording the contravener an
opportunity of being heard.
• In the compounding order the provisions of
the Act, Rules, Directions etc. under which the
contravention has taken place along with the
details of the alleged contravention are
specified.
What are Contraventions?
Contravention may be of the following
• Provisions of the Act
• Rules made under the Act
• Regulations
• Notifications
• Direction or order issued in exercise of the
powers under the Act.
Generally Committed Contraventions
Overseas Direct Investment
• Non submission of form ODI after investment
and UIN not allotted
• Not a permitted method of funding
• Not obtaining share certificate within
stipulated time period from the date of
remittance
• Non-submission of Annual Performance
Reports (APR) every year
Generally Committed Contraventions
External Commercial Borrowing
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Borrower not an eligible borrower
Lender not a recognised lender
Minimum maturity period not adhered to
Breach of all in cost ceiling
End use not a permitted one
Loan Registration Number not obtained
Generally Committed Contraventions
Foreign Direct Investment
• Not reporting of inward remittance within 30
days
• Not allotting equity instruments or not refunding
the amount within 180 days
• Not submitting form FC-GPR within 30 days from
the date of allotment
• Non submission of form FCTRS on transfer of
shares
• Issue of instruments other than equity shares,
fully or mandatorily convertible preference
shares as prescribed
Contravention And Penalties
13(1) of FEMA 1999
Penalties-Quantum of penalty
• Compounding may be subject to a penalty up to thrice the
sum involved in such contravention where such amount is
quantifiable,
or
• up to Rs 2 Lakhs where the amount is not quantifiable,
and
• where such contravention is a continuing one, further
penalty which may extend to Rs 5000/-for every day after
the first day during which the contravention continues.
Powers of the Regional Offices
Need : Facilitate customer Service
operational convenience
The contraventions that can be compounded at RO
• Delay in reporting of inward remittance
• Delay in filing of Form FCGPR after allotment of shares
• Delay in issue of shares after 180 days
viz. paragraphs 9(1)(A), 9(1)(B) and 8, respectively, of the
Schedule I to the Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident
Outside India) Regulations, 2000, notified vide
Notification No. FEMA.20/2000-RB dated 3rd May 2000
and as amended from time to time :
Powers of the Regional Offices
(Contd……)
• Paragraphs 9 (1) (A) and 9 (1) (B) of Schedule I to
FEMA 20/2000-RB dated May 3, 2000
Bhopal, Bhubaneshwar, Chandigarh, Guwahati,
Jaipur, Jammu, Kanpur, Kochi, Patna and Panaji for
amount of contravention below Rupees One hundred
lakh only (Rs. 1,00,00,000 /-)
• Paragraphs 9 (1) (A), 9 (1) (B) and 8 of Schedule I
to FEMA 20/2000-RB dated May 3, 2000
Ahmedabad, Bangalore, Chennai, Hyderabad,
Kolkata, Mumbai and New Delhi for amount of
contravention without any limit.
Advantages of Compounding
• It is a voluntary process
• Compounding makes one clean of the past mistakes
and look forward to the future
• After compounding, the contravener is absolved of the
contravention and can concentrate on the business
opportunities
• It saves time and energy One application – One
hearing – One order.
• The existence of such facility provides comfort while
undertaking global transactions since FEMA facilitates
compounding of any contraventions which are not
malafide
Statistical Facts
• 70% cases pertain to FDI (72% relate to delay
in advance reporting / submission of FCGPR/
• 24 % of the cases received to relate not
obtaining LRN under ECB
• 66 % of ODI cases relate to non reporting of
overseas investments online
Thank You
Reserve Bank of India
Foreign Exchange Department
Ahmedabad Regional Office