25 Jan 2012

Compounding Authority Procedure Under Indian FEMA Act 1999

In this special column, Mr. B.S.Dalal, Senior Partner at Perry4Law and a Techno Legal Banking and Financial Expert, is discussing the current procedure for Compounding Of Contraventions Under Indian FEMA, 1999, as followed by the Compounding Authority.

Reserve Bank of India (RBI) has prescribed a set procedure to compound contraventions under the Indian Foreign Exchange Management Act (FEMA), 1999. It is a good option to set oneself free from legal wrongs without going through the lengthy and costly court and adjudication proceedings.

RBI master circular on compounding of contraventions under Indian FEMA 1999 has been recently issued. It prescribes a set procedure for compounding of contraventions under Indian FEMA 1999. The compounding authority (CA) can compound contraventions committed under the FEMA Act 1999 if an application has been duly made in the prescribed manner.

Once a complete compound application has been made by an applicant, the following procedure would be applied by the RBI:

(1) The CA will exercise jurisdiction in respect of the contraventions alleged to have been committed in relation to any of the provisions of the FEMA, 1999, or any rule, regulation, notification, direction or order issued in exercise of the powers under FEMA, 1999.

(2) The CA will form an opinion on the basis of the application, together with the documents submitted and on the basis of submissions made during the personal hearing on the nature of the contravention.

(3) The application for compounding will be disposed of on merits, upon consideration of the records and submissions and at the absolute discretion of the CA. The following factors, which are only indicative, may be taken into consideration for the purpose of passing the Compounding Order and for arriving at the quantum of sum on payment of which contravention shall be compounded:

(i) The amount of gain of unfair advantage, wherever quantifiable, made as a result of the contravention;

(ii) The amount of loss caused to any authority / agency / exchequer as a result of the contravention;

(iii) Economic benefits accruing to the contravener from delayed compliance or compliance avoided;

(iv) The repetitive nature of the contravention, the track record and / or history of non-compliance of the contravener;

(v) Contravener’s conduct in undertaking the transaction and disclosure of full facts in the application and submissions made during the personal hearing; and

(vi) Any other factor considered relevant and appropriate.

After this stage, the issuance of Compounding Order ensues. The procedure for issuance of a compounding order is as follows:

(1) An opportunity for personal hearing is given to the applicant for further submission of documents in person in support of the application within a specified period. If the contravener or its authorized representative fails to appear in person or make any submissions before the CA for personal hearing, the CA may proceed with the processing of the compounding application on the basis of information and documents available in the application for compounding.

(2) The Compounding Authority will pass a compounding order on the basis of the averments made in the application as well as other documents and submissions made in this context by the contravener during the personal hearings, if any.

(3) Where the compounding of any contravention is made after making of a complaint under sub-section (3) of section 16 of FEMA, 1999 as the case may be, one copy of the compounding order made under sub rule (2) of Rule 8 of Foreign Exchange (Compounding Proceedings) Rules, 2000 will be provided to the applicant (the contravener) and also to the Adjudicating Authority.