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.The Reserve Bank of India (RBI) is one of the compounding authorities as per the provisions of Indian Foreign Exchange Management Act (FEMA), Act 1999. The Act empowers RBI for compounding of contraventions under the FEMA 1999. Now the RBI has issued a master circular pertaining to compounding of contraventions under the FEMA Act 1999.
While our previous posts have covered this aspect sufficiently, in this post I would like to discuss the procedure for compounding of contraventions under the FEMA Act 1999. The procedure is as follows:
(1) An application for compounding of a contravention under FEMA Act 1999 can be made to the Compounding Authority (CA) on being advised of a contravention under FEMA Act 1999, either through a memorandum or suo moto on being made or on becoming aware of the contravention. The format of the application is appended to the Foreign Exchange (Compounding Proceedings) Rules, 2000.
(2) The application must also furnish relevant details relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office / Liaison Office, as applicable, along with an undertaking that they are not under investigation of any agency such as DOE, CBI, etc. A copy of the Memorandum of Association (MOA) and latest audited balance sheet must also be attached while applying for compounding of contraventions under FEMA, 1999.
(3) All applications for compounding whether on the advice of the Regional Office concerned or suo-moto, relating to the contraventions mentioned at para 3 (a) and (b) above and up to the amount of contravention stated therein, may be submitted by the companies falling under the jurisdiction of the aforesaid Regional Offices to the Regional Office concerned, together with the prescribed fee of Rs.5000/- by way of a demand draft drawn in favour of “Reserve Bank of India” and payable at the concerned Regional Office.
Applications for compounding of all other contraventions together with the prescribed fee of Rs.5000/- by way of a demand draft drawn in favour of “Reserve Bank of India” and payable at Mumbai may be submitted to: The Compounding Authority, [Cell for Effective implementation of FEMA (CEFA)], Foreign Exchange Department, 5th floor, Amar Building, Sir P.M. Road, Fort, Mumbai- 400001.
(4) On receipt of the application for compounding, the proceedings would be concluded and order issued by the CA within 180 days from the date of the receipt of the application for compounding. The time limit for this purpose would be reckoned from the date of receipt of the completed application for compounding by the RBI. The CA may call for any information, record or any other documents relevant to the compounding proceedings and will hold the proceedings. The Compounding Order will be passed by the CA after affording the contravener and others concerned, an opportunity of being heard.
(5) The application will be examined based on the documents and submissions made in the application, in terms of sub rule (1) of rule (4) of the Foreign Exchange (Compounding Proceedings) Rules, 2000 and assess whether the contravention is compoundable and if so, the amount of contravention is accordingly quantified.
(6) The nature of contravention is ascertained keeping in view, inter alia, the following indicative points:
(a) Whether the contravention is technical and / or minor in nature and needs only an administrative cautionary advice;
(b) Whether the contravention is serious in nature and warrants compounding of the contravention; and
(c) Whether the contravention, prima facie, involves money-laundering, national and security concerns involving serious infringement of the regulatory framework.
However, the Reserve Bank reserves the right to classify the contraventions as stated above and neither the contravener nor others have any right to classify any contravention as technical suo moto.
(7) The disposal of the compounding application is made by issue of a Compounding Order specifying the provisions of FEMA,1999 or any rule, regulation, notification, direction or order issued in exercise of the powers under FEMA, 1999, in respect of which contravention has taken place.
(8) The CA may call for any additional information, record or any other document relevant to the compounding proceedings. Such additional information/ documents are required to be submitted within the period as may be specified by the CA and the application may be rejected if such information/documents are not submitted within the prescribed time.
(9) Where there is sufficient cause for further investigation, the Reserve Bank 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 Prevention of Money Laundering Act (PMLA), 2002 or to any other agencies, as deemed fit. Such applications will be disposed of by returning the application to the applicant.
