COMPOUNDING OF OFFENSES UNDER FEMA

According to RBI , persons charged with violation of the Foreign Exchange Management Act should apply for compounding, which is paying a sum to get relief from punitive action under the act, at the earliest. Thus , the onus under FEMA is on the persons concerned and  should,  in their own interest submit their applications for compounding of contravention under FEMA to the Reserve Bank at the earliest opportunity.

Persons who have contravened provisions of FEMA should not take upon themselves, suo motto or on the basis of external advice, to decide whether a particular contravention is of a technical or minor in nature and, hence, no compounding application need be submitted to the RBI. According to RBI , a decision on the exact pattern of treating contraventions under FEMA would be based on the merit of each individual case.

The following is the procedure for compounding of offenses under FEMA: 

1.     An application under prescribed format either through suo motto or through a memorandum with a fee of Rs 5000/= by way of demand draft in favor of compounding authority.

1.   If the contravention is  Rs 5 lacs or below , then application for compounding of offense shall be made to the Deputy director of the Directorate of Enforcement.
2.   If contravention is more than Rs 5 lacs but less than Rs 10 lacs , then application has to be made to  Additional Director  of the Directorate of Enforcement .
3.  If it is more than Rs 10 lacs but less than Rs 50 lacs , then to Special Director of the Directorate of Enforcement .
4.  If it is more than Rs 50 lacs but less than Rs 1 Crore , then application is to be made to Special Director with Deputy Legal Adviser of the Directorate of Enforcement .
5.    If the sum involved is more than Rs 1 Crore or more , then application is to be made to Director of the Enforcement  with Special Director of the Enforcement Directorate  of the Directorate of Enforcement .

7.     The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings.

8.     Where additional information/document is called for, such additional information/ document shall be submitted within 30 days or such additional period as may be given by the Compounding Authority from the date of the said letter.

 9. The Compounding Authority shall provide an opportunity of being heard to all the concerned.9a.                        The application will be disposed by RBI within 180 on receipt of application.

10.                        RBI will evaluate whether there is any contravention and if so , the quantum of contravention.

11.                        In case , contravention is minor or technical in nature , RBI will issue only administrative cautionary advice or caution or warning only.

12.     Contravention will be considered serious by RBI if there is any money-laundering , security or national issues thereby involving grave violations of FEMA regulations.

       13.The Compounding Authority (CA) will issue final order of fine amount if he finds if there is any contravention.

14.      The fine amount so levied will have to remitted to RBI within 15 days  of passing order by the CA by way of demand draft.

15.    Finally, a compounding certificate will be issued by RBI after receipt of the fine by RBI.

16.    If a company commits same type of contravention within 3 years of first contravention, then no compounding will be available and relevant provisions of FEMA, 1999 will be applicable.

17.     If second contravention is committed by a company after the lapse of first contravention (same type), then it will be construed as a first contravention by RBI.

18.If a company fails to get approval or permissions from any statutory authorities or governments, then such contravention will not be compounded by RBI till the required approvals are obtained from the relevant authorities.
       

R.V.Seckar

 

rvsekar2007@gmail.com

919848915177