PAYTM TO PAY RS 18.76 LAKH AFTER RBI COMPOUNDS FEMA VIOLATION LINKED TO SUBSIDIARY

 PAYTM TO PAY RS 18.76 LAKH AFTER RBI COMPOUNDS FEMA VIOLATION LINKED TO SUBSIDIARY

WHAT IS THE ISSUE ?

In a stock exchange filing on Monday, the company said the RBI has imposed a compounding fee of Rs 18.76 lakh in connection with certain investments made in Little Internet Private Limited by Little Internet Singapore. The underlying transactions, with an aggregate value of about Rs 33 crore, pertained to the period between March 2016 and June 2017. 

DETAILS OF THE RBI ORDER

PENALTY                    AMOUNT	₹18.76 lakh
REASON:	FEMA contravention related to investments in Little Internet Pvt Ltd by Little Internet Singapore.
TRANSACTION VALUE:	Approximately ₹33 crore worth of transactions between March 2016 and June 2017.
COMPANY INVOLVED:	One 97 Communications Ltd (Paytm’s parent company).
COMPLIANCE STATUS:	Paytm has stated it is taking necessary steps to comply with the RBI order.
COMPOUNDING ORDER:	A compounding order allows a company to settle FEMA contraventions by paying a fee, avoiding prolonged litigation.
NATURE OF CONTRAVENTION:	The issue arose from cross-border investment flows between Paytm’s Indian and Singapore entities.

 

TABLE OF PENALTIES LEVIED ON PAYTM PAYMENTS BANK

PENALTY AMOUNT	REASON / VIOLATION	DATE OF ORDER
₹5.39 crore	Non-compliance with KYC norms, failure to identify beneficial owners, weak monitoring of payout transactions, and cyber security framework violations	October 10, 2023
₹5.49 crore	Violations under the Prevention of Money Laundering Act (PMLA); linked to illegal online gambling transactions and failure to meet anti-money laundering obligations	February 15, 2024 (announced March 1, 2024)
₹1 crore (Paytm Payments Bank) and ₹27.78 lakh (Western Union)	Paytm: Misrepresentation in application for Certificate of Authorisation under Payment and Settlement Systems Act, 2007;	October 1, 2021 (Paytm);

 

CONCLUDING REMARKS

This compounding order is not a major financial setback for Paytm but underscores the importance of strict compliance with FEMA regulations in cross-border investments. It also reflects the RBI’s increasing vigilance over fintech companies’ international transactions.

·      RBI penalties focus on compliance failures in KYC, cyber security, and payment system regulations.

•     FIU penalty was more severe in terms of reputational risk, as it linked Paytm Payments Bank to money laundering and illegal gambling networks.

•     The ₹5.39 crore and ₹5.49 crore fines are among the largest regulatory actions against Paytm Payments Bank, while the ₹1 crore penalty in 2021 was tied to authorization irregularities.

R V SECKAR , FCS , LLB 79047 19295

 

RBI’S FOREIGN EXCHANGE MANAGEMENT (EXPORT & IMPORT OF GOODS AND SERVICES) REGULATIONS, 2026----A MAJOR FEMA COMPLIANCE OVERHAUL

 RBI’S FOREIGN EXCHANGE MANAGEMENT (EXPORT & IMPORT OF GOODS AND SERVICES) REGULATIONS, 2026----A MAJOR FEMA COMPLIANCE OVERHAUL

FEMA (EXPORT & IMPORT OF GOODS AND SERVICES) REGULATIONS, 2026

The RBI has introduced the FEMA (Export & Import of Goods and Services) Regulations, 2026, effective October 1, 2026, overhauling old rules for simplified, unified, and digitalized trade compliance, bringing services under a single framework, easing burdens for smaller traders, and shifting more responsibility to AD banks for monitoring via systems like EDPMS and IDPMS.

WHAT IS NEW ?

KEY CHANGES INCLUDE

·    streamlined reporting timelines (e.g., within 5 days for export forms),

·    tighter monitoring, and

·    new reporting for guarantees (FEMA Guarantees Regulations 2026), aiming for greater transparency and ease of doing business.

EFFECTIVE DATE:

1 October 2026 (giving businesses time to realign systems & processes)

KEY CHANGES & BENEFITS

UNIFIED FRAMEWORK:

Combines goods and services trade under one set of rules.

DIGITAL FOCUS:

Mandates reporting via EDPMS/IDPMS for all remittances, with stricter timelines for AD banks.

EASE OF DOING BUSINESS:

Simplifies processes for smaller exporters and merchants, including self-declaration for import closures up to INR 1 million.

ENHANCED REPORTING:

Standardizes reporting for guarantees (Form GRN) and discontinues separate quarterly reporting for trade credit guarantees.

BANK RESPONSIBILITY:

Places more onus on Authorized Dealer banks for transaction oversight, using their internal assessment and digital platforms.

TRADE FAIR FLEXIBILITY:

Allows easier export of goods for exhibitions abroad, with provisions for selling, gifting, and simplified re-import reporting.

·    Simplification and compliance ease, especially for MSMEs and small traders.

·    Stronger oversight to mitigate risks such as delayed realization and misuse of advance payments.

MAJOR COMPLIANCE AND REPORTING CHANGES

A. REPORTING TIMELINES & DIGITAL PROCESSES

·    Authorised Dealer (AD) banks must enter export and import declarations into EDPMS/IDPMS within strict timelines (e.g., within five business days of receipt of required export documentation).

·    All inward and outward remittances tied to trade must be reported digitally, tightening the compliance regime relative to pre-existing circular-based processes.

COMPLIANCE IMPACT:

Trade finance teams must update SOPs and workflows to ensure punctual digital reporting and reconciliation, reducing manual exceptions.

EXTENDED REALISATION & REPATRIATION PERIODS

Although initially introduced in late 2025 under a second amendment, the 2026 Regulations formalize and align these extended timelines:

REALISATION OF EXPORT PROCEEDS: Extended to up to 15 months from the date of export (up from 9 months).

ADVANCE PAYMENTS:

Extended timelines to adjust/settle advance payments (previously a maximum of one year) — subject to AD bank assessment.

COMPLIANCE IMPACT:

Finance teams must revise cash-flow forecasts and FEMA tracking calendars to reflect extended realization windows.

SERVICE EXPORTS NOW FULLY WITHIN FEMA

A pivotal regulatory shift is that export of services — including software and IT services — is explicitly brought within the FEMA reporting regime, with defined timelines for filing Export Declaration Forms (EDF).

COMPLIANCE IMPACT:

Service exporters must adopt formal export tracking, aligning their documentation processes with those of goods exporters (EDF filing, bank reporting).

BANK DISCRETION AND OVERSIGHT

·    The Regulations give authorized dealer banks greater discretion to:

·    Grant extensions for delayed realization based on bona fide reasons.

·    Set-off receivables against payables within stipulated periods.

·    Monitor import payments and advance remittances with heightened scrutiny.

However, in cases of prolonged non-realisation of proceeds, exports may only continue against full advance payment or irrevocable letters of credit.

RELIEF FOR SMALL-VALUE TRANSACTIONS

For transactions up to ₹10 lakh per bill/invoice:

·    Self-declarations by exporters/importers are permitted for closing entries in EDPMS/IDPMS, easing small-value compliance burdens.

ADVANCE REMITTANCES & PROHIBITIONS

Advance remittances for imports continue to be allowed, but advance payments for bullion imports are now prohibited under the refreshed regime.

OTHER KEY HIGHLIGHTS

🔹 Under-realization norms rationalized with commercial practicality + self-declaration for smaller cases

🔹 Set-off & third-party receipts/payments allowed, subject to AD Bank satisfaction

🔹 Advance & default rules clarified (same AD routing + interest cap linked to trade credit norms)

🔹 Merchanting Trade tightened: entire cycle must be completed within 6 months

🔹 Higher accountability for AD Banks (SOPs, fair charges, transparency & customer protection)

TAKEAWAY FOR BUSINESSES

This is a shift from procedural FEMA compliance to outcome-based regulation.

Exporters/importers—especially service exporters, startups, MNCs & Merchanting trade players—should start preparing early for system/process alignment.

R V SECKAR FCS,LLB 79047 19295