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 ISSUED COMPOUNDING ORDER FOR FEMA VIOLATIONS BY NEARBUY INDIA PVT. LTD AND NEARBUY SAVED LAKHS OF RUPEES AS FINE FOR FEMA VIOLATIONS

 RBI ISSUED COMPOUNDING ORDER FOR

 FEMA VIOLATIONS BY NEARBUY INDIA

 PVT. LTD AND NEARBUY SAVED LAKHS OF

 RUPEES AS FINE FOR FEMA VIOLATIONS

RBI Vs NEARBUY INDIA PVT. LTD

FACTS OF THE CASE

VIOLATIONS:

The violations were identified as procedural delays, not involving fraud or malicious intent.

The specific contraventions included:

·      Late reporting of foreign inward remittances totalling ₹35.82 crore.

·      Late filing of Form FCGPR (Foreign Currency-Gross Provisional Return) after issuing shares, covering transactions worth ₹73.01 crore.

SECTION 15  OF THE FEMA

The Reserve Bank of India (RBI) has issued a compounding order under Section 15  of the Foreign Exchange Management Act, 1999 (FEMA), in the case of Nearbuy India Private Limited which has resulted in the termination of proceedings against the company for alleged contraventions of the act, the Directorate of Enforcement (ED).

WHAT PROVISIONS OF SECTION 15 OF FEMA SAYS

COMPOUNDING AUTHORITY:

The power to compound contraventions under Section 13 is held by the Directorate of Enforcement (DoE) and authorized officers of the Reserve Bank of India (RBI). The RBI handles most contraventions, except those under Section 3(a) of FEMA, which fall under the DoE.

APPLICATION PROCESS:

An application for compounding must be made to the relevant authority within 180 days. Applications can be submitted through the RBI's PRAVAAH Portal or physically.

EFFECT OF COMPOUNDING:

Once compounded, no further proceedings will be initiated for that specific contravention.

CONDITIONS AND LIMITATIONS:

 Compounding requires admission of guilt and obtaining necessary approvals. Similar contraventions within three years of a previous compounding order are not eligible, nor are serious cases like money laundering.

PENALTY PAYMENT:

The penalty must be paid within 15 days of the order. Failure to pay renders the compounding void and other penalties apply.

Section 15 provides an administrative way for individuals and entities to resolve FEMA breaches by paying a penalty, thus avoiding prolonged legal procedures.

R V SECKAR , FCS, LLB 79047 19295