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Compounding of Contraventions under FEMA, 1999

Reserve Bank of India (RBI) has issued directions on compounding of contraventions under FEMA, 1999.

What is contravention and compounding of contravention under FEMA, 1999?

Contravention is a breach of the provisions of the Foreign Exchange Management Act (FEMA), 1999 and rules, regulations, etc. issued thereunder. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal. 

What is be the penalty for contravention under FEMA, 1999?

In terms of Section 13(1) of the FEMA, 1999, if any person contravenes any provision of FEMA, 1999, or any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by RBI, he shall, upon adjudication, be liable to –

  • Penalty up to thrice the sum involved in such contravention where the amount is quantifiable, or 
  • Penalty up to ₹2 lakhs where the amount is not directly quantifiable, and 
  • Where the contravention is a continuing one, further penalty which may extend to ₹5,000 for every day after the first day during which the contravention continues.

Which provisions of FEMA, 1999 empowers RBI to compound the contraventions?

The provisions of section 15 of the FEMA, 1999, empowers RBI to compound any contravention as defined under section 13 of the FEMA, 1999, except the contraventions under section 3(a) of FEMA, 1999, on an application made by the person committing such contravention.

Who are the compounding authorities of RBI?

Sum involved in contravention Compounding authority of RBI – An officer not below the rank of
Up to ₹60 lakhs Assistant General Manager
Up to ₹2.5 crore Deputy General Manager
Up to ₹5 crore General Manager
Above ₹5 crore Chief General Manager

What are the guidelines on compounding of contraventions?

  • An applicant may submit a compounding application, along with the relevant documents, physically or through PRAVAAH Portal of RBI, either suo moto or based on a Memorandum of Contraventions issued by RBI. 
  • Where an applicant, after issue of the Memorandum of contraventions issued by RBI, does not opt for compounding within the period as may be stated in the Memorandum of Contravention, the relevant provisions of the FEMA, 1999, shall apply.
  • The contraventions of rules and / or regulations related to Liaison / Branch / Project office (LO / BO / PO), Non-Resident Foreign Account (NRFAD) and Immovable Property (IP) shall be compounded by the compounding authorities of RBI attached to the FED, CO, Cell at New Delhi office.
  • All compounding applications shall be submitted along with the prescribed fee of ₹10,000/- (plus applicable GST, which at present is 18%).
  • The compounding order shall be passed within 180 days from the date of receipt of compounding application by RBI.
  • The compounding amount as specified in the compounding order shall be paid within 15 days from the date of the order. 
  • In case of failure to pay the sum compounded within the specified time, it shall be deemed that the contravener had never made an application for compounding of any contravention and the provisions of FEMA, 1999 for contravention shall apply.

What shall be the compounding amount?

  • The compounding amount payable shall not exceed 300% (or 3 times) of the sum involved in contravention.
  • In case the sum involved in contravention is less than ₹1 lakh, the total compounding amount payable shall not be more than amount of simple interest @5% p.a. calculated on the sum involved in contravention and for the period of contravention in case of reporting contraventions and @10% p.a. in respect of all other contraventions.
  • If an applicant against whom a compounding order had been passed earlier and applicant didn’t pay the compounding amount as mentioned in such order and reapplies for compounding of contravention relating to the same transaction, the compounding amount may be enhanced by 50% of earlier compounding amount subject to the limit of 300% of the sum involved in contravention.

Which contraventions shall not be compounded by RBI?

  • A contravention committed by any person within 3 years from the date on which a similar contravention was committed and the same was compounded, shall not be compounded, and the relevant provisions of the FEMA, 1999 shall apply. Any contravention committed after the expiry of 3 years from the date on which a similar contravention was previously compounded shall be deemed to be a first contravention.
  • Contraventions of serious nature viz. transactions suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation or where the contravener fails to pay the sum for which contravention was compounded within the specified period in terms of the compounding order, shall be referred to the Directorate of Enforcement (DoE) for further investigation and necessary action under FEMA, 1999.
  • Transactions, in which amount involved is not quantifiable or, attracting provisions of Section 37A of FEMA, 1999 or, where the Adjudicating Authority has already passed an order imposing penalty under section 13 of FEMA, 1999 or where the DoE is of the view that the compounding proceeding relates to a serious contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation, contraventions of such transactions shall not be eligible for compounding by RBI.
  • Transactions involving contravention of Section 3(a) of FEMA, 1999 shall not be eligible for compounding by RBI. Such applications may be submitted to the DoE.


References

Government of India. (2024, September 12). 'Ministry of Finance - (Department of Economic Affairs) - Notification G.S.R. 566 (E)'. Retrieved from https://static.pib.gov.in/WriteReadData/specificdocs/documents/2024/sep/doc2024912392301.pdf

Reserve Bank of India. (2024, October 01). 'Directions - Compounding of Contraventions under FEMA, 1999'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12736&Mode=0

Reserve Bank of India. (2024, October 01). 'FAQs on Compounding of Contraventions under FEMA, 1999'. Retrieved from https://www.rbi.org.in/Scripts/FAQDisplay.aspx?Id=80


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