Skip to main content

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.
(Updated on April 24, 2025)
  • The maximum compounding amount imposed may be capped at ₹2 lakh for contravention of each regulation / rule (applied in a compounding application) with respect to non-reporting contraventions.

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

Reserve Bank of India. (2025, April 22). 'Amendments to Directions - Compounding of Contraventions under FEMA, 1999'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12838&Mode=0

Reserve Bank of India. (2025, April 24). 'Amendments to Directions - Compounding of Contraventions under FEMA, 1999'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12842&Mode=0

Reserve Bank of India. (2025, April 22). 'Master Directions - Compounding of Contraventions under FEMA, 1999, dated April 22, 2025 (Updated as on April 24, 2025)'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12839&Mode=0


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Digital Payments – E-mandate Framework 2026

Reserve Bank of India (RBI) has issued e-mandate framework for digital payments. What is an e-mandate?  A mandate is a standard instruction that a customer provides to his / her issuing bank and other institutions allowing them to automatically debit the mentioned amount from his / her bank account. e-mandate is the electronic version of it. To whom shall the framework be applicable? The framework shall be applicable to Payment System Providers and Payment System Participants. To which transactions shall the framework be applicable? The framework shall be applicable to processing of recurring transactions, domestic or cross-border, using cards / Prepaid Payment Instrument (PPI) / Unified Payments Interface (UPI). What are the guidelines for registration and revocation of e-mandate? A customer desirous of opting for e-mandate facility shall undertake a one-time registration process. The mandate shall be registered only after successful validation of additional factor of authenticati...
Post a Comment
Read more

Guidelines to facilitate faster cross-border inward payments

Reserve Bank of India (RBI) has issued guidelines to facilitate faster cross-border inward payments. What is the rationale behind the guidelines? The RBI’s Payments Vision 2025 aims to bring efficiency in the cross-border payments aligning with the G20 roadmap for cross-border payments that has set targets for achieving cheaper, faster, more transparent, and more accessible cross-border payments. One of the challenges with speed of cross-border payments is experienced at the beneficiary leg i.e., the time taken from receipt of the payment at the beneficiary bank till credit to the beneficiary account. What are the guidelines to facilitate faster cross-border inward payments? Banks shall inform their customer of the receipt of cross-border inward transactions immediately on receipt of inward message. Messages received after close of operating hours of banks shall be informed to customer immediately at the start of the next business day. Banks shall undertake reconciliation and confirmat...
Post a Comment
Read more

Guidelines on Money Changing Activities (Updated as on April 02, 2026)

Reserve Bank of India (RBI) has updated the guidelines on money changing activities. Who is Authorised Person? Authorised Person means an authorised dealer, money changer, off-shore banking unit or any other person authorised under section 10(1) of Foreign Exchange Management Act, 1999 (FEMA) to deal in foreign exchange or foreign securities. What are the categories of Authorised Persons? Authorised Dealer (AD) Category-I – entities which are authorised by RBI to carry out all permissible current and capital account transactions. Authorised Dealer (AD) Category-II – entities which are authorised by RBI to carry out specified non-trade related current account transactions, all the activities permitted to Full Fledged Money Changers (FFMC) and any other activity as decided by RBI, and include (i) Upgraded FFMCs; (ii) Select Regional Rural Banks (RRBs); (iii) Select Urban Cooperative Banks (UCBs); and (iv) Other entities. Authorised Dealer (AD) Category-III – entities which are authorised...
Post a Comment
Read more

Continuous Clearing and Settlement on Realisation in Cheque Truncation System (CTS) (Updated as on December 24, 2025)

Reserve Bank of India (RBI) has issued direction on continuous clearing and settlement on realisation in Cheque Truncation System (CTS). What is Cheque Truncation System (CTS)? Cheque Truncation System (CTS) involves halting the physical movement of the cheque and its replacement by images of the instrument and the corresponding data contained in the MICR line.  In CTS, 3 images are taken of each cheque – front Gray Scale, front Black & White and back Black & White. MICR (Magnetic Ink Character Recognition) is a 9-digit code printed at the bottom of cheques using magnetic ink – first 3 digits indicate City Code, middle 3 digits indicate Bank Code and the last 3 digits indicate Bank Branch Code. Only CTS-2010 standards compliant instruments can be presented for clearing through CTS. The presenting banks which truncates the cheques need to preserve the physical instruments for 10 years. From when will the continuous clearing and settlement on realisation in CTS be implemented...
Post a Comment
Read more

FEMA - Borrowing and Lending [including External Commercial Borrowing (ECB) and Trade Credit (TC)]

Reserve Bank of India (RBI) has amended the regulations for borrowing and lending under the Foreign Exchange Management Act, 1999 (FEMA). What are the regulations for External Commercial Borrowing (ECB)? External Commercial Borrowing (ECB) means borrowing by an eligible borrower from a recognised lender. Eligible borrowers – Any person resident in India (other than an individual) that is incorporated, established or registered under a Central or State Act is an eligible borrower, provided such person is permitted for ECB in terms of applicable Acts. An eligible borrower that is under a restructuring scheme or corporate insolvency resolution process may raise ECB only if specifically permitted under the restructuring or resolution plan. An eligible borrower against whom any investigation, adjudication or appeal by a law enforcement agency for contravention of any rule, regulation or direction issued under FEMA is pending, may raise ECB notwithstanding the pending investigation or adjudi...
Post a Comment
Read more