RBI issues Directions for Compounding of Contraventions under FEMA [Read Circular]
The updated guidelines simplify the compounding of contraventions under FEMA and provide revised procedures and penalty structures. Read on to know more
RBI – Reserve Bank of India – FEMA – Foreign Exchange Management – RBI circular – RBI foreign exchange regulations – taxscan
RBI – Reserve Bank of India – FEMA – Foreign Exchange Management – RBI circular – RBI foreign exchange regulations – taxscan
The Reserve Bank of India ( RBI ) on 1 October, 2024 issued A.P. (DIR Series) Circular titled "Directions - Compounding of Contraventions under The Foreign Exchange Management Act, 1999 ( FEMA )”.
The Circular, addressed to All Authorised Dealer Category – I banks and Authorised banks has been issued by the Reserve Bank as a means to issue new guidelines for the compounding of contraventions committed by persons, under Section 13 of the Act but abstains from any contraventions under Section 3(a) of the FEMA, 1999. Such a contravention may be compounded on an application made by the person committing such contravention.
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The Government of India vide Notification G.S.R. 566 (E). dated September 12, 2024 has provided for the supersession of Foreign Exchange (Compounding Proceedings) Rules, 2000 with the Foreign Exchange (Compounding Proceedings) Rules, 2024.
The Key objective behind the promulgated Notification provides clarity on the compounding process for violations committed under FEMA with a core focus on streamlining the application process, identification of cases eligible for compounding and penalties imposed while ensuring compliance for entities engaging in foreign exchange transactions.
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The Circular does not permit all contraventions to be eligible for compounding. For instance, repeat contraventions within three years of a previous compounding, cases involving money laundering, or contraventions affecting the sovereignty of the country will not be compounded. Additionally, cases already under investigation or adjudication by the Directorate of Enforcement (DoE) are ineligible for compounding.
The Jurisdiction to try compounding of contraventions shall primarily lie with the regional offices of the RBI, but the cases may be transferred towards the Liaison Officer or Project Officer depending on a situation-specific basis.
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An Application for compounding contraventions may be submitted by the Applicant either by physically submitting the form or through the RBI’s PRAVAAH portal. Such Application may be initiated suo moto by the Applicant or may be based on a Memorandum of Contraventions issued by the Reserve Bank. The circular specifies a fee of ₹10,000 (plus applicable GST), payable either through demand draft or electronic transfer.
A Compounding Application shall be in the format as per the Compounding Rules, 2024 and necessarily contain Name of the Application and Authorized Official/Representative of the Applicant along with requisite contact details.
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The Circular also mandates certain administrative actions to be undertaken by the Applicant to effectuate the compounding application, some of which are:
- Obtaining requisite approvals/ permissions from the Government or Reserve Bank or any other statutory authority concerned, as case may be;
- Unwinding/ reversing the transaction;
- Repatriating the receivables due;
- Compliance with pricing guidelines or submission of valuation certificate;
- Compliance with reporting requirements;
- any other such corrective action as may be required
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While most contraventions are compoundable, certain cases may be disallowed from compounding - no compounding shall be allowed for any contravention committed by a person with three years from the date on which similar contravention was committed and the same was previously compounded; also any contravention committed after three years from the date on which similar contravention was previously compounded shall be deemed as a first contravention.
The RBI is mandated to complete the compounding process within 180 days of receiving the application, taking into consideration all the documents and material produced and the personal hearing, if any.
The Assessment of Penalties payable for compounding may be calculated on the basis of Undue Gains, loss caused to exchequer as a result of contravention, repetitive nature of the contravention and the conduct of the contravener in duly cooperating with the department in the compounding process.
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A certificate shall be issued by the RBI in the name of the Applicant on the successful realization of the sum for which contravention is compounded, subject to specified conditions, if any.
Circular No.17/2024-25 and the Foreign Exchange (Compounding Proceedings) Rules, 2024 is a step in the right direction towards the simplification of comprehension, invocation and implementation of FEMA guidelines. The new guidelines, when implemented will enhance transparency, ease the compounding process and streamline the entire process for both the contravener and the Authority.
To Read the full text of the Circular CLICK HERE
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