TMI BlogMaster Circular on Compounding of Contraventions under FEMA, 1999X X X X Extracts X X X X X X X X Extracts X X X X ..... Compounding Powers Delegation of Powers Process of Compounding Scope and Manner of Compounding Issue of the Compounding Order Post-compounding Procedure Pre-requisites of Compounding Annex Foreign Exchange (Compounding Rules), 2000 Format of Application Appendix List of Rules/ A.P. (DIR Series) Circulars consolidated 1. General 1.1 In terms of Section 13(1) , Chapter IV of 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 the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where the amount is quantifiable or up to Rupees Two lakh, where the amount is not quantifiable and where the contravention is a continuing one, further penalty which may extend to Rupees Five thousand for every day after the first day during which the contravention continues. The provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares beyond 180 days (viz. paragraphs 9(1)(A), 9(1)(B) and 8, respectively, of the Schedule I to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide Notification No. FEMA 20/RB-2000 dated May 3, 2000 and as amended from time to time:' a) Paragraphs 9 (1) (A) and 9 (1) (B) of Schedule I to FEMA 20/2000-RB dated May 3, 2000 - Bhopal, Bhubaneshwar, Chandigarh, Guwahati, Jaipur, Jammu, Kanpur, Kochi, Patna and Panaji for amount of contravention below Rupees One hundred lakh only (Rs. 1,00,00,000 /-). b) Paragraphs 9 (1) (A), 9 (1) (B) and 8 of Schedule I to FEMA 20/2000-RB dated May 3, 2000 - Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi for amount of contravention without any limit. 4. Process of Compounding 4.1 An application for compounding of a contravention under FEMA, 1999 may be submitted to the Compounding Authority (CA) on being advised of a contravention under FEMA, 1999 , either through a memorandum or suo moto on being made or on becoming aware of the contravention. The format of the application is appended to the Foreign Exchange (Compoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of contravention is accordingly quantified. 4.7 The nature of contravention is ascertained keeping in view, inter alia, the following indicative points : a. whether the contravention is technical and / or minor in nature and needs only an administrative cautionary advice; b. whether the contravention is serious in nature and warrants compounding of the contravention; and c. whether the contravention, prima facie, involves money-laundering, national and security concerns involving serious infringement of the regulatory framework. However, the Reserve Bank reserves the right to classify the contraventions as stated above and neither the contravener nor others have any right to classify any contravention as technical suo moto. 4.8 It is clarified that whenever a contravention is identified by the Reserve Bank or brought to its notice by the entity involved in contravention by way of a reference other than through the prescribed application for compounding, the Bank will continue to decide (i) whether a contravention is technical and/or minor in nature and, as such, can be dealt with by way of an administrative/ cautionary advice; (ii) whether it is material and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the contravention, the track record and / or history of non-compliance of the contravener; (v) contravener s conduct in undertaking the transaction and disclosure of full facts in the application and submissions made during the personal hearing; and (vi) any other factor considered relevant and appropriate. 6. Issue of the Compounding Order 6.1 An opportunity for personal hearing is given to the applicant for further submission of documents in person in support of the application within a specified period. The contravener or its authorized representative can choose not to appear in person or make any submissions before the CA for personal hearing The CA will proceed with the processing of the compounding application on the basis of information and documents available in the application for compounding. 6.1.1 It is clarified that appearing for a personal hearing before the compounding authority is optional and the applicant can choose not to appear for it. The applicant may enclose full information relating to the case as prescribed in AP (Dir series) Circular No. 56 and Circular No. 57 dated June 28, 2010 and December 13, 2011 respectively, with the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are not compounded by the Compounding Authority, other relevant provisions of FEMA, 1999 , including reference to the Directorate of Enforcement shall apply. 8. Pre-requisites for compounding process 8.1 In respect of a contravention committed by any person within a period of three years from the date on which a similar contravention committed by him was compounded under the Compounding Rules, such contraventions would not be compounded. Such contravention would be dealt with under relevant provisions of the FEMA, 1999 for contravention. Any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention. 8.2 Contraventions relating to any transaction where proper approvals or permission from the Government or statutory authority concerned, as the case may be, have not been obtained, such contraventions would not be compounded unless the required approvals are obtained from the authorities concerned. 8.3 Cases of contravention, such as, those having a money laundering angle, national security concern and / or involving serious inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 999) ; (b) 'authorised officer' means an officer authorised under sub-rule (1) of rule 3 ; (c) 'applicant' means a person who makes an application under section 15 (1) of the Act to the compounding authority; (d) 'Compounding Order' means an order issued under sub-section (1) of Section 15 of the Act; (e) 'Form' means a form appended to these rules; (f) 'section' means a section of the Act; (g) all other words and expressions used in these rules and not defined but defined in the Act, shall have the meaning respectively assigned to them in the Act. 3. (1) 'Compounding Authority' means the persons authorised by the Central Government under sub-section (1) of section 15 of the Act, namely; (a) an officer of the Enforcement Directorate not below the rank of Deputy Director or Deputy Legal Adviser (DLA). (b) An officer of the Reserve Bank of India not below the rank of the Assistant General Manager. 4. Power of Reserve Bank to compound contravention - 1[(1) If any Person contravenes any provisions of Foreign Exchange Management Act, 1999 (42 of 1999) except clause (a) of Section 3 of the Act.] (a) in case where the sum involved in such contravention i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the sum involved in the contravention is rupees fifty lakhs or more but less than one crore rupees by Special Director with Deputy Legal Adviser of the Directorate of Enforcement; (e) in case the sum involved in such contravention is one crore rupees or more, by the Director of Enforcement with Special Director of the Enforcement Directorate. Provided further that no contravention shall be compounded unless the amount involved in such contravention is quantifiable. (2) Nothing contained in sub-section (1) shall apply to a contravention committed by any person within a period of three years from the date on which a similar contravention committed by him was compounded under these rules. Explanation: For the purposes of this rule, any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention. (3) Every officer of the Directorate of Enforcement specified under sub-rule (1) of this rule shall exercise the powers to compound any contravention subject to the direction, control and supervision of the Director of Enforcement. (4) Eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity under his seal. 13. Copy of the order - One copy of the order made under rule 8(2) shall be supplied to the applicant and the Adjudicating Authority as the case may be. Format of Application Form (See Rule 4 or 5) (To be filled in duplicate and shall be accompanied by certified copy of the Memorandum issued) 1. Name of the applicant (in BLOCK LETTERS) 2. Full address of the applicant (including Phone and Fax Number and email id) 3. Whether the applicant is resident in India or resident outside India [Please refer to Section 2(v) of the Act] 4. Name of the Adjudicating Authority before whom the case is pending 5. Nature of the contravention [according to sub-section (1) of Section 13] 6. Brief facts of the case 7. Details of fee for application of compounding 8. Any other information relevant to the case I/We declare that the particulars given above are true and correct to the best of my/our knowledge and belief and that I/We am/are willing to accept any direction/order of the Compounding Authority in connection with compounding of my/our case. Dated : (Signature of the Applicant) Name Annex-II- FDI Details to be furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brief particulars about the foreign lender Is the applicant an eligible borrower? Is the lender eligible lender? Is the lender an equity holder? What is the level of his holding at the time of loan agreement? Details of ECB Date of Loan agreement Amount in Foreign Currency and Indian Rupee Rate of interest Period of loan Repayment particulars Details of draw down Date of draw down Amount in Foreign Currency Amount in INR Details of LRN Number- application and receipt Details of ECB 2 returns submitted; Period of return: Date of submission Details of Utilization of ECB in Foreign Currency and Indian Rupee Nature of contravention and reasons for the contravention All supporting documents may be submitted A declaration that they are not under investigation of any agency such as DoE, CBI, etc Annex-II- ODI Details to be furnished along with application for compounding of contravention relating to ..... 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