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Master Circular on Compounding of Contraventions under FEMA, 1999

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..... r Category I banks may refer to respective circulars/ notifications for detailed information, if so needed. Yours faithfully, (B.P.Kanungo) Principal Chief General Manager INDEX General 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 I.Foreign Exchange (Compounding Rules), 2000 Format of Application II. Details to be furnished for FDI,ECB,ODI,LO/BO III. Format of Undertaking IV. ECS Mandate Form 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 .....

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..... will be initiated or continued, as the case may be, against the contravener. 3. Delegation of Powers 3.1 As a measure of customer service and in order to facilitate the operational convenience, compounding powers were delegated to the Regional Offices of the Reserve Bank of India to compound the following contraventions of FEMA , 1999: Sr. No. FEMA Regulation Brief Description of Contravention 1 Paragraph 9(1)(A) of Schedule I to FEMA 20/2000-RB dated May 3, 2000 Delay in reporting inward remittance received for issue of shares. 2 Paragraph 9(1)(B) of Schedule I to FEMA 20/2000-RB dated May 3, 2000 Delay in filing form FC(GPR) after issue of shares. 3 Paragraph 8 of Schedule I to FEMA 20/2000-RB dated May 3, 2000 Delay in issue of shares/refund of share application money beyond 180 days, mode of receipt of funds, etc. 4 Paragraph 5 of Schedule I to FEMA 20/2000-RB dated May 3, 2000 Violation of pricing guidelines f .....

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..... ulations , 2000 3.2 The above contraventions can be compounded by all Regional Offices (except Kochi and Panaji) without any limit on the amount of contravention. Kochi and Panaji Regional offices can compound the above contraventions for amount of contravention below Rupees one hundred lakh (Rs.1,00,00,000/-). The contraventions above Rupees one hundred lakh (Rs.1,00,00,000/-) under the jurisdiction of Panaji and Kochi Regional Offices and all other contraventions of FEMA will continue to be compounded at Cell for Effective Implementation of FEMA (CEFA), Mumbai, as hitherto. 3.3. Accordingly, applications for compounding related to the above contraventions may be submitted by the concerned entities to the respective Regional Offices under whose jurisdiction they fall or to FED, CO Cell, New Delhi, as applicable. For all other contraventions, applications may continue to be submitted to CEFA, Foreign Exchange Department, 5th floor, Amar Building, Sir P.M.Road, Fort, Mumbai 400001. (As amended vide A.P. (DIR Series) Circular No. 36 dated October 16, 2014) 4. Process of Compounding 4.1 An application for compounding of a contravention under FEMA, 199 .....

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..... lication may be rejected if such information/documents are not submitted within the prescribed time. 4.6 The application will be examined in terms of sub rule (1) of rule (4) of the Foreign Exchange (Compounding Proceedings) Rules, 2000 to assess whether the contravention is compoundable and 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 contra .....

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..... erever quantifiable, made as a result of the contravention; (ii) the amount of loss caused to any authority / agency / exchequer as a result of the contravention; (iii) economic benefits accruing to the contravener from delayed compliance or compliance avoided; (iv) the repetitive 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 .....

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..... f the Foreign Exchange (Compounding Proceedings) Rules, 2000, that the contravener had never made an application for compounding of any contravention under these Rules. 7.5 In respect of the contraventions of FEMA, 1999 (as defined in section 13 of the FEMA, 1999), 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 no .....

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..... nuary 17, 2013). Annex-I Foreign Exchange (Compounding Proceedings) Rules, 2000 Notification No. G.S.R.383(E) dated 3rd May 2000 As amended vide G.S.R.443(E) dated November 2, 2002 G.S.R. 609 (E) dated September 13, 2004 and G.S.R. 613 (E) dated August 27, 2008 In exercise of the powers conferred by section 46 read with sub-section (1) of section 15 of the Foreign Exchange Management Act, 1999 (42 of 1999) the Central Government hereby makes the following rules relating to compounding contraventions under chapter IV of the said Act, namely:- 1. Short title and commencement (1) These rules may be called the Foreign Exchange (Compounding Proceedings) Rules 2000. (2) They shall come into force on the 1st day of June, 2000. 2. Definitions - In these rules, unless the context otherwise requires - (a) 'Act' means the Foreign Exchange Management Act, 1999 (42 of 1999); (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 orde .....

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..... Bank of India. (4) Every application for compounding any contravention under this rule shall be made in Form to the Reserve Bank of India, Exchange Control Department, Central Office, Mumbai along with a fee of ₹ 5000/- by Demand Draft in favour of compounding authority. 5. The Power of Enforcement Directorate to compound contraventions - 2 [(1) If any Person contravenes provisions of Section 3(a) of Foreign Exchange Management Act.] (a) in case where the sum involved in such contravention is five lakhs rupees or below, by the Deputy Director of the Directorate of Enforcement; (b) in case where the sum involved in such contravention is more than rupees five lakhs but less than rupees ten lakhs, by the Additional Director of the Directorate of Enforcement; (c) in case where the sum involved in the contravention is rupees ten lakhs or more but less than fifty lakhs rupees by the Special Director of the Directorate of Enforcement; (d) in case where 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 invo .....

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..... unded as specified in the order of compounding under sub-rule (2) of rule 8, shall be paid by demand draft in favour of the Compounding Authority within fifteen days from the date of the order of compounding of such contravention. 10. In case a person fails to pay the sum compounded in accordance with the rule 9 within the time specified in that rule, he shall be deemed to have never made an application for compounding of any contravention under these rules and the provisions of the Act for contravention shall apply to him. 11. No contravention shall be compounded if an appeal has been filed under section 17 or section 19 of the Act. 12. Contents of the order of the Compounding Authority - (1) Every order shall specify the provisions of the Act or of the rules, directions, requisitions or orders made there under in respect of which contravention has taken place along with details of the alleged contravention. (2) Every such order shall be dated and signed by the Compounding Authority 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. Form .....

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..... * date of reporting to RBI and not AD Table C Sl. No. Name of Remitter Total Amount (INR) Date of Receipt Excess share application money Date of refund of share application money Amount in forex RBI approval letter and date Total Table D Authorised Capital Sl. No. Date Authorised Capital With effect from Date of Board meeting Date of filing with ROC A= B+C Please give supporting documents Table .....

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..... Annex II - Branch Office / Liaison Office Details to be furnished along with application for compounding of contravention relating to Branch/Liaison Office in India Name of the applicant Date of incorporation Income-tax PAN Nature of activities under taken (Please give NIC code 1987) Date of approval for opening of Liaison Office/ Branch Office Validity period of the approval Income and expenditure of the LO/BO Dates of submission of Annual activity Certificates Nature of contravention and reasons for the contravention All supporting documents may be submitted Annex III UNDERTAKING ( On the letterhead of the applicant ) *I/We _________________ (Name of the applicant) hereby confirm/declare that I/we am/are not under investigation of any agency such as Directorate of Enforcement, CBI etc. OR *I/We _________________ (Name of the applicant) hereby confirm/declare that I/we am/are or was/were under investigation of any agency such as Directorate of Enforcement, CBI etc. and the details are given in the Annex ( * Strike out one) Signature of the authorised signatory Annex IV .....

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