9911796707
TMI BlogCompounding of Contraventions under FEMA, 1999X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of ensuring the compliance with the provisions of the Act or of any rule, regulation, notification, direction or order made thereunder, direct any authorized person to furnish such information, in such manner, as it deems fit. Authorised Dealers are therefore, advised to take necessary steps to ensure that checks and balances are incorporated in systems relating to dealing with and reporting of foreign exchange transactions so that contraventions of provisions of FEMA, 1999, attributable to the Authorised Dealers do not occur. In this connection, it is reiterated that in terms of Section 11(3) of FEMA, 1999, the Reserve Bank may impose on the authorized person a penalty for contravening any direction given by the Reserve Bank under this Act or failing to file any return as directed by the Reserve Bank. 4. All AD Category - I banks and Authorised banks may bring the guidelines contained in this circular to the notice of their constituents. Yours faithfully, (Dr. Aditya Gaiha) Chief General Manager in Charge Guidelines for compounding of contraventions under FEMA, 1999 INDEX Description 1. General 2. Compounding of contraventions by Reserve Bank 3. Application for Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved. However, compounding of contraventions of cases falling under Rule 4(2) and Rule 9 of the Compounding Rules, 2024 shall not be compounded. 2. Compounding of the contraventions by the Reserve Bank 2.1 In order to facilitate operational convenience, contraventions of following Rules and/or Regulations issued under the Act shall be compounded by the compounding authorities of the Reserve Bank at the Regional Offices. Regulations under Notification No. FEMA 20/2000-RB dated May 3, 2000 Regulations under Notification No. FEMA 20(R)/ 2017-RB dated November 07, 2017 Rules under FEM (Non-Debt Instruments) Rules, 2019 dated October 17, 2019 Regulations under Notification No. FEMA 395/2019-RB dated October 17, 2019 Paragraph 9(1)(A) of Schedule 1 Regulation 13.1(1) Rule 2(k) read with Rule 5 Regulation 3.1(I)(A) Paragraph 9(1)(B) of Schedule 1 Regulation 13.1(2) Rule 21 Regulation 4(1) Paragraph 9(2) of Schedule 1 Regulation 13.1(3) Paragraph 3 (b) of Schedule I (Issue of shares without approval of RBI or Government, wherever required) Regulation 4(2) Paragraph 8 of Schedule 1 Paragraph 2 of Schedule 1 Rule 4 (Receiving investment in India from non-resident or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany concerned. 2.4 For all other contraventions, applications may be submitted to the Cell for Effective implementation of FEMA (CEFA), Foreign Exchange Department, Reserve Bank of India, 11th floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai - 400001. 3. Application for Compounding 3.1 An applicant may submit a compounding application, along with the relevant documents, physically or through PRAVAAH Portal of the Reserve Bank, either suo moto or based on a Memorandum of Contraventions issued by the Reserve Bank. Where an applicant, after issue of the Memorandum of contraventions issued by the Reserve Bank, 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. 3.2 All compounding applications shall be submitted along with the prescribed fee of ₹10,000/- (plus applicable GST, which at present is 18%) by way of demand draft in favour of "Reserve Bank of India" and payable at the concerned Regional Office/ CO Cell, New Delhi/ Central Office or through National Electronic Fund Transfer (NEFT), or other permissible electronic or online modes of payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee years from the date on which a similar contravention was committed and the same was compounded, such contraventions shall not be compounded, and the relevant provisions of the Act shall apply. Any contravention committed after the expiry of a period of three years from the date on which a similar contravention was previously compounded shall be deemed to be a first contravention. 4.2 No compounding application shall be processed unless the requisite administrative action is completed by the applicant. Explanation: Administrative action shall mean such action as may be necessary with respect to the transactions involved in such contravention (as per Rule 8(1) of the Compounding Rules, 2024) and shall include such corrective action that shall be undertaken by the applicant to bring the transaction involved in contravention in compliance with applicable provisions of FEMA. An indicative (but not exhaustive) list of such administrative actions include: (i) Obtaining requisite approvals/ permissions from the Government or Reserve Bank or any other statutory authority concerned, as case may be; (ii) Unwinding/ reversing the transaction; (iii) Repatriating the receivables due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be liable to be returned. 5.3 The following factors, which are only indicative, shall be taken into consideration for the purpose of passing compounding order and determining amount on payment of which contravention shall be compounded: * Undue gains i.e., the amount of gain of unfair advantage, wherever quantifiable, made as a result of the contravention (or) economic benefits accruing to the contravener from delayed compliance or compliance avoided; * the amount of loss caused to any authority/ exchequer as a result of the contravention; * the repetitive nature of the contravention, the track record and/or history of non- compliance of the contravener; * contravener's conduct in undertaking the transaction and in disclosure of full facts in the application and submissions made during the personal hearing; and any other factor as considered relevant and appropriate. 5.4 As per provisions under section 13 of FEMA,1999, the compounding amount can be up to three times the sum involved in the contravention. The compounding amount payable is calculated based on guidance note given below. It may, however, be noted that the guidance note is meant only for the purpose of bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 years 0.45% 4 years and above but less than 5 years 0.50% 5 years or more 0.75% (For project offices the amount of contravention shall be deemed to be 10% of the cost of project). 4] Any contravention pertaining to issuance of any guarantee (other than reporting contraventions) Fixed Amount: INR 5,00,000/- (applied once for each regulation/ rule contravened, in a compounding application) plus Variable amount: Duration of contravention Variable amount that may be imposed as percentage of "amount under contravention" Less than 1 year 0.050% 1 year and above but less than 2 years 0.055% 2 years and above but less than 3 years 0.060% 3 years and above but less than 4 years 0.065% 4 years and above but less than 5 years 0.070% 5 years or more 0.075% In case the contravention includes issue of guarantees for raising loans which are invested back into India, the amount imposed may be trebled. 5] All other non-reporting contraventions Fixed Amount: INR 50,000/- (applied once for each regulation/ rule contravened, in a compounding application) plus Variable amount: Duration of contravention Variable amount that may be imposed as percentage of &quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days. 6. Issue of the Compounding Order 6.1 The Compounding Authority shall pass a compounding order after affording an opportunity of being heard to the applicant as expeditiously as possible and not later than 180 days from the date of receipt of such compounding application by Reserve Bank and complete in all respects, on the basis of the averments made in the application as well as other documents and submissions made in this context by the contravener during the personal hearings. 6.2 If the applicant opts for the personal hearing, the Reserve Bank would encourage the applicant to appear either personally or through a virtual mode rather than being represented / accompanied by legal experts / consultants, as compounding is a voluntary process and only for admitted contraventions. Appearing for or opting out of personal hearing does not have any bearing whatsoever on the compounding amount that may be specified in the compounding order. If the applicant does not opt for personal hearing or absents on the day of hearing, Compounding Authority may pass the order based on available information/ documents. 6.3 The Compounding Order shall specify the provisions of the FEMA, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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