Tuesday, January 24, 2012

RBI Master Circular On Compounding Of Contraventions Under Indian FEMA, 1999

In this special column, Mr. B.S.Dalal, Senior Partner at Perry4Law and a Techno Legal Banking and Financial Expert, is discussing the current position of Compounding Of Contraventions Under Indian FEMA, 1999.

In the past, Reserve Bank of India (RBI) has liberalised and decentralized many crucial issues of Indian Foreign Exchange Management Act (FEMA), 1999. This includes the procedure for compounding of contraventions under the FEMA 1999. Now the RBI has issued a master circular that further elaborates about this crucial issue.

The compounding of contraventions under FEMA, 1999 is a voluntary process by which an applicant can seek compounding of an admitted contravention of any provision of FEMA, 1999 under Section 13(1) of the FEMA, 1999.

The compounding provisions are presently available till 30th June 2012 as they are subject to a sunset clause of one year. In short, the master circular would cease to be operative on July 1, 2012 and would be replaced by a new Master Circular in this regard.

Under the FEMA 1999, if an individual/person violates the provisions of this Act or corresponding rules, notifications, direction, etc, 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.

For repeated infringers more stringent provisions have been prescribed. The Act provides that 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, may be imposed.

As per the Rule 4 of the Foreign Exchange (Compounding Proceedings) Rules, 2000, the powers to compound the contraventions have been prescribed for compounding authorities with regard to the sum involved in such contravention and no contravention shall be compounded unless the amount involved in the contravention is quantifiable.

The Foreign Exchange (Compounding Proceedings) Rules, 2000 empowers RBI to compound contraventions under FEMA, 1999. The provisions of Section 15 of FEMA, 1999 permit compounding of contraventions and empower the Compounding Authority to compound any contravention as defined under Section 13 of the Act on an application made by the person committing such contravention either before or after the institution of adjudication proceedings.

The responsibility of administering compounding of contraventions has been entrusted to RBI except contraventions that are covered under Section 3(a) of FEMA, 1999. Thus, collectively the compounding powers of RBI and the Directorate of Enforcement (DoE), respectively, are as under:

(a) RBI has been empowered to compound the contraventions of all the Sections of FEMA, 1999, except clause (a) of Section 3 of the Act,

(b) Directorate of Enforcement would exercise powers of compounding under clause (a) of Section 3 of FEMA, 1999 (dealing essentially with Hawala transactions).

For effective implementation of compounding process under FEMA, 1999, RBI has framed the procedure for compounding of contraventions. Once a contravention has been compounded by the Compounding Authority, no proceeding or further proceeding will be initiated or continued, as the case may be, against the contravener.

The Regional Offices of the RBI, as mentioned below, can compound the contraventions of FEMA involving (i) delay in reporting of inward remittance, (ii) delay in filing of form FC-GPR after allotment of shares and (iii) delay in issue 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 20/2000-RB dated 3rd May 2000 and as amended from time to time:

(a) 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) Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi for amount of contravention without any limit.