Foreign Exchange (Compounding Proceedings) Rules, 2000 Of India

Reserve Bank of India (RBI) has been appointed as one of the Compounding Authority under the Foreign Exchange Management Act 1999 (FEMA 1999) that can compound certain contravention under the FEMA 1999. The regional offices of RBI have been given compounding powers under the FEMA Act 1999.

Further, the RBI master circular on compounding of contraventions under Indian FEMA 1999 has been recently issued. It prescribes a set procedure for compounding of contraventions under Indian FEMA 1999. The compounding authority (CA) can compound contraventions committed under the FEMA Act 1999 if an application has been duly made in the prescribed manner. Even a post compounding procedure of compounding authority under the Indian FEMA 1999 has been prescribed.

The Central Government has formulated the Foreign Exchange (Compounding Proceedings) Rules, 2000 under section 46 read with sub-section (1) of section 15 of the FEMA, 1999. The Rules are as follow:

(1) These Rules have 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 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) 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 is ten lakhs rupees or below, by the Assistant General Manager of the Reserve Bank of India;
(b) In case where the sum involved in such contravention is more than rupees ten lakhs but less than rupees forty lakhs, by the Deputy General Manager of Reserve Bank of India;
(c) In case where the sum involved in the contravention is rupees forty lakhs or more but less than rupees hundred lakhs by the General Manager of Reserve Bank of India;
(d) In case the sum involved in such contravention is rupees one hundred lakhs or more, by the Chief General Manager of the Reserve Bank of India;

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 specified under sub-rule (1) of rule 4 of the Reserve Bank of India shall exercise the powers to compound any contravention subject to the direction, control and supervision of the Governor of the Reserve 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 Rs. 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 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) Every application for compounding any contravention under this rule shall be made in Form to the Director, Directorate of Enforcement, New Delhi, along with a fee of Rs.5000 by DD in favour of the Compounding Authority.

(6) Where any contravention is compounded before the adjudication of any contravention under section 16, no inquiry shall be held for adjudication of such contravention in relation to such contravention against the person in relation to whom the contravention is so compounded.

(7) Where the compounding of any contravention is made after making of a complaint under sub-section (3) of section 16, such compounding shall be brought by the authority specified in rule 4 or rule 5 in writing, to the notice of the Adjudicating Authority and on such notice of the compounding of the contravention being given, the person in relation to whom the contravention is so compounded shall be discharged.

(8) Procedure for Compounding -

(1) The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings.
(2) The Compounding Authority shall pass an order of compounding after affording an opportunity of being heard to all the concerned as expeditiously as possible and not later than 180 days from the date of application.

(9) Payment of amount compounded -

The sum for which the contravention is compounded 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.

Post Compounding Procedure Of Compounding Authority Under Indian FEMA Act 1999

In this special column, Mr. B.S.Dalal, Senior Partner at Perry4Law and a Techno Legal Banking and Financial Expert, is discussing the post compounding procedure for Compounding Of Contraventions Under Indian FEMA, 1999, as followed by the Compounding Authority.

Reserve Bank of India (RBI) is one of the Compounding Authority under the Indian Foreign Exchange Management Act (FEMA), 1999 that compounds certain contravention under the FEMA Act 1999. The regional offices of RBI have been given compounding powers under the FEMA Act 1999.

RBI master circular on compounding of contraventions under Indian FEMA 1999 has been recently issued. It prescribes a set procedure for compounding of contraventions under Indian FEMA 1999. The compounding authority (CA) can compound contraventions committed under the FEMA Act 1999 if an application has been duly made in the prescribed manner.

Once an application has been made in prescribed manner and a compounding order has been made, the post compounding procedure starts. It is as follows:

(1) The sum for which the contravention is compounded as specified in the order of compounding under sub-rule (2) of Rule 8 of Foreign Exchange (Compounding Proceedings) Rules, 2000 is payable by way of a demand draft in favour of the “Reserve Bank of India” within fifteen days from the date of the order of compounding of such contravention. The demand draft has to be deposited in the manner as directed in the compounding order.

(2) The provisions of the Rules do not confer any right on the contravener, after a compounding order is passed, to seek to withdraw the order or to hold the compounding order as void or request a review of the order passed by the CA.

(3) In case of failure to pay the sum compounded within the time specified in the compounding order, it shall be deemed in terms of Rule 10 of the Foreign Exchange (Compounding Proceedings) Rules, 2000, that the contravener had never made an application for compounding of any contravention under these Rules.

(4) On realization of the demand draft for the sum for which contravention is compounded, a certificate in this regard shall be issued by the Reserve Bank subject to the specified conditions, if any, in the order.

(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, shall apply.

However, there are certain pre-requisites for compounding process that must be met by the contravener before a compounding order can be passed. These are as follow:

(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.

(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.

(3) Cases of contravention, such as, those having a money laundering angle, national security concern and / or involving serious infringements of the regulatory framework or where the contravener fails to pay the sum for which contravention was compounded within the specified period in terms of the compounding order, shall be referred to the Directorate of Enforcement for further investigation and necessary action under FEMA, 1999 or to the authority instituted for implementation of the Prevention of Money Laundering Act 2002, (PMLA) or to any other agencies, for necessary action , as deemed fit.

(4) The Reserve Bank generally advises the persons concerned of their choice and option to make an application for compounding as and when such contraventions come to its notice. The facts constituting such contraventions will be brought to the notice of the Directorate of Enforcement in case no application for compounding is made within the time indicated by the Reserve Bank.

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.