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compounding from RBI

Preeti Sanghi (Advocate) (48 Points)

16 January 2009

Hi All,

could anyone tell me the practical procedure for compounding from RBI for conterversion of Fema provision regarding the intimation of RBi to recd. fund from abroad or late fiiling of form FCGPR and how much time in takes practically n how much amt. to be commpounded

Thanks in Advance

Preeti

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Kumar (Legal Consultant) (358 Points)
Replied 17 January 2009

Dear Preeti,

Please refer the below Circular which gives the detail as such.Timeline is 180 days and the amount for compunding depends upon the nature of contravener amount and that is three times the amount envolved in the contravention.

Regards,

CIR. NO. 31/2004-05-RB, DT. 01/02/2005

Compounding of Contraventions under FEMA 1999

Attention of Authorised dealers is invited to the Foreign Exchange (Compounding Proceedings) Rules, 2000 published by the Government of India vide G.S. R.No. 383 (E) dated 3rd May 2000 as amended vide G.S.R. No. 443 (E) dated 2nd November 2002 (copy enclosed). In terms of these rules Reserve Bank was empowered to compound contravention under the provisions of following sections of FEMA, 1999.

a. Section 7 (Export of goods and services),

b. Section 8 (Realisation and repatriation of foreign exchange),

c. Section 9 (Exemption from realisation and repatriation of foreign exchange in certain cases),

d. Third Schedule to the Foreign Exchange Management (Current Account Transactions) Rules, 2000.

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 application made by the person committing such contravention either before or after the institution of Adjudication Proceedings.

2. With a view to provide comfort to the citizens and corporate community by minimizing transaction costs, while taking severe view of willful, malafide and fraudulent transactions, it has been decided to put in place the procedures for compounding of contravention under FEMA. The Government of India has, therefore, in consultation with Reserve Bank placed the responsibilities of administering compounding of cases with the Reserve Bank, except under Section 3 (a) of FEMA.

3. Accordingly, the Government has notified amendment to the Foreign Exchange (Compounding Proceedings) Rules, 2000 vide G.S.R. No. 609 (E) dated September 13, 2004. A copy of the said rules is given in Annex -I. As a result of the amendment, the compounding powers of Reserve Bank and Directorate of Enforcement respectively, have been modified as under:

a. Reserve Bank has been empowered to compound the contraventions of all the Sections of FEMA 1999 except clause (a) of Section 3 of the Act ibid.

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

4. For effective implementation of compounding process under FEMA, the Reserve Bank has framed the procedures for compounding of contravention as detailed in the Annex -II. 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.

5. Process for Compounding

5.1 An Application for compounding of a contravention under FEMA may be submitted to the Compounding Authority (CA) either on being advised of a contravention under FEMA either through a memorandum or suo moto on being made or becoming aware of the contravention. The format of the application is appended to the Foreign Exchange (Compounding Proceedings) Rules.

5.2 Application for compounding any contravention in prescribed form together with a copy of the memorandum, wherever applicable, with the prescribed fee [(as given in the Foreign Exchange (Compounding Proceedings) Rules, 2000]) has to be submitted with relevant facts and supporting documents to : The Compounding Authority, [Cell for Effective implementation of FEMA (CEFA)], Foreign Exchange Department, 11th Floor, Central Office BuildingOffice Building, S. B. Singh Road, Fort, Mumbai- 400001.

5.3 On receipt of the application for compounding, the proceedings would be concluded and order issued by the Compounding Authority within 180 days from the date of the receipt of the application for compounding.

5.4 The sum for which the contravention has been compounded shall be paid within fifteen days from the date of the order of compounding.

5.5 The payment towards Aapplication fee and the sum for which contravention has been compounded shall be paid by demand draft in favour of the Compounding Authority i.e" Reserve Bank of India" and payable at Mumbai.

6. The process and procedures for Compounding under the revised Compounding Rules may be reviewed after six months.

7. Authorised Dealers may bring the contents of this circular to the notice of their constituents and customers concerned.

8. The directions contained in this circular have been issued under sections 10 (4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law.

Yours faithfully,

F. R. Joseph
Chief General Manager

Annex-I

[A.P.(DIR Series) Circular No.31
dated February 1, 2005]

Foreign Exchange (Compounding Proceedings) Rules 2000

Notification No. G.S.R.383(E) dated 3rd May 2000

As amended vide

G.S.R. No.443(E) dated 2nd November 2002 and

G.S.R. No. 609 (E) dated September 13, 2004

Annex-II

[A.P.(DIR Series) Circular No.31

dated February 1, 2005]

Compounding Process

1. Foreign Exchange (Compounding Proceedings) Rules 2000 as amended from time to time would be the basic framework for the Compounding process. As per sub-rule (3) of Rule 4 of the Rules the compounding process would be subject to the direction, control and supervision of the Governor of the Reserve Bank of India.

2. Once the application for compounding any contravention committed under FEMA 1999 (i.e. w.e.f. June 1, 2000) is received by the Compounding Authority (CA), the proceedings would be initiated by the CA. In accordance with the rules the process would be concluded by the CA within 180 days. This time limit would be reckoned from the date of the receipt of the application for Compounding to the date of issue of compounding order. The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings and will hold the proceedings.

3. Where additional information/document is called for, such additional information/ document shall be submitted within 30 days or such additional period as may be given by the Compounding Authority from the date of the said letter. In case, the contravener fails to submit the additional information/ documents called for within the specified period , the application for compounding will be liable for rejection.

4. The Compounding Authority shall consider the application and take an appropriate decision in the matter. The Compounding Authority shall pass an order of compounding after affording the contravener and other concerned an opportunity of being heard. The compounding 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.

5. The contravener would have to pay the sum specified for compounding within fifteen days from the date of the order of compounding of such contravention. In case a person fails to pay the sum within the time specified therein, it would be construed that the entity had not made an application for compounding of the said contravention.

6. Application for compounding any contravention may be filed with the CA, including those which are under adjudication process and have not been disposed off. No contravention would be compounded which has been finally adjudicated and disposed off by the Adjudicating Authority.

7. Cases of contravention having a money-laundering, national and security concern involving serious infringements of the regulatory framework including cases where application for compounding has not been filed within the stipulated period in the memorandum issued by the Reserve Bank may be referred to Directorate of Enforcement for further investigation and necessary action under Section 37 of the Act or to the Anti Money Laundering Authority instituted under Prevention of Money Laundering Act, 2002 or to any other agencies as deemed fit.

8. As mentioned in sub rule (2) of Rule 4, 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 may be referred to Directorate of Enforcement under Section 37 of the Act.

9. Contraventions related to any transaction without proper approval or permission from the concerned Government or any Statutory Authority as the case may be under the relevant laws/regulations as envisaged under FEMA, would not be compounded unless the required approval is obtained from the concerned authorities.