Compounding of Contraventions under FEMA 1999 - FEMA - 031

Compounding of Contraventions under FEMA 1999 RBI/2004-05/355 A.P.(DIR Series) Circular No.31 February 1, 2005 To, All Authorised Dealers in Foreign Exchange Madam/Sir, 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 3 rd May 2000 as amended vide G.S.R. No. 443 (E) dated 2 nd 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. Section 7 (Export of goods and services), Section 8 (Realisation and repatriation of foreign exchange), Section 9 (Exemption from realisation and repatriation of foreign exchange in certain cases), 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: 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. 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, [ C ell for E ffective implementation of F EM A (CEFA)], Foreign Exchange Department, 11 th 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