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TMI BlogMaster Circular on Compounding of Contraventions under FEMA, 1999X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, consolidated in this Master Circular, is furnished in the Appendix. 3. This Master Circular is being issued with a sunset clause of one year. This circular will stand withdrawn on July 1, 2011 and be replaced by an updated Master Circular on the subject. 1 General 1.1 If any person contravenes any provision of FEMA, 1999 , or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by the Reserve Bank, 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 quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (a) of Section 3 of the Act , ibid. (b) Directorate of Enforcement would exercise powers of compounding under clause (a) of Section 3 of FEMA, 1999 (dealing essentially with Hawala transactions). 2.2 For effective implementation of compounding process under FEMA, 1999 , the Reserve Bank has framed the procedure for compounding of contravention. 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. 3. Process of Compounding 3.1 An application for compounding of a contravention under FEMA, 1999 may be submitted to the Compounding Authority (CA) on being advised of a contravention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign Exchange (Compounding Proceedings) Rules, 2000 and assess whether the contravention is compoundable and if so, the amount of contravention is accordingly quantified. 3.5 The nature of contravention is ascertained keeping in view, inter alia, the following indicative points : a. whether the contravention is technical and / or minor in nature and needs only an administrative cautionary advice; b. whether the contravention is serious in nature and warrants compounding of the contravention; and c. whether the contravention, prima facie, involves money-laundering, national and security concerns involving serious infringement of the regulatory framework. 3.6 The disposal of the compounding application is made by issue of a Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her with the documents submitted and on the basis of submissions made during the personal hearing on the nature of the contravention. 4.3 The application for compounding will be disposed of on merits, upon consideration of the records and submissions and at the absolute discretion of the CA. The following factors, which are only indicative, may be taken into consideration for the purpose of passing the Compounding Order and for arriving at the quantum of sum on payment of which contravention shall be compounded: (i) the amount of gain of unfair advantage, wherever quantifiable, made as a result of the contravention; (ii) the amount of loss caused to any authority / agency / exchequer as a result of the contravention; (iii) econo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant (the contravener) and also to the Adjudicating Authority. 6. Post-compounding procedure 6.1 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. 6.2 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7.3 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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