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TMI BlogMaster Circular on Compounding of Contraventions under FEMA, 1999.X X X X Extracts X X X X X X X X Extracts X X X X ..... General Compounding Powers Delegation of Powers Process of Compounding Scope and Manner of Compounding Issue of the Compounding Order Post-compounding Procedure Pre-requisites of Compounding Annex Foreign Exchange (Compounding Rules), 2000 Format of Application Appendix List of Rules/ A.P. (DIR Series) Circulars consolidated 1. General 1.1 In terms of Section 13(1) , Chapter IV of FEMA 1999, if any person contravenes any provision of FEMA, 1999, or 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 quantifiable and 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. The provisions of Section 15 of FEMA, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) Paragraphs 9 (1) (A) and 9 (1) (B) of Schedule I to FEMA 20/2000-RB dated May 3, 2000 - 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) Paragraphs 9 (1) (A), 9 (1) (B) and 8 of Schedule I to FEMA 20/2000-RB dated May 3, 2000 - Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi for amount of contravention without any limit. 4. Process of Compounding 4.1 An application for compounding of a contravention under FEMA, 1999 may be submitted to the Compounding Authority (CA) on being advised of a contravention under FEMA, 1999, either through a memorandum or suo moto on being made or on becoming aware of the contravention . The format of the application is appended to the Foreign Exchange (Compounding Proceedings) Rules, 2000 (Annex-I). 4.2 Along with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. However, the Reserve Bank reserves the right to classify the contraventions as stated above and neither the contravener nor others have any right to classify any contravention as technical suo moto. 4.8 The disposal of the compounding application is made by issue of a Compounding Order specifying the provisions of FEMA,1999 or any rule, regulation, notification, direction or order issued in exercise of the powers under FEMA, 1999, in respect of which contravention has taken place. 4.9 Where there is sufficient cause for further investigation, the Reserve Bank may refer the matter to the Directorate of Enforcement for further investigation and necessary action under FEMA, 1999, or to the Anti- M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aint under sub-section (3) of section 16 of FEMA, 1999 as the case may be, one copy of the compounding order made under sub rule (2) of Rule 8 of Foreign Exchange (Compounding Proceedings) Rules, 2000 will be provided to the applicant (the contravener) and also to the Adjudicating Authority. 7. Post-compounding procedure 7.1 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. 7.2 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. 7.3 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication for compounding is made within the time indicated by the Reserve Bank. Annex-I Foreign Exchange (Compounding Proceedings) Rules, 2000 Notification No. G.S.R.383(E) dated 3rd May 2000 As amended vide G.S.R.443(E) dated November 2, 2002 G.S.R. 609 (E) dated September 13, 2004 and G.S.R. 613 (E) dated August 27, 2008 In exercise of the powers conferred by section 46 read with sub-section (1) of section 15 of the Foreign Exchange Management Act, 1999 (42 of 1999) the Central Government hereby makes the following rules relating to compounding contraventions under chapter IV of the said Act, namely:- 1. Short title and commencement (1) These rules may be called the Foreign Exchange (Compounding Proceedings) Rules 2000. (2) They shall 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) 'Compoundi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder 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. Format of Application Form (See Rule 4 or 5) (To be fill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorised Capital With effect from Date of Board meeting Date of filing with ROC A= B+C Please give supporting documents Table A- Copies of FIRC with date stamp of receipt at RBI Table B- Copies of FCGPR with date stamp of receipt at RBI Table C letter seeking refund/ allotment of shares- approval letter from RBI A2 form Copies of Balance Sheet during the period of receipt of share application money and allotment of shares Nature of contravention and reasons for the contravention A declaration that they are not under investigation of any agency such as DoE, CBI, etc Annex II- ECB Details to be furnished along with application for compounding of contravention relating to External Commercial Borrowing Name of the applicant Date of incorporation Nature of activities under taken Brief particulars about the foreign lender Is the applicant an eligible borrower? Is the lender eligible lender? Is the lender an equi ..... 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