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TMI BlogMaster Direction- Compounding of Contraventions under FEMA, 1999 (Updated as on May 24, 2022)X X X X Extracts X X X X X X X X Extracts X X X X ..... c framework for the compounding process. 2. Instructions issued on Compounding of Contraventions under FEMA, 1999 have been compiled in this Master Direction. The list of underlying circulars/ notifications which form the basis of this Master Direction is furnished in the Appendix. All AD Category I banks and Authorised banks may bring the instructions contained in this Master Direction to the notice of their constituents. 3. The Master Direction will be updated from time to time as and when fresh instructions are issued. Yours faithfully, (Ajay Kumar Misra) Chief General Manager in Charge INDEX Description General Power to compound by Reserve Bank Delegation of Powers to Regional Offices Authorisation to compound the contraventions by FED, CO Cell, New Delhi Application for Compounding Pre-requisite for Compounding process Scope and Procedure for Compounding Issue of Compounding order Payment of the amount for whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) more than rupees ten lakhs but less than rupees forty lakhs, by the Deputy General Manager of Reserve Bank of India; (c) rupees forty lakhs or more but less than rupees hundred lakhs by the General Manager of Reserve Bank of India; (d) 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. 2.2 Every officer specified under sub-rule (1) of rule 4 of the Reserve Bank of India (Compounding Authority) shall exercise the powers to compound any contravention subject to the direction, control and supervision of the Governor of the Reserve Bank of India. 3. Delegation of Powers to Regional Offices /Sub-Offices As a measure of customer service and in order to facilitate the operational convenience, compounding powers have been delegated to the Regional Offices/ Sub-Offices of the Reserve Bank of India and they are accordingly empowered to compound the following contraventions of FEMA 20, FEMA 20(R), FEM (NDI) Rules and FEMA 395 as per details below: FEMA 20/2000-RB dated May 3, 2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India respectively, have since superseded the earlier Notification No. FEMA 20(R)/ 2017-RB. FEM (Non Debt Instruments) Rules, 2019 dated October 17, 2019 Rule 2(k) read with Rule 5 Rule 21 Paragraph 3 (b) of Schedule I (Issue of shares without approval of RBI or Government, wherever required) Rule 4 (Receiving investment in India from non-resident or taking on record transfer of shares by Investee Company) Rule 9(4) and Rule 13(3) FEM (Mode of Payment and Reporting of Non-Debt Instruments) Regulations dated October 17, 2019 (FEMA 395/2019-RB) Regulation 3.1(I)(A) Regulation 4(1) Regulation 4(2) Regulation 4(3) Regulation 4(6) Regulation 4(7) Regulation 4(11) 4. Authorisation to compound the contraventions by FED CO Cell, New Delhi 4.1 The work related to Liaison/ Branch/ Project office(LO/ BO/ PO) division, Non Resident Fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.3 Along with the application in the prescribed format, the applicant may also furnish the details as per Annex-II relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office / Liaison Office, as applicable, a copy of the Memorandum of Association and latest audited balance sheet along with an undertaking as per Annex III that they are not under any enquiry/investigation/adjudication by Directorate of Enforcement, as on the date of the application and to inform to the Compounding Authority/RBI immediately, in writing, if any enquiry/investigation/adjudication proceedings are initiated by the Directorate of Enforcement against the applicant after the date of filing the compounding application but on or before the date of issuance of the compounding order to enable the Bank to complete the compounding process within the time frame. 5.4 In case the application has to be returned where required approvals are not obtained from the authorities concerned or in case of incomplete application for any other reason, the application fees of Rs.5000/-, received along with the application will be returned by crediting the same to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3 Cases of contravention, such as, those having serious contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation 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, or to any other agencies, for necessary action as deemed fit. 6.4 In case where adjudication has been done by the Directorate of Enforcement and an appeal has been filed under section 17 or section 19 of FEMA, 1999, no contravention can be compounded in terms of Rule 11 of Foreign Exchange (Compounding Proceedings) Rules, 2000. The applicant shall confirm in the undertaking required to be furnished as per Annex III along with the compounding application that they have not filed any appeal under section 17 or section 19 of FEMA, 1999. 6.5 In this connection, it is clarified that whenever a contravention is identified by the Reserve Bank or brought to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... history of non-compliance of the contravener; e) contravener s conduct in undertaking the transaction and in disclosure of full facts in the application and submissions made during the personal hearing; and any other factor as considered relevant and appropriate. 7.4 3 As per provisions of section 13 of FEMA the amount imposed can be up to three times the amount involved in the contravention. However, the amount imposed is calculated based on guidance note given below. It may, however, be noted that the guidance note is meant only for the purpose of broadly indicating the basis on which the amount to be imposed is derived by the compounding authorities in Reserve Bank of India. The actual amount imposed may sometimes vary, depending on the circumstances of the case taking into account the factors indicated in the foregoing paragraph. I. Guidance Note on Computation Matrix Type of contravention Existing Formula 1] Reporting Contraventions A) FEMA 20 Para 9(1)(A), 9(1)(B), part B of FC(GPR), FCTRS (Reg. 10) and taking on record FCTRS (Reg. 4) B) FEMA 3 Non submission of ECB stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars : 0.65% 4-5 years : 0.70% 5 years : 0.75% 5] Issue of Corporate Guarantees without UIN/ without permission wherever required /open ended guarantees or any other contravention related to issue of Corporate Guarantees. Rs.500000/- + given percentage: 1st year : 0.050% 1-2 years : 0.055% 2-3 years : 0.060% 3-4 years : 0.065% 4-5 years : 0.070% 5 years : 0.075% In case the contravention includes issue of guarantees for raising loans which are invested back into India, the amount imposed may be trebled. *The contraventions of FEMA 20 existing and continuing as on November 07, 2017 (i.e. the starting date of contraventions prior to November 07, 2017) will be compounded as per 1(A) above. II. The above amounts are presently subject to the following provisos, viz. the amount imposed should not exceed 300% of the amount of contravention In case the amount of contravention is less than Rs. One lakh, the total amount imposed should not be more than amount of simple interest @5% p.a. calculated on the amount of contravention and for the period of the contravention in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount imposed in the compounding order. If the authorized representative of the applicant is unavailable for the personal hearing, the Compounding Authority may pass the order based on available information/ documents. 8.4 The Compounding Order shall specify the provisions of the 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 along with details of the contravention. 8.5 One copy of the compounding order issued under sub rule (2) of Rule 8 of Foreign Exchange (Compounding Proceedings) Rules, 2000 shall be supplied to the applicant (the contravener) and also to the Adjudicating Authority, where the compounding of any contravention is made after making of a complaint under sub-section (3) of section 16 of the FEMA, as the case may be. 6 8.6 In terms of AP (DIR Series) Circular No. 06 dated November 17, 2020 the summary information about the compounding orders passed on or after March 01, 2020 shall be hosted on the Reserve Bank s website (www.rbi.org.in) in the following format: Sr. No. Name of the Applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions so that contraventions of provisions of FEMA, 1999 attributable to the Authorised Dealers do not occur. 10.2 In this connection, it is reiterated that in terms of Section 11(3) of FEMA, 1999, the Reserve Bank may impose on the authorized person a penalty for contravening any direction given by the Reserve Bank under this Act or failing to file any return as directed by the Reserve Bank. 11. Reporting requirements. 11.1 Reporting requirements in respect of Compounding of Contraventions under FEMA, 1999 are included in FED Master Direction No. 18/2015-16 dated January 1, 2016. Appendix I List of Rules/ A.P. (DIR Series) Circulars consolidated Sl. No Rules Date 1 Foreign Exchange (Compounding Proceedings) Rules, 2000 May 3, 2000 2 Foreign Exchange (Compounding Proceedings) Rules, 2002 (Amendment) November 2, 2002 3 Foreign Exchange (Compounding Proceedings) Rules, 2004 (Amendment) September 13, 2004 4 For ..... 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