Compounding & Contravention under FEMA

Contravention, Penalties & Appeals

Penalties for contraventions under FEMA are per se monetary in nature. If any person contravenes any provisions, rules, regulations, etc. the penalty imposed can be up to 3 times of the sum involved in contravention; and if the sum of contravention is not ascertainable, penalty can be up to ₹ 200,000. If the contravention is a continuing one, a further penalty up to ₹ 5,000 per day may be imposed for every day after the 1st day during which the contravention continues.

If any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, of the aggregate value exceeding the threshold prescribed u/s. 37A (at present the limit prescribed is ₹ one crore), then such person is liable to:

Penalty up to 3 times the sum involved.
Confiscation of the value equivalent situated in India.
Imprisonment for a term which may extend to 5 year + fine.

The adjudicating officer / competent authorities may also confiscate any currency, security or property in addition to imposing penalty. If a person does not pay up the penalty within 90 days, he is liable for civil imprisonment.

There is a right to appeal given at every stage and an appeal against an order of the Adjudicating Authority can be made to the Special Director (Appeals). An appeal against the order of the Special Director (Appeals) can be made to the Appellate Tribunal. An appeal, on questions of law, against the order of the Appellate Tribunal can be made to the High Court.

A person preferring an appeal to the Special Director (Appeals) or the Appellate Tribunal can take assistance of a Chartered Accountant or Legal Practitioner.

Compounding of Contraventions

Powers for compounding of offences – RBI has been given powers for compounding all cases of contraventions other than cases under section 3(a) of FEMA. Cases of contravention under section 3(a) relate to dealing in or transfer of foreign exchange and foreign security to any person other than an authorised dealer. For these, Enforcement Directorate will be responsible.

Depending on the sum involved, various officers have been designated to look into applications for compounding. In case where the sum involved in such contravention is

₹10 lakh or below - The Assistant General Manager of the Reserve Bank of India
More than ₹10 lakh but less than ₹40 lakhs - The Deputy General Manager of Reserve Bank of India;
More than ₹40 lakh but less than ₹100 lakhs - The General Manager of Reserve Bank of India;
₹100 lakhs or more - The Chief General Manager of the Reserve Bank of India;

(Provided further that no contravention shall be compounded unless the sum involved in such contravention is quantifiable)

The compounding authority can call for any information, record or any other documents relevant to the compounding proceedings. The compounding authority is required to pass an order within 180 days from the date of application. The sum for which the contravention is compounded has to be paid within 15 days from the date of order of compounding.

Power of Compounding of Contraventions by Regional Offices of RBI	Power of Compounding of Contraventions by FED Co., Cell, New Delhi
Delay in reporting inward remittance received for issue of shares	Contraventions relating to acquisition and transfer of immovable property outside India
Violation of pricing guidelines for issue of shares	Contraventions relating to acquisition and transfer of immovable property in India
Delay in issue of shares/refund of share application money beyond 60 days, mode of receipt of funds	Contraventions relating to establishment in India of Branch Office, Liaison Office or Project Office
Issue of ineligible instruments such as non-convertible debentures, partly paid shares, shares with optionality clause	Contraventions falling under Foreign Exchange Management (Deposit) Regulations, 2000
Issue of shares without approval of RBI or FIPB respectively, wherever required
Delay in submission of Form FC-TRS on transfer of shares from Resident to Non-Resident & Vice versa
Receiving investment in India from non-resident or taking on record transfer of shares by investee company, in the absence of certified Form FC-TRS

RBI has issued a circular on Compounding Proceedings Rules. With an intention to ensure more transparency and greater disclosure, RBI has decided to upload on its website www.rbi.org. in all compounding orders passed on or after June 1, 2016. Further, annexed to above mentioned circular are the guidelines, along with examples, used by RBI for calculating the amount imposed under Section 13 of FEMA.